Dismissed

Vastu housing finance corporation Ltd. v. City Union Bank Limited

DRT27 Mar 2026SA/186/2025

Case brief

AI extract

What is this about?

Single judge of the DRT dismissed the application filed under Section 7 of the SARFAESI Act, holding that disputes over the priority of security charges between banks must be resolved via arbitration under Section 11.

What did the court decide?

The Single Member Application under Section 7 of the SARFAESI Act was dismissed; parties directed to approach for arbitration under Section 11.

Vastu housing finance corporation Ltd. versus City Union Bank… — Cheque Dishonour | DRT (2026)

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Debts Recovely Tribunat-ff, Delhi

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sA/18612O2s vAsru HousrNG FTNANCE coRpoRATroN LTD vs crry UNION BANK LIMITED

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27.03.2026

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Item no.22

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Present: Mr. Devashish Anand, counsel for appricant FI Ms. Pushplata, Proxy Counsel for Mr.^piyush Anand, Counsel for respondent bank

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Matter is taken through Video Conferencing/Hybrid mode.

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The Proxy counsel for the respondent bank submitted that the DRT Court has no jurisdiction to entertain the present matter because there is a decision from the Hon'ble supreme court of India and the matter is going to arbitration.

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This SA has been filed by the applicant FI against the City Union Bank Ltd. The Proxy counsel of the respondent bank has submitted that the present SA is not maintainable as per judgement passed by the Honble Supreme Court in Appea! no.711012025 in matter of Bank of India Vs. M/s Sri Nangli Rice Mills Private Limited and ors. It is submitted that where there is a dispute with regard to the recovery of the loans and where it is to be decided which secured creditor has priority of the charges, tire SA shall not be maintainable under Section L7 of the SARFAESI Act and the secured creditor has to move under Section 11 of the SARFAESI Act. It is, therefore, submitted that the present sA is liable to be dismissed in terms of the recent judgement passed by the Hon'ble Supreme Court.

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Heard the Ld. counsels of both the parties and perused the judgement passed by the Honble supreme couft. From perusal of the^judgment in para no.2 it is clear that the matter was gone in appeal before the Honble Supreme Court on a question whether the dispute inter-alia is between two banks, the DRT has no

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S'l

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jurisdiction to adjudicate the same and accordingly the parties may be directed to resolve the dispute through arbitration under Section 11 of the SARFAESI Act. The Hon'ble supreme court has considered this aspect in detail and has framed four issues for determination in para no. 4zof the judgement which are as below:-

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'42. Having heard the learned counsel appearing for the parties and having gone through thE materiars on recorQ the following questions fall for our consideration:

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I. What is the scope of Section 11 of the SARFAESI Act? In other wordg what is the meaning of the expression 'bny dispute relating to securitisation or reconstruction or nonpayment of any amount due including interest" occuring in Sution 11 of the SARFAESI Act?

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il. What is the significance of the expression "arises amongst any of the parties, namely, the bank or frnancial institution or asset reconstruction company or qualified buyer" used in Section 11 read with Section 2 of the SARFAESI Act? What is the underlying ob1?ct behind prescribing arbitration for the adjudication of disputes between a bank, financial institution, asset reconstruction company or qualifred buyer, in Section 11 of the SARFAESI ACt?

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UI. Whether the existence of a written arbitration agreement between the parties is required for the purpose of resolution of disputes under Section 1l of the SARFAESI Act, 2002? In other words, is there any conflict between the decisions of Oriental Bank of Commerce (supra) and Federal Bank (supra)?

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IV. Whether Section 11 of the SARFAESI Aq 2002 snouja be construed as mandatory or directory in its nature?"

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The Hon'ble supreme court has considered various judgements passed by the Hon'ble Hiqh court and arso by the tl

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Hon'ble supreme court and after making anatysis of each and every section used in this regard and also the intention of the enactment of the SARFAESI Act, has came to the following conclusion in para no. L24, which is reproduced betow:-

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"124. we summarize our final conclusion as under: -

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(I) section 11 of the SARFAEST Act deals with resolution of disputes relating to securitisation, reconstruction or nonpayment of any amount due between the bank or financial institution or asset reconstruction company or qualified buyer.

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(II) In order to attract the prouision of sution 11 of the SARFAESI Act, twin conditions have to be fulfitted being; frrst, the dispute must be between any bmk or financial institution or asset reconstruction company or qualified buyer and secondly, the dispute must relate to securitisation or reconstruction or non-payment of any amount due including interest. where the aforesaid two conditions are found to be prima-facie satisfied, there the DRT will have no jurisdiction and the proper recourse would onty be through section 11 of the SARFAESI Act read with the Act, 1996. (IID The expression "non-payment of any, amount due, including interest" used in section l I of the 9ARFAESI Act is of wide import and would include a uarious range of scenarios of 'disputes' connected to unpaid amoun9 including those arising due to third-party defautb, such as indirect defaulB of the borowers.

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(rv) Any dispute between two banks, financial institutions, asset reconstruction companies or quatifid buyers etc., where the jural relation between the two is of a lender and borrower, then section I I of the 9ARFAEiT Act witt have no applrcation whaBoever. The use of the phrase 'bny person,, in the definition of 'borower' in section 2(f) ot, the 9ARFAESI Act, makes it abundantly clear that even. a bank, financbt

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institution or asret reconstruction company or quatified buyer can be considered a borrower, if they receive financial assistance from a bank or financial insiitutnn eb by providing or creating a suurity interest. Thus, a lenderturned-borower would atso fatt within the scope of a "borrower" under the SARFAESI Act and shatt fu governed by the same statutory framework as any ordinary borrower. (v) Section 1l of the SARFAESI Act, provides for a statutory arbitration for any dispute mentioned therein between any of the parties enumerated thereunder. There is no need for an explicit written agrement to arbitrate.betw@n such partres in order to attract section 1l of the sARFAESI Act. The said provision creates a tegal fiction as regards the existence of an arbitration agreement notwithstanding whether such agreement exists or not in actuatity.

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(vI) section 11 of the SARFAESI Act is mandatory in nature. The use of the word 'bhall' therein, the mandate of the said provision cannot be bypassd or subverted by the parties by seeking recourse elsewhere. "

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From perusal of the above concluslon and -- discussion made in the judgement it is clear that the Hon'ble supreme court has held that where the dispute is between the two financial institutions regarding recovery of dues, whether there is any dispute relating to the priority of the charges, the dispute shalt be referred to the arbitration despite the fact that there is no any clause for arbitration and the DRT has no jurisdiction to entertain the application under Section L7 of the SARFAESI Act.

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In the light of the above, this Tribunal is of the view that the present TSA is not maintainable and therefore, the TSA is dismissed in the light of the above judgement passed by the Honbte supreme court and the parties may approach f9r. the arbitration under Section 11 of the SARFAESI Act. Sr\

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ORDER

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SA no. L8612025 is hereby dismissed.

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File be consigned to records.

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(susHrL KoMAR RASTOGT) PRESIDING OFRCER DRT-II, Delhi