India: Simultaneous Application Of SARFAESI And The Arbitration Act

Last Updated: 9 October 2018
Article by Maneck Mulla and Akshita Bhargava

In the matter of Indiabulls Housing Finance Limited v. Deccan Chronicle Holdings Limited & Ors., 2018(2)Bom.C.R. 739, the apex court addressed the issues of whether the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI") can be invoked by the amalgamated company when the original lender does not fall within the purview of SARFAESI but the amalgamated company does and whether invocation of arbitration proceedings under a loan agreement bars the initiation of proceedings under SARFAESI for recovery of amounts advanced as loan. It was held that the amalgamated company being an assignee of a debt through amalgamation could invoke the provisions of SARFAESI and both arbitration and proceedings under SARFAESI can be invoked simultaneously with one remedy not barring the other.

Facts: Two loans of Rs. 50 Crores each were advanced by M/s. Indiabulls Financial Services Limited ("IBFSL") to M/s. Deccan Chronicle Holdings Limited and its Directors being the contesting respondents ("Respondents") vide loan agreement dated 8th December, 2011 and loan agreement 5th January, 2012 respectively.  The said loans were secured by creating equitable mortgage over the properties of the Respondents.

In 2012, it was proposed to merge IBFSL with its sister concern, Indiabulls Housing Finance Limited (the "Appellant"). The High Court sanctioned the scheme of merger between the Appellant and IBFSL vide its order dated 12th December, 2012. With the sanction of the merger, the assets and liabilities of IBFSL stood vested in the Appellant and IBFSL was dissolved without winding up on its merger with the Appellant. 

Meanwhile, the Respondent borrowers committed default in repaying the loans advanced to them and even before the merger, IBFSL issued a loan recall notice to the Respondents and classified the loan accounts of the Respondents as Non Performing Assets. IBFSL had also filed a petition under Section 9 of the Arbitration and Conciliation Act, 1996 (the "Arbitration Act") for securing the amounts payable by the Respondents. Thereafter, the Appellant having stepped into the shoes of IBFSL, issued notice under the provisions of SARFAESI in respect of debts owed to IBFSL and for taking symbolic possession of the mortgaged properties.

Proceedings before the High Court: The Respondents challenged the invocation of provisions under SARFAESI before the Debts Recovery Tribunal, Chandigarh (which was later withdrawn) and also filed a Writ Petition challenging the declaration of the Respondents' accounts as NPA and passing of orders by the Chief Metropolitan Magistrate under Section 14 of SARFAESI.

The Appellant then issued notice by which the Respondents were informed of the auction of their properties at Banjara Hills, Hyderabad. The Appellant's acts of initiating the auction was challenged by the Respondents by filing another writ petition before the Andhra Pradesh High Court.

By order dated 4th February, 2014, the Andhra Pradesh High Court allowed the Writ Petition challenging the proceedings initiated under SARFAESI and set aside the invocation of the provisions of SARFAESI. It was held that initiation of proceedings under SARFAESI is impermissible in law once the arbitration is invoked under the Arbitration Act. The High Court noted that the contesting Respondents had borrowed from IBFSL, not the Appellant. It was stated that the loan transaction could not be brought within the purview of SARFAESI post merger, without the consent of the Respondents.

Appeal to the Supreme Court: A challenge was accordingly preferred by the Appellant before the Supreme Court questioning the correctness and legality of the judgement and order dated 4th February, 2014 passed by the Andhra Pradesh High Court.

Issues for consideration: The Supreme Court considered the following two issues while deciding the Appeal:

  1. Whether the Appellant can invoke the provisions of SARFAESI when the loan was advanced by IBFSL?
  2. Whether the provisions of SARFAESI could be invoked once the proceedings under the Arbitration Act were initiated?

Judgment: On the first issue, the Court highlighted that IBFSL had the right to assign its assets to any person without requiring the borrower's consent and accordingly, the Appellant is an assignee of a debt through amalgamation of the original lender with the Appellant. On the submission of the Respondents that the Respondent No. 1 could not be treated as a "borrower" under Section 2(1)(f) read with Sections 2(1)(c) and 2(1)(m) of SARFAESI and that the rule of literal interpretation deserves to be deployed and the Court ought not to add words to a statute or read words into it so as to produce a "casus omissus", the court held that the present matter was not a case of the Court creating any legislation or supplying any casus omissus.

The Court discussed the objective behind enacting SARFAESI which is to give impetus to industrial development in the country by providing speedy procedure of recovery. On analysing the facts and the legal regime, the Court concluded that the Respondent No. 1 Company is a borrower within the meaning of Section 2(1)(f) of SARFAESI, the Appellant is a secured creditor within the meaning of Section 2(1)(zd) of SARFAESI and the arrangement between the two parties is classified as security arrangement and the loan agreements created security interest under SARFAESI. Accordingly, the Appellant can invoke the provisions of SARFAESI when the loan was advanced by IBFSL.

On the issue of simultaneous application of the provisions of the Arbitration Act and SARFAESI, the apex Court held that the High Court erred in holding that the invocation of proceedings under the Arbitration Act would foreclose the right to invoke the provisions of SARFAESI. The Court held that SARFAESI is a special enactment which provides speedy remedy to the banks and financial institutions without recourse to the court of law. On the other hand, Arbitration Act is a statute of general nature. The Court observed that "Merely because steps are taken under this general law would not mean that remedy under the special statute is foreclosed. If at all, legal position is just the reverse."

The Court relied on the decisions in Transcore v. Union of India & Anr., (2008) 1 SCC 125 and M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero Fincorp Ltd., (2017) S.C.C. Online S.C. 1211 and stated that the same would apply in all force. In Transcore v. Union of India & Anr. (supra), the Court rejected the applicability of the doctrine of election and held that the financial institution is not precluded from taking steps under SARFAESI simply because it has availed the remedy under the Recovery of Debts due to Banks and Financial Institutions Act, 1993. In M.D. Frozen Foods Exports Pvt. Ltd. & Ors. v. Hero Fincorp Ltd. (supra), the court held that SARFAESI proceedings and arbitration proceedings can go hand in hand and one remedy does not bar the other. 

After analysing the facts and the legal regime, the apex Court held that the provisions of SARFAESI and the Arbitration Act are complementary to each other and set aside the judgment of the Andhra Pradesh High Court and allowed the appeal.

Conclusion: The court discussed the object of the SARFAESI and recognised that the very rationale for the said Act to be brought into force was to provide an expeditious procedure where there was a security interest. The Court stated that SARFAESI is retroactive in nature as no substantive rights are affected. The Court further discussed the meaning and effect of amalgamation and stated that on sanction of amalgamation, all loans, recoveries, security, interest, financial documents, etc. of IBFSL got transferred to and stood vested in the Appellant including the loans given by IBFSL to the Respondent borrowers. The Court stated that on the sanctioning of the scheme, the Respondent borrowers became the borrowers of

the Appellant as if the financial assistance was granted by the Appellant to the Respondents.

In view of the aforesaid, the apex court held that proceedings under SARFAESI can be initiated by the amalgamated company who is an assignee of debt even if the original lender did not fall within the purview of SARFAESI. Further, SARFAESI proceedings and arbitration proceedings can be invoked simultaneously and one does not foreclose the other.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Singh & Associates
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Singh & Associates
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions