Allowed

Au Small Finance Bank Ltd. v. India Shelter Finance Corporation Limited

DRT27 Mar 2026SA/605/2023

Case brief

AI extract

What is this about?

DRT Jaipur held that a dispute between two financial institutions regarding non-payment falls under Section 11 of the SARFAESI Act, mandating statutory arbitration without requiring an explicit written agreement. The court disposed of the appeal directing parties to arbitrate.

What did the court decide?

Appointment of arbitrator to resolve the dispute, continuation of interim orders, and extension of limitation period until pleadings are filed.

Au Small Finance Bank Ltd. versus India Shelter Finance Corporation… — Arbitration | DRT (2026)

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Court of the Presiding Officer Debts Recovery Tribunal, Jaipur

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Item No. 44

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Case No.SA/605/2023

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AU SMALL FINANCE BANK LTD Vs INDIA SHELTER FINANCE CORPORATION LIMITED

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Date: 27.03.2026.

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Proceedings through hybrid mode Present:

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Shri R N Vijay, Counsel for the Applicant

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Shri Pramod Kumar, Counsel for the Respondent Bank/FI

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Shri Abhinav Kasliwal, Counsel for Kamal Auto Finance Pvt Ltd

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In the above matter the dispute relates to inter-se financial institutions and as per judgment of Hon’ble Supreme Court passed in the matter of Bank of India vs M/S Sri Nangli Rice Mills Pvt. Ltd on 23 May,2025 Hon’ble Supreme Court has held as under:

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G. FINAL CONCLUSION

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124. We summarize our final conclusion as under:

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(I) Section 11 of the SARFAESI Act deals with resolution of disputes relating to securitisation, reconstruction or non-payment 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 provision of Section 11 of the SARFAESI Act, twin conditions have to be fulfilled being; first, the dispute must be between any bank 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 only be through Section 11 of the SARFAESI Act read with the Act, 1996.

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(III) The expression “non-payment of any amount due, including interest” used in Section 11 of the SARFAESI Act is of wide import and would include a various range of scenarios of ‘disputes’ connected to unpaid amounts including those arising due to thirdparty defaults, such as indirect defaults of the borrowers.

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(IV) Any dispute between two banks, financial institutions, asset reconstruction companies or qualified buyers etc., where the jural

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Court of the Presiding Officer Debts Recovery Tribunal, Jaipur

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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 “any person” in the definition of ‘borrower’ in Section 2(f) of the SARFAESI Act, makes it abundantly clear that even a bank, financial institution or asset reconstruction company or qualified buyer can be considered a borrower, if they receive financial assistance from a bank or financial institution etc by providing or creating a security interest. Thus, a lender-turnedborrower would also fall within the scope of a “borrower” under the SARFAESI Act and shall be governed by the same statutory framework as any ordinary borrower.

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(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 agreement to arbitrate between such parties in order to attract Section 11 of the SARFAESI Act. The said provision 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) Section 11 of the SARFAESI Act is mandatory in nature. The use of the word “shall” therein, the mandate of the said provision cannot be bypassed or subverted by the parties by seeking recourse elsewhere. 125. Thus, for all the foregoing reasons, we have reached the conclusion that there is no infirmity in the impugned order passed by the High Court, directing the appellant and the respondent banks to resolve their dispute by way of arbitration in terms of Section 11 of the SARFAESI Act.

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Accordingly, SA stands disposed of and parties are directed to resolve their disputes by way of Arbitration in terms of section 11 of the SARFASAI Act. Any interim order passed shall continue till arbitrator is appointed and he takes up the matter.

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The period for which the pleadings were filed and till date shall not be counted for limitation.

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Files be consigned to record as per rules. Copy of order be uploaded on website.

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(Vimal Gupta) Presiding Officer Debts Recovery Tribunal, Jaipur

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Au Small Finance Bank Ltd. v. India Shelter Finance Corporation Limited

Case brief

What is this about?

What did the court decide?

Au Small Finance Bank Ltd. v. India Shelter Finance Corporation Limited

Case brief

What is this about?

What did the court decide?

What the court decided

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