Court Orders Bengal Shristi Infrastructure to Create Debt Service Reserve Amidst Mortgage Dispute
In a significant judgment, the Division Bench of the Calcutta High Court, comprising Justices Debangsu Basak and Md. Shabbar Rashidi, has granted interim protection to Srei Equipment Finance Limited in its ongoing financial dispute with Bengal Shristi Infrastructure Development Limited. The court's decision, dated June 24, 2026, comes after Srei Equipment Finance appealed against a prior single-judge ruling which denied urgent interim relief under Section 9 of the Arbitration and Conciliation Act, 1996.
The dispute stems from a Rupee Term Loan Agreement dated April 2, 2019, where Srei Equipment Finance disbursed over Rs. 273 crores to Bengal Shristi for the construction of a township project. The agreement mandated the creation of a mortgage on the project as security for the loan. However, Bengal Shristi failed to establish this mortgage, citing the non-issuance of a no objection certificate (NOC) by the relevant authorities, namely the Asansol Durgapur Development Authority.
Despite this, the court held that the non-creation of the mortgage left the loan unsecured and justified the need for interim protection for Srei Equipment Finance. The court found that the balance of convenience favored the appellant, and non-grant of interim relief could potentially cause prejudice. Consequently, the court directed Bengal Shristi to create a Debt Service Reserve as stipulated in the loan agreement within a fortnight from the appellant's demand.
The court's judgment also observed that Srei Equipment Finance had already initiated proceedings under the Insolvency and Bankruptcy Code, 2016, against Bengal Shristi. Nevertheless, the court clarified that the arbitration proceedings were independent and unaffected by any moratorium under the Code.
Srei Equipment Finance is now empowered to seek further legal remedies if Bengal Shristi fails to comply with the court's order to establish the Debt Service Reserve. This ruling underscores the court's commitment to ensuring financial agreements are honored and secured, protecting the interests of lenders in cases where borrowers fail to fulfill their contractual obligations.
Bottom line:-
Arbitration and Conciliation Act, 1996 Section 9 Interim protection can be granted when a loan remains unsecured due to non-creation of a mortgage as stipulated in the loan agreement, and the balance of convenience lies in favor of the lender.
Statutory provision(s): Arbitration and Conciliation Act, 1996 Section 9, Insolvency and Bankruptcy Code, 2016
