“Statutory Arbitration Made Compulsory for Inter-Creditor Disputes”
A Commentary on Bank of India v. M/s Sri Nangli Rice Mills Pvt. Ltd.
(2025 INSC 765)

1. Introduction

The Supreme Court’s decision in Bank of India v. M/s Sri Nangli Rice Mills Pvt. Ltd. (Civil Appeal No. 7110 of 2025, “the BOI judgment”) delivers the first authoritative pronouncement on the scope, reach and compulsoriness of section 11 of the SARFAESI Act, 2002. The Court resolves a decade-long cleavage of opinion among DRTs, DRATs and High Courts on four vexed questions:

1. Whether section 11 applies exclusively to disputes involving “securitisation / reconstruction” or also to non-payment of any amount due inter se secured creditors;
2. Whether a written arbitration agreement is a pre-condition for invoking section 11;
3. Whether the provision is mandatory or directory;
4. Whether lenders who assume the role of borrowers can invoke the section.

Between the Bank of India (“BOI”) and Punjab National Bank (“PNB”)—both public sector banks—the quarrel centred on priority of security interest over rice and paddy stocks that were hypothecated to BOI but later pledged to PNB. After conflicting rulings from the DRT, DRAT and the High Court of Punjab & Haryana, the Supreme Court has now:

• declared section 11 to be mandatory,
• read into it a legal fiction that dispenses with the requirement of a written arbitration clause, and
• confirmed that DRTs lack jurisdiction over such inter-creditor fights.

2. Summary of the Judgment

1. Appeal dismissed. The Court upheld the High Court’s direction that BOI and PNB must resolve their dispute through arbitration under section 11.
2. Twin triggers for section 11. The provision is attracted when (a) the parties are any of the four enumerated financial actors (bank/FI/ARC/QIB) and (b) the dispute relates to securitisation, reconstruction or non-payment of any amount due including interest.
3. Wide ambit of “non-payment.” The phrase covers indirect defaults arising from a common borrower whose failure precipitates conflicting creditor claims.
4. No written arbitration agreement needed. The words “as if the parties … have consented in writing” create a deemed arbitration agreement. Earlier DRAT cases (e.g., Federal Bank) requiring express consent are over-ruled.
5. Mandatory, not directory. Use of “shall” and the statutory purpose of fast-track recovery make arbitration/conciliation the exclusive remedy; DRT jurisdiction is ousted.
6. Lender-turned-borrower exception. If one of the disputants is itself the borrower vis-à-vis the other (e.g., a bank that has borrowed funds), section 11 will not apply; such entity wears the hat of “borrower” under section 2(f).
7. AMRCD guidelines inapplicable. The Court rebuffed reliance on CPSE in-house dispute rules, holding that statutory remedies cannot be supplanted by an executive memorandum.

3. Analysis

3.1 Precedents Cited & Their Influence

• Mardia Chemicals (2004) & Satyawati Tondon (2010) – outlined SARFAESI’s object of speedy recovery; Court applied same purposive lens to section 11.
• Transcore (2008) – discussed “doctrine of election” and non-arbitrability of DRT matters; Court used its logic inversely to show that when Parliament does prescribe arbitration, the election doctrine is extinguished.
• Vidya Drolia (2021) – confirmed that special statutes can override arbitral autonomy; relied on for holding that section 11 creates an exclusive remedy.
• Oriental Bank of Commerce v. Canara Bank DRAT 2011 and Federal Bank v. LIC Housing DRAT 2010 – conflicting views on need for arbitration agreement; Supreme Court resolves the conflict in favour of Oriental Bank.
• Bell Finvest (Delhi HC 2023) & SLP therefrom – observations on lender-turned-borrower distinguished; new judgment clarifies the principle.

3.2 Court’s Legal Reasoning

1. Textual reading. Twin limbs of section 11 are conjunctive: (i) who the parties are; (ii) what the dispute concerns. Both satisfied → section 11 triggered.
2. Purpose-oriented interpretation. Allowing DRT or civil courts to decide inter-creditor priority would stall recovery drives and defeat public-fund conservation.
3. Meaning of “any amount due”. Adopted expansive meaning: includes unpaid sums arising through third-party default, not just direct lender-to-lender debts.
4. Legal fiction of consent. By using “as if”, Parliament deems consent; doctrine of legal fiction (citing Rajasthan SIDC v. Diamond & Gem) makes written agreement unnecessary.
5. Mandatory nature. Emphasis on “shall” + scheme of SARFAESI + efficiency ethos → no discretion to choose alternate forum. Doctrine of election therefore unavailable.
6. Lender-turned-borrower carve-out. Section 2(f)’s sweep (“any person”) means a financial entity becomes an ordinary borrower once it avails a facility; such disputes return to normal SARFAESI or DRT routes, not section 11.

3.3 Impact Assessment

• Uniform forum selection. All future priority or inter-se disputes between banks/FIs/ARCs/QIBs must head to arbitration; forum shopping in DRTs or civil courts effectively barred.
• Speedier enforcement. Statutory arbitration (with summary powers under 1996 Act) is expected to cut years of DRT litigation, preserving asset value and public funds.
• Reduced DRT docket. Tribunals can focus on borrower-related matters; heavy inter-creditor “priority” litigations will move out.
• Clarity for ARCs & QIBs. Assignment-heavy market now has certainty on dispute resolution, boosting secondary NPA market confidence.
• Precedent hierarchy restored. Conflicting DRAT/HC views are harmonised; practitioners get a clear roadmap.

4. Complex Concepts Simplified

Statutory Arbitration

Arbitration mandated by legislation, not by contract. Parties cannot opt-out; statute itself deems consent.

SARFAESI Act

Enables secured creditors to enforce security interests (e.g., mortgages, hypothecation) without court intervention. Sections 13 & 14 concern borrower-side enforcement; section 11 concerns creditor-side disputes.

Hypothecation vs Pledge

Hypothecation: charge without transfer of possession; debtor retains goods.
Pledge: bailment of goods where possession passes to creditor; governed by s.172 Contract Act. Under s.31(b) SARFAESI, pledged movables are excluded from borrower-side enforcement but not from inter-creditor arbitration under section 11.

Doctrine of Election

When two inconsistent remedies exist, claimant must choose only one. If statute prescribes a single exclusive route, the doctrine does not apply.

NPA (Non-Performing Asset)

Loan on which interest/principal is overdue beyond 90 days; triggers SARFAESI enforcement.

5. Conclusion – Key Takeaways

The Supreme Court’s ruling is a watershed for banking and insolvency jurisprudence. By reading section 11 as a compulsory, self-executing arbitration mandate, the Court:

• solidifies the statutory architecture that insulates borrower-asset enforcement from inter-creditor turf wars;
• resolves interpretive rifts on written consent and on the reach of “non-payment of any amount due”;
• draws a bright-line between disputes with borrowers (DRT) and disputes among creditors (arbitration); and
• fortifies regulatory confidence in India’s stressed-asset resolution ecosystem.

For bankers, asset reconstruction companies, qualified institutional buyers and their counsel, the message is clear: priority contests, contribution claims, or distribution disputes must head to arbitration—no detours, no delays.