Arbitration Reference Cannot Be Directed Under Section 11(6) Absent a Valid Arbitration Agreement Between Secured Creditors

The Applicant (Yes Bank) granted a home loan of ₹85,00,000 in July 2024 to Respondent No. 2, secured by an equitable mortgage on a residential property in Bhilai

Respondent No. 1 (UCO Bank) had previously granted a loan in 2016 against the same property to different borrowers, asserting a prior mortgage and CERSAI registration from March 2017

Following a default, UCO Bank obtained a recovery certificate from the Debt Recovery Tribunal (DRT) in O.A. No. 1778/2019

The property was subsequently sold via e-auction to Respondent No. 3, and a Sale Certificate was issued

Yes Bank’s interventions before the DRT challenging the priority of charge and the auction were dismissed, with the DRT holding the subsequent sale to the Applicant's predecessors-in-interest as void

The Applicant filed this application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator to resolve the priority dispute

1. Whether a dispute regarding the priority of charges between two secured creditors is referable to arbitration under Section 11(6) of the Arbitration and Conciliation Act, 1996, in the absence of an arbitration agreement

2. Whether the mandate of Section 11 of the SARFAESI Act or the precedent in Bank of India v. M/s. Arj Nangli Rice Mills necessitates arbitration when the dispute arises from proceedings under the RDB Act

Section 11(6) of the Arbitration and Conciliation Act, 1996, which requires the existence of a valid arbitration agreement between parties as a prerequisite for the judicial appointment of an arbitrator

Section 11 of the SARFAESI Act, 2002, regarding the resolution of disputes over priority of charges

The Recovery of Debts and Bankruptcy Act (RDB Act), 1993, which governs recovery certificates issued by the DRT

The precedent Bank of India v. M/s Arj Nangli Rice Mills (2025) applies to SARFAESI proceedings and does not bypass the necessity of an arbitration agreement

The Court observed that for an application under Section 11(6) to succeed, the Applicant must demonstrate the existence of a valid arbitration agreement. In this case, no such agreement existed between Yes Bank and UCO Bank.

The Court found that the dispute was essentially an attempt to reopen matters already adjudicated by the DRT, a competent forum under the RDB Act.

UCO Bank’s charge was created in 2016 and registered with CERSAI in 2017, significantly predating Yes Bank's 2024 mortgage.

The Court reasoned that the priority of charge cannot be referred to arbitration merely because a dispute exists; the statutory mechanism of the RDB Act had already culminated in a recovery certificate and auction.

The Applicant's reliance on the Arj Nangli Rice Mills case was rejected because the present controversy arose under the RDB Act rather than the SARFAESI Act, and the facts were distinguishable.

The Court concluded that the application was an attempt to circumvent the adjudication of the specialized forum (DRT). Application dismissed.