Borrower Cannot Use Court Receiver Appointment In Arbitration Proceedings To Resist SARFAESI Action: Bombay HC

The Bombay High Court has held that a borrower cannot rely on the appointment of a Court Receiver, which was ordered to retain possession of a mortgaged property pending arbitration, to resist enforcement of a security interest under the SARFAESI Act, particularly when such enforcement has not been challenged.

Justice Arif S. Doctor, in a dispute between Aditya Birla Finance Ltd and Ma Durga Hardware Stores, said that it would be inequitable for the respondent to use the Court Receiver's appointment as a shield against SARFAESI enforcement. The court observed:

“Also, it cannot be lost sight of that the Court Receiver was appointed at the instance of the Applicant and therefore it would be wholly inequitable for the Respondent to use the Order of appointment of the Court Receiver as a shield to resist enforcement proceedings under the provisions of the SARFAESI Act, more so when the Respondent has admittedly neither challenged nor questioned the enforcement proceedings taken by the Applicant under the SARFAESI Act. ”

The case arose from an interim application filed by Aditya Birla Capital Ltd in proceedings against Ma Durga Hardware Stores. By order dated April 1, 2025, disputes between the parties were referred to arbitration, and the Court Receiver was directed to retain possession of the mortgaged property pending the arbitral proceedings.

On October 10, 2025, the lender issued a statutory demand notice under Section 13(2) of the SARFAESI Act for recovery of dues of approximately Rs. 21.77 crore, which was neither responded to nor challenged by the borrower.

Durga Hardware contended that the applicant should first pursue its remedies before the arbitral tribunal. However, the Court rejected this argument, reiterating that proceedings under the SARFAESI Act and arbitration are independent and can proceed simultaneously.

The court also took note of the applicant's submission that once measures are initiated under the SARFAESI Act, the secured creditor's interest attaches to the secured asset.

Allowing the application, the court directed that possession of the mortgaged property be handed over to the lender's authorised officer and discharged the Court Receiver. The relief was made subject to an undertaking by the applicant to bring back the sale proceeds in the event it fails in arbitration.

For Applicant: Senior Advocate Chetan Kapadia with Advocates Mohit Arora, Vishal Maheshwari, Kamini Pansare i/b VM Legal

For Respondent: Advocate Biswadeep Chakravarty

For Court Receiver: Deepak S. Bhalerao