Dismissed

Kotak Mahindra Bank v. Hdb Financial Services Ltd.

DRT25 May 2026SA/8/2023

Case brief

AI extract

What is this about?

In a matter between Kotak Mahindra Bank and HDF Financial Services Ltd, the Debts Recovery Tribunal-II, Delhi dismissed the Special Apparition under Section 17 of the SARFAESI Act. Relying on a recent Supreme Court judgment, the Tribunal held that disputes between financial institutions regarding recovery priority must be resolved via Section 11 arbitration.

What did the court decide?

The Special Apparition no. 08/2023 is dismissed. Parties are directed to approach for arbitration under Section 11 of the SARFAESI Act.

Kotak Mahindra Bank versus Hdb Financial Services Ltd. — Banking and Recovery | DRT (2026)

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Debts Recovely Tribunal-Il, Delhi

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sLl8l2023

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KOTAK MAHINDRA BANK VS HDB FINANCIAL SERVICES LTD

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25.05.2026

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Item no. 43

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Present Shri Kaushik Mishra, counsel for applicant. Ms. Vridhi Sharma, counsel for respondent FI.

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Matter is taken through Video Conferencingl Hybrid Mode.

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This SA has been filed by the applicant bank against the HDF Financial Seruices Ltd. The Ld. Counsel of the respondent FI has submitted that the^present SA^is not maintainable as^{per judgement passed} by the Hontle Supreme Court in Appea! no.71L012025 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, the 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 Couft.

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Heard the Ld. Counsels of both the pafties and perused the judgement passed by the Honble Supreme Court. From^perusal of the^judgment in^para no.2 it is clear that the matter was gone in appeal before the Hon'ble Supreme Court on a question whether the dispute inter-alia is between two banks, the DRT has no juridiction to adjudicate the same and accordingly the pafties may be directed to resolve the dispute through gr}

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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.42 of the judgement which are as below:-

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"42. Hauing hard the learned counsel appearing for the parfles and hauing gone through the materials on record, the following questions fall for our consideration:

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I. What is the scope of Section lt of the SARFAESI Act? In other words, what is the meaning of the expression

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"any dispute relating to securitisafuon or reconstruction or non-payment of any amount due including interest" occurring in Section 11 of the SARFAESI Act?

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il. What is the signifrcance of the expression "arises amongst any of the parties, namely, the bank or frnancial instrtution or asset reconstruction company or qualified bttyer" used in ftction 11 read with ftction 2 of the SARFAESI Act? What is the undeilying object behind prescribing arbitration for the adjudicafion of disputes futwen a banlc frnancial institutr'oo asset reconstruction company or qualifred buyer, in Section 11 of the SARFAESI ACt?

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ilr. Ll/hether the existence of a written arbitration agreement between the parties is requird for the purryse of resolution of disputes under Sution 1l of the SARFAESI Aq 2002? In other words, is there any conflict betwen the decisions of Oriental Bank of Commerce (supril and Federal Bank (supra)?

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IV. whether Mion 11 of the SARFAESI Act, 2002 should fu construed as mandatory or directory in iE nature?,,

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The Hon'ble Supreme Couft has considered various^judgements passed by the HonUe High couft and also by the Hon'ble Supreme Court and after making

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analysis 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 below:-

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"124. We summarize our final conclusion as under: - (I) Section 11 of the SARFAESI Act deals with resolution of disputes relating to securitimtio4 reconstruction or non-payment of any amount due betwren the bank or frnancial institution or asset reconstruction company or qualifred buyer.

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(II) In order to attract the prouision of Section 11 of the SARFAESI Act, twin conditions have to be fulfrlld being; firct, the dispute must be between any bank or frnancial institution or asset reconstruction company or qualified buyer and secondly, the dispute must relate to securitisation or rrconstruction or non-payment of any amount due including interest. Where the aforesaid two conditions are found to be prima-facie stisfre4 there the DRT will have no^junsdiction and the proper rtrourse would only be through ftction 11 of the SARFAESI Act read with the Act, 1996.

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(IID The expression "non-payment of any amount due, including interest" used in Sution 11 of the SARFAESI Act is of wide import and would include a uarious range of scenarios of Aisputes' connected to unpaid amounB including thore arising due to third-party defaulQ such as indirect defaults of the borowers.

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(IV) Any dispute betwen two banks, frnancial instrtutions, asset reconstruction companies or qualified buyers etc., where the jural relation between the two is of a lender and borrower, then Section 11 of the SARFAESI Act will have no application whatsoever. The use of the phrase 'bny person" in the defrnition of 'borgwer' in Section 2(f)

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of the SARFAESI Act, makes it abundantly^{clear that even} a banlg financial institution or asset^{reconstruction} company or^qualified buyer can be considered^{a borrower,} if they receive financial assistance from a bank or^frnancial instrtution etc by providing or creating a security^interest. Thus, a lender-turned-furrower would also fall within the scope of a "borower" under the SARFAESI Act and shall fu governed by the same statutory framework as any ordinary borrower.

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(V) S*tion 11 of the SARFAESI Act, proutdes for a statutory arbitration for any dispute mentioned^therein betwren any of the^partres enumerated thereunder.^There is no ned for an explicit wriffen agreement to arbitrate betwen such^pafties in order to attract Section¹¹ of the SARFAESI Act. The said^prouision creates a^{legal fiction as} regards the existence of an arbitration agreement notwithstanding whether such agreement exists or not in actuality.

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(VI) Sution 11 of the SARFAESI Act t's mandatory in nature. The use of the word '9hall" therein, the mandate of the aid provision cannot be bypassd or subverted by the pafties by seeking recourse elfrwhere. "

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From perusal of the above conclusion 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 shall 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 SA is p!_ maintainable and qA',

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therefore, the SA is dismissed in the light of the above judgement passed by the Hon'ble Supreme Court and the parties may approach for the arbitration under Section 11 Of the SARFAESI Act.

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Order

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SA no.08/2023 is hereby dismissed.

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File be consigned to records.

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,.r'.?^ri (susHrl KsmnR RASTOGI) PRESIDING OFFICER DRT-II, Delhi

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Kotak Mahindra Bank v. Hdb Financial Services Ltd.

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Kotak Mahindra Bank v. Hdb Financial Services Ltd.

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