If a financial institution is a borrower, it cannot invoke SARFAESI U/Sec 11 arbitration: Delhi HC

On the other hand, the Respondent argued that, simply because the Borrower is also a financial institution, it has the right to invoke arbitration us 11 of the Act.

Regarding the question of territorial jurisdiction, the court held that since the current arbitration does not arise from an agreement, the concept of seat would therefore have no application and jurisdiction would be decided on the basis of the Section 2(1)(e) of the A&C Act read with Section 20 CPC.

The court further observed that since the agreement was signed and stamped in Delhi, therefore jurisdiction would be in New Delhi.

On the question of the applicability of article 11 of the SARFAESI law, the court observed that it only provides for recourse to arbitration in the event of a dispute between financial institutions but does not cover simple disputes between borrowers. and lender even if the borrower is a financial institution. institution.

Observing thus, the bench rejected the instant plea.

Title: Bell Finvest India Ltd v AU Small Finance Bank Ltd

Case no.: Arb. Petition 453/2021

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The Delhi High Court has ruled that a borrower who is also a financial institution cannot resort to arbitration as provided for in Section 11 of the SARFAESI Act.

According to Bench of Justice Anup Jairam Bhambhani, Article 11 provides for recourse to arbitration only in cases of inter se disputes between financial lenders and does not cover borrower-lender disputes, even in cases where the borrower is a financial institution.

In this case, the parties entered into a rupee facility agreement whereby the defendant bank granted the claimant (an NBFC) a loan of Rs 10 cr.

However, disputes arose between the parties and the petitioner’s account was declared NPA. The Respondent began suing us under 13 of the SARFAESI law before the DRT.

The applicant, for his part, issued a notice of arbitration and asked the respondent to choose an arbitrator from a panel of three members.

As the parties did not mutually appoint an arbitrator, the petitioner filed this plea requesting the appointment of an arbitrator.

In court, the claimant argued that the DRT would not have jurisdiction over the case and that it is an NBFC and is considered a financial institution under the SARFAESI Act, it may invoke Arbitration 11 of the SARFAESI Act.

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On the other hand, the Respondent argued that, simply because the Borrower is also a financial institution, it has the right to invoke arbitration us 11 of the Act.

Regarding the question of territorial jurisdiction, the court held that since the current arbitration does not arise from an agreement, the concept of seat would therefore have no application and jurisdiction would be decided on the basis of the Section 2(1)(e) of the A&C Act read with Section 20 CPC.

The court further observed that since the agreement was signed and stamped in Delhi, therefore jurisdiction would be in New Delhi.

On the question of the applicability of article 11 of the SARFAESI law, the court observed that it only provides for recourse to arbitration in the event of a dispute between financial institutions but does not cover simple disputes between borrowers. and lender even if the borrower is a financial institution. institution.

Observing thus, the bench rejected the instant plea.

Title: Bell Finvest India Ltd v AU Small Finance Bank Ltd

Case no.: Arb. Petition 453/2021

Get instant legal updates on mobile – Download the Law Trend app now

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