Bank's Lack Of Consent No Bar To Arbitrator Appointment Under SARFAESI: Delhi High Court

The Delhi High Court on 25 September held that a bank's lack of consent does not bar appointment of an arbitrator where an inter-se dispute between banks falls within the statutory arbitration mechanism under the SARFAESI Act.

Justice Om Prakash Shukla appointed Advocate Mohit Kumar Mudgal as sole arbitrator to adjudicate Indian Bank's dispute with Bank of Baroda and others over competing claims of priority and charge over certain mortgaged properties. The Bench observed:

“The absence of consent does not, in the facts of the present case, constitute an impediment to the exercise of jurisdiction under Section 11(6) of the Arbitration Act. Section 11 of the SARFAESI Act constitutes a special statutory mechanism for resolution of disputes relating to securitisation, reconstruction or non-payment of amounts due, where such disputes arise between the entities specifically contemplated therein, including banks and financial institutions.”

The dispute concerned Indian Bank's and Bank of Baroda's respective priority and charge over the same mortgaged properties and their consequential rights to enforce security interests over those assets.

Indian Bank had earlier approached the Debts Recovery Tribunal-I, Delhi. On 28 January 2026, the DRT dismissed the proceedings, holding that the inter-se dispute between the banks was required to be resolved through arbitration under Section 11 of the SARFAESI Act.

As no arbitrator was appointed following the DRT's order, Indian Bank approached the High Court under Section 11(6) of the Arbitration and Conciliation Act, 1996 read with Section 11 of the SARFAESI Act. Bank of Baroda did not consent to the appointment and opposed Indian Bank's plea.

The High Court noted that its enquiry at the arbitrator-appointment stage was confined to examining the prima facie existence of an arbitration agreement. It held that Section 11 of the SARFAESI Act provides a special statutory mechanism for resolving specified disputes between banks and financial institutions through conciliation or arbitration.

Relying on the Supreme Court's decision in Bank of India v. Sri Nangli Rice Mills Pvt. Ltd. & Ors., the Bench reiterated that an independently executed arbitration agreement is not necessary for disputes covered by the provision, as the statute itself creates a legal fiction of an arbitration agreement. It found that the dispute between Indian Bank and Bank of Baroda fell within this statutory mechanism.

Accordingly, the High Court appointed Advocate Mohit Kumar Mudgal as sole arbitrator and directed him to enter upon the reference within three weeks. It left all objections concerning arbitrability and jurisdiction open for determination by the arbitrator, who was directed to decide the dispute independently on merits.

The arbitration will be conducted under the rules and aegis of the Delhi International Arbitration Centre (DIAC).

Appearances for Indian Bank: Advocates Aditya Goel, Rakshita Goyal.

Appearances for Bank of Baroda: Advocates Arun Aggarwal, Lovelesh Kukreja, Shivani Nautiyal.