Financial Institution Need Not Be Secured Creditor To Invoke SARFAESI Arbitration: Bombay High Court

The Bombay High Court has held that a financial institution need not already be a secured creditor to invoke statutory arbitration under the SARFAESI Act, while referring a loan takeover dispute between Aditya Birla Housing Finance Ltd. and Axis Bank to arbitration.

Justice Sandeep V. Marne held that Section 11 of the SARFAESI Act does not require a bank or financial institution invoking arbitration to already be a secured creditor.

The court observed, “Section 11 of the SARFAESI Act by itself does not use the expression 'secured creditor'. Therefore plain language of Section 11 does not require that the bank or financial institution must also possess the status that of a secured creditor.”

The ruling came in a dispute arising from a ₹4.70 crore credit facility extended by Aditya Birla Housing Finance Ltd. to Ravi Technoforge Pvt. Ltd. and its directors for takeover of their existing cash credit and overdraft facilities with Axis Bank.

The borrowers had mortgaged a property in South West Delhi with Axis Bank. Under the takeover arrangement, Aditya Birla directly transferred ₹17,05,144 towards the cash credit account and ₹96,25,003 towards the overdraft account with Axis Bank.

However, because interest accrued between issuance of the foreclosure statement and actual disbursal of funds, ₹2,36,936.29 remained outstanding in the overdraft account. Aditya Birla alleged that Axis Bank later lifted a debit freeze on the account at the borrowers' request, permitted fresh withdrawals, and refused to release the title deeds citing dues of ₹88,90,126. It also alleged collusion between Axis Bank officials and the borrowers.

The court noted that Axis Bank was aware that the transaction involved a loan takeover and observed:

“Axis Bank was fully aware of the nature of transaction of loan transfer and ideally it ought to have requested the Applicant to transfer the amount of Rs.2,36,936.29 remaining outstanding since Applicant wanted to have its mortgage created on the same property. .”

Aditya Birla had earlier approached the High Court under Section 9 of the Arbitration and Conciliation Act. By an order dated January 19, 2026, the Court directed deposit of the title deeds in the court registry pending arbitral proceedings.

Aditya Birla invoked arbitration by notice dated December 4, 2025. Axis Bank opposed the plea, arguing that the SARFAESI Act could only be invoked by a secured creditor and that Aditya Birla had not yet acquired that status because no mortgage had been created in its favour.

Rejecting the objection, the Court held that Section 11 would apply where disputes between banks fundamentally relate to non-payment of dues, even if triggered by the borrower's conduct.

Referring to the Supreme Court's ruling in Bank of India v. Shri Nangli Rice Mills Pvt. Ltd., the Court observed:

“where dispute between banks fundamentally relate to non-payment of any amount, which may be triggered by the actions of the borrower, Section 11 of SARFAESI Act would apply.”

The court further held that the provision requires only two conditions to be satisfied: first, the dispute must arise between entities such as banks or financial institutions; and second, the dispute must relate to securitisation, reconstruction, or non-payment of dues. The Court held that both conditions stood satisfied in the present case.

Accordingly, the court allowed the application and appointed former Bombay High Court judge Justice Anuja Prabhudessai as sole arbitrator to adjudicate the disputes between Aditya Birla Housing Finance Ltd., Axis Bank and the borrowers. The operation of the order, insofar as Axis Bank was concerned, was stayed for six weeks.

For Petitioner (Aditya Birla Housing Finance Limited): Advocates Megha Gupta, Pranjali Khemnar, and Lavanita Chityala.

For Respondent (Axis Bank Limited): Advocates Cyrus Ardeshir (Senior Advocate), Rushil Mathur, Alessandra Shroff, and Amrita Natarajan; Advocate Mayank Tripathi for borrowers.