Court holds Section 11 of SARFAESI Act creates mandatory statutory arbitration between banks without need for a separate arbitration agreement
The Delhi High Court has appointed a sole arbitrator to resolve a dispute between Indian Bank and Bank of Baroda over competing claims to priority and charge over the same mortgaged properties.
Justice Om Prakash Shukla, while hearing a petition under Section 11(6) of the Arbitration and Conciliation Act, 1996 read with Section 11 of the SARFAESI Act, 2002, held that the dispute squarely fell within the statutory arbitration framework created by the SARFAESI Act. The Court noted that when a dispute relating to securitisation, reconstruction, or non-payment arises between banks or financial institutions, Section 11 mandates settlement by conciliation or arbitration, even if there is no independent arbitration agreement between the parties.
The Court observed that the petitioner had earlier approached the Debts Recovery Tribunal-I, Delhi, through TSA No. 131/2022. However, by order dated January 28, 2026, the DRT dismissed the proceedings and held that the inter se dispute between the banks had to be resolved through arbitration under Section 11 of the SARFAESI Act. Since no arbitrator had been appointed and the respondent bank was not agreeable to the appointment, Indian Bank approached the High Court for constitution of the arbitral tribunal.
Relying on the Supreme Court’s ruling in Bank of India v. Sri Nangli Rice Mills Pvt. Ltd. and Ors. and SBI General Insurance Co. Ltd. v. Krish Spinning, the High Court reiterated that its inquiry at the Section 11 stage is limited to a prima facie examination of the existence of an arbitration agreement. The Court held that Section 11 of the SARFAESI Act itself creates a statutory fiction of consent to arbitration and that the absence of consent from the respondent does not bar appointment of an arbitrator.
Accordingly, the Court appointed Mr. Mohit Kumar Mudgal, Advocate, as the sole arbitrator to adjudicate the dispute between the parties. The arbitrator has been directed to enter reference within three weeks and furnish the disclosures required under Section 12(2) of the Arbitration and Conciliation Act within three weeks of entering reference. The arbitration will proceed under the rules and aegis of the Delhi International Arbitration Centre (DIAC), and the arbitrator’s fee will be governed by the DIAC fee schedule.
The Court also clarified that all objections, including those relating to arbitrability and jurisdiction, may be raised before the arbitrator, who will decide them independently on merits. The observations made in the order were stated to be only for the purpose of deciding the Section 11 petition.
Bottom Line :
Arbitration under Section 11 of the SARFAESI Act, 2002 is mandatory for resolving disputes between banks or financial institutions, even in the absence of an independent arbitration agreement.
Statutory provision(s): Section 11(6), Arbitration and Conciliation Act, 1996, Section 11, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Section 12(2), Arbitration and Conciliation Act, 1996
Indian Bank v. Bank of Baroda, (Delhi) : Law Finder Doc id # 2987700
