Dismissed

Au Small Finance Bank Ltd. v. Iifl Home Finance Ltd.

DRT19 Mar 2026SA/324/2024

Case brief

AI extract

What is this about?

This Single Arbitration (SA) was dismissed as not maintainable. Following a Supreme Court judgment, the Tribunal held that disputes between two financial institutions regarding recovery of dues and priority of charges must be resolved through Section 11 arbitration, barring DRT jurisdiction under Section 17.

What did the court decide?

Application dismissed; parties directed to approach authorities for arbitration under Section 11 of the SARFAESI Act.

Au Small Finance Bank Ltd. versus Iifl Home Finance Ltd. — Company and Corporate | DRT (2026)

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Debts Recovery Tribunal-Il,^Delhi

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s[l324l2024 AU SMALL FINANCE BANK^{LTD VS IIFL HOME FINANCE} LTD

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19.03.2026 Item no.36

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Present: Mr. Samarendra Kumar, Counsel for^{applicant bank} None for respondent FI

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Matter is taken through Video^{Conferencing/Hybridmode.}

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This SA has been filed^{by the applicant bank against the IIFL} Home Finance Ltd. The Ld.^{Counselof the applicant bank has} submitted that the^{presentSA is not maintainableas per judgement} passed by the Hontle Supreme Court^{in Appeal no'7110/2025in} matter of Bank of^{India Vs. M/s sri Nangli RiceMills PrivateLimited} 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^{t7 of the SARFAESIAct and the} secured creditor^{has to move under Section11 of the SARFAESI} Act. It is, therefore,^{submitted that the present SA is liable to be} dismissed in^{terms of the recentjudgement passed by the Hon'ble} Supreme Court.

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Heard the Ld.^{counselfor applicant bank and perusedthe} judgement passed by the Hontle Supreme Court.^{From perusalof} the^judgment in^{para no.2 it is clear that the matter was gone in} appeal before the^{HontleSupremeCourt on a question whether} the dispute inter-alia^{is between two banks, the DRT has no} jurisdiction to adjudicate the same and accordingly^{the parties may} be directed to^{resolve the dispute through arbitrationundersection} 11 of the SARFAESI^{Act. The Hontle Supreme Court has} considered this aspect^{in detailand has framedfour issues for} determination in^{para no. 42 of 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 materials^on recor4 the following^questions fall for our consideration:

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I. What is the rcop of Sectbn 11 of the SARFAESI^Act? In other words, what is the meaning of the^{expression'bny} dispute relating to securitisation or^{reconstruction or non-} payment of any amount due including interest" occuning in S*tion 11 of the SARFAESI Act?

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II. What is the signiftcance of^{the expressrbn"ariss} amongrt any of the^{pafties, namely,the bank or financial} institution or asset reconstruction^{company or qualified} buyer" used in ion 11 read with Sedion 2 of^the SARFAESI Act? What is^{the underlying obiut behind} prescribing arbitration for the adjudiation^{of disputes} betwen a banlC^{financialinstitution, asset reconstruction} company or^{qualifid buyer, in Section 11 of the SARFAESI} Act?

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ilL. Whether the existence^{of a written arbitration} agreement betwen^{the parties is required for the purpose} of reslution of disputes^{under kction 11 of the SARFAESI} Aq 2002? In other^{words, is there any conflict between} the drcisions of^{OrientatBank of @mmerce (supra) and} Federal Bank^(supra)?

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IV. Whether Section¹¹ of^{the SARFAESI Act, 2002should} be construed as^{mandatoryor dirxtoryin iB nature?"}

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The Honble^{Supreme Court has consideredvarious} judgements passed by the Hontle High Court and^{also by the} Honble Supreme Court and^{after making analysis of each and} every Section used^{in this regardand also the intention of the} enactment of the^{SARFAESIAct, has came to the following} conclusion in^{para no. L24, whichis reproducedbelow:-}

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We summarize our final^{conclusiollas under: -}

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"124.

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t')'

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(I) Section 11 of the SARFAESI Act deals^{with resolution of} disputes relating to securitistion,^{r*onstruction or non-} payment of any amount due between^{the bank or financial} institution or aset rsonstruction^{@mpany or qualified} buyer.

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(II) In order to attract the^{provision of Section11 of the} SARFAESI Act, twin^{conditionshave to be futftlld being;} first, the dispute^{must be between any bank or financial} institution or ass,F,t^{reconstruction companyor qualifted} buyer and *condly,^{the dispute must relateto ssuritistion} or rsonstruction or^{non-paymentof any amount due} inctuding interest.^{Wherethe aforesaid two conditions are} found to be^{prima-facie satisfid,there the DRT will have no} jurisdiction and the^proper rffoutre^{would only fu through} Section 11 of^{the SARFAESIAct read with the Act, 1996'}

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(Il fhe expression^{"non-paymentof any amount dug} including interest'^{used in Section 11 of the SARFAESIAct is} of wide impoft^{and would inctude a uarious range of} scenarios of^{'disputes' connectd to unpaid amounE} inctuding those^{arising due to third-party defaults, such as} indirect defaults^{of the bonowerc.}

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(IV) Any dispute between^{two bank, financial institutions,} asset ruonstruction^{companiesor qualifid buyercetc',} where the^{jural relation between the two is of a lenderand} ttorrower,^{then kction 11 of the SARFAESIAct will have no} appliation whaboever.^{The use of the phrare"any prwn"} in the definition of^{'botower'inSection2(0 of the SARFAESI} Act, makes it^{abundantty clear that even a bank, financial} institution or asrut^{reconstruction companyor qualified} buyer can^{be considerd a furrower,if they receive financial} assistance from a^{bank or financialinstitution etc by} providing or creating a suurity^{interest.Thut a lender-} turned-furower^{would ats fall within} lhe^{scope of a}

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"borrower" under the SARFAESI Act and shall be^governd by the ame statutory framework as any ordinary borrower. (V) Section 11 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 betwen^such parties in order to attract Srction 11 of the SARFAESI Act The said provision creates a lqal fiction as regards the existence of an arbitration agrrement notwithstanding whether such agrement exists or not in actuality.

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(VI) Section 11 of the SARFAESI Act is mandatory in nature. The use of the word "shall" therein, the mandate of^the sid provision cannot fu bypasd or subvertd by the parties by see ki n g reco u rs else wh ere. "

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From^perusal of the above conclusion^{and discussionmade} in the^judgement it is clear that the Honble Supreme^Courthas held that where the dispute is between the two^{financialinstitutions} 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^clausefor arbitration and the DRT has no^jurisdiction to^entertainthe application under Section 17 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^{judgementpassed} by the^{Honble 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.32412024 is hereby dismissed.

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File be consigned to records.

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qi\ (SUSHIL^(UMAh RASTOGI) PRESIDING OFFICER DRT-II, Delhi

Au Small Finance Bank Ltd. v. Iifl Home Finance Ltd.

Case brief

What is this about?

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Au Small Finance Bank Ltd. v. Iifl Home Finance Ltd.

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