Section 11 SARFAESI Act, 2002: Resolution of Disputes

Section 11 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) provides a statutory mechanism for resolving specified disputes relating to securitisation, asset reconstruction and non-payment of amounts due, including interest, by conciliation or arbitration under the Arbitration and Conciliation Act, 1996.

Section 11 - Resolution of disputes

Where any dispute relating to securitisation or reconstruction or non-payment of any amount due including interest arises amongst any of the parties, namely, the bank, or financial institution, or asset reconstruction company or qualified buyer, such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996), as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly.

Meaning and scope of Section 11

1. Disputes covered

The provision concerns disputes relating to securitisation or reconstruction, or non-payment of an amount due (including interest), arising among the specified entities. Examples may include disagreements over amounts payable under an asset acquisition arrangement, payment obligations between the specified parties, or implementation of reconstruction arrangements.

2. Parties covered

The section identifies banks, financial institutions, asset reconstruction companies (ARCs) and qualified buyers. The terms used in the Act must be read with the definitions in Section 2 of the SARFAESI Act. It is not a general arbitration clause covering every borrower grievance or every person connected with a secured asset.

3. Conciliation or arbitration

Conciliation is a consensual settlement process facilitated by a conciliator. Arbitration is adjudication by an arbitral tribunal, ordinarily culminating in a binding award subject to remedies available under the Arbitration and Conciliation Act, 1996. Section 11 applies that Act to disputes within its scope and treats the parties as having consented in writing for this purpose.

4. Effect of deemed written consent

The words "as if the parties ... have consented in writing" provide the statutory basis for resort to the mechanisms in the 1996 Act in covered disputes. Questions about the appropriate procedure, appointment, jurisdiction, interim measures and challenge to an award must be assessed under the applicable provisions of the 1996 Act and the circumstances of the dispute.

Relationship with debt recovery and borrower remedies

Section 11 should not be confused with Section 13 (enforcement of security interest) or statutory applications under Section 17 before the Debts Recovery Tribunal. Borrower challenges to enforcement measures and matters allocated by law to the DRT are not automatically converted into Section 11 arbitration merely because an ARC or a bank is involved. The scope of the dispute, identity of the parties and any statutory bar or exclusive remedy remain important.

Practical illustrations

Covered-type example: A bank and an ARC disagree over a payment due under an assignment or reconstruction arrangement; Section 11 may be relevant if the dispute meets the statutory description. Different remedy: A borrower seeks to challenge possession measures taken under Section 13(4); the SARFAESI Act provides a specific DRT remedy under Section 17, subject to its conditions.

Amendment and terminology

The Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (Act 44 of 2016), effective for these substitutions from 1 September 2016, replaced the earlier expressions "securitisation company or reconstruction company" with "asset reconstruction company" and "qualified institutional buyer" with "qualified buyer". The above presentation uses the amended terms.

Official legal resources

Consult the authoritative text and any later amendments, notifications and applicable case law:

This article explains the statutory framework; the availability of arbitration or another remedy in an individual case depends on the dispute and applicable law.