Statutory arbitration under Section 11 of the SARFAESI Act applies to disputes between financial institutions following loan takeovers.

The Applicant (Aditya Birla) sanctioned a loan to Respondents 2–5 (the borrowers) to take over existing credit facilities from Respondent 1 (Axis Bank)

The Applicant disbursed the outstanding amount directly to Axis Bank; however, due to a minor timing delay, an interest-related shortfall of ₹2,36,936.29 remained

On this ground, and following subsequent drawls by the borrowers after Axis Bank lifted a "debit freeze," Axis Bank refused to release the original title deeds to the Applicant

Consequently, while the Applicant has a loan agreement and power of attorney, it has not yet perfected its status as a "secured creditor" by possession of title deeds

The Applicant sought a consolidated arbitration reference against the borrowers (based on a contractual clause) and against Axis Bank (based on statutory arbitration under the SARFAESI Act)

Section 11 of the SARFAESI Act, 2002, which mandates arbitration for disputes relating to "securitisation, reconstruction, or non-payment of any amount due" between banks and financial institutions

The Supreme Court's interpretation in Bank of India v. Sri Nangli Rice Mills Private Limited, which held that the expression "non-payment of any amount due" has a wide import and covers a range of scenarios triggered by borrower defaults, including inter-bank priority disputes

Section 31 of the SARFAESI Act, observing that statutory arbitration under Section 11 applies even if the underlying security (such as a pledge) is otherwise excluded from the Act’s enforcement provisions

The "deemed statutory fiction" of an arbitration agreement created by Section 11 as established in Reliance Commercial Finance Limited v. Axis Bank Limited

The court reasoned that Section 11 of the SARFAESI Act does not explicitly use the term "secured creditor," requiring only that the parties be a bank/financial institution and the dispute relate to "non-payment of any amount due"

The court found that the dispute between Aditya Birla and Axis Bank was triggered by the borrowers’ failure to clear the full debt, falling within the "wide import" of Section 11 as interpreted by the Supreme Court

The court rejected Axis Bank's argument that statutory arbitration is limited to "secured creditors" inter se, noting that such a narrow reading would defeat the Act's objective of preventing inter-bank squabbles from stalling debt recovery

Since both parties claim rights against the same subject property and the same borrower, the dispute is inherently linked to "non-payment" under the Act

The court further held that a consolidated tribunal is efficient for resolving both the contractual claims against the borrowers and the statutory claims against Axis Bank

The Court appointed a sole Arbitrator to adjudicate the disputes between all parties and stayed the operation of the judgment for six weeks solely in respect of Respondent 1