By Yash Pathak & Anusrea Goswami
ABSTRACT
When law trades consent for convenience, even justice rendered swiftly may ring hollow. The recent judgement of Bank of India v. Nangli Rice Mills ruled by Supreme Court, interpreted Section 11 of the SARFAESI Act as a legal mandate for arbitration for financial institutions—irrespective of party consent. The judgment disrupts two core cornerstones of arbitration, which are – party autonomy and consensually. This blogpost explores statutory contradiction, enforcement uncertainties, and jurisdictional overlaps with DRTs, advocating for legislative reform and procedural safeguards. Without structural clarity, SARFAESI’s legal fiction of “deemed consent” risks undermining India’s arbitration framework.
Keywords: SARFAESI Act, statutory arbitration, party autonomy, legal fiction, DRT jurisdiction, arbitration consent.
“Arbitration has moved beyond just being an ‘Alternative’ — it has become the primary for resolving commercial disputes.“
– Former CJI Justice D.Y. Chandrachud
In the recent ruling of Bank of India v. Nangli Rice and General Mills & Ors [“Nangli Case”], the Supreme Court [“SC”] interpreted Section 11 of the SARFAESI Act, 2002 as creating a statutory mandate for arbitration in disputes between financial entities such as banks, Asset Reconstruction Company [“ARC”], and qualified buyers. At the outset, this judgment can be seen as a significant step toward strengthening India’s aspiration to become a pro-arbitration hub. However, on closer analysis, the decision raises important questions about the nature of consent in arbitration, the jurisdictional reach of statutory forums like DRTs, and the interpretive boundaries of mandatory dispute resolution clauses under Indian law.
The decision effectively transforms a statutory directive into a form of implied arbitral agreement, despite the absence of consensual contract. This blog deconstructs the Court’s ruling, juxtaposes it with comparative and domestic jurisprudence, and argues that while the intention behind mandating arbitration may be laudable, its execution invites both doctrinal and structural complications. The blog is structured into four sections: first, analysing the Court’s interpretation of Section 11; second, examining the tension between statutory mandates and party autonomy; third, exploring the ruling’s systemic impacts; and finally, proposing reforms for a balanced approach.
The most crucial question that arose before the Supreme Court was whether a disagreement between a secured creditor and an ARC over the sale of a security interest might be resolved through arbitration during the absence of a formal agreement of arbitration. Section 11 of SARFAESI states:
Any dispute about securitization, reconstruction, or unpaid dues between financial institutions, ARC, or qualified buyer shall be resolved through the process of conciliation or arbitration under the Arbitration and Conciliation Act [“ACA”], as if all parties had agreed in writing to it.
SC observed that such disputes should be resolved via means of arbitration, interpreting the word “shall” as required. Notably, the Court avoided the necessity under section 7 of ACA, which defines an arbitration agreement as a clause in a broader contract, which, outlines the consent of contracting parties to arbitrate. Instead, the Court invoked the idea of a statutory fiction—as if an arbitration agreement existed by operation of law.
The Court, per Justices JB Pardiwala and Pankaj Mithal, held that:
The logic of legal fiction, however, warrants caution. A fiction is acceptable where necessary to fulfil legislative intent or avoid absurdity, but not where it overrides fundamental legal principles without clear legislative sanction. By assuming a “deemed” agreement, the Court has expanded the remit of statutory arbitration beyond the language of the provision. The interpretation blurs the distinction between arbitration that is consensual and arbitration that is compulsorily imposed—a line that the Court has historically sought to preserve.
In effect, the Court establishes SARFAESI’s Section 11 as a self-contained arbitration agreement, eliminating the necessity for any prior contractual accord. This is a radical move, and while it appears to help financial institutions resolve disputes more quickly, it comes at a conceptual cost: party sovereignty is marginalised.
At the heart of arbitration jurisprudence lies party autonomy—the idea that parties voluntarily choose arbitration over litigation. This autonomy is safeguarded by Section 7 of the ACA and strengthened in judgements such as K.K. Modi v. K.N. Modi, which concluded that arbitration is a consensual process that cannot be imposed on unwilling parties absent statutory compulsion.
The concept of consent is not just a technicality; it is inherent and essential to arbitration.[i] Article II (1) of the New York Convention states that arbitration agreements should be in writing. Likewise, Article 7, option 2 of the UNCITRAL Model Law requires a recorded agreement between the parties evidencing their mutual consent in order to submit disputes between them to arbitration. Stavros Brekoulakis suggested that “Though using a functional view of consent might strengthen arbitration clauses in complex deals, it often clashes with the core foundational principle of consent.”[ii]
It is here that the Supreme Court’s interpretation appears problematic. SARFAESI is a civil enforcement statute, not a dispute resolution code. It lacks the procedural framework seen in statutory adjudication mechanisms such as the Industrial Disputes Act of 1947 & the Electricity Act of 2003, both of which provide self-contained procedures for arbitration or tribunal adjudication. In those statutes, arbitration is frequently used as a supervisory or appellate mechanism rather than as a replacement for business agreements. In contrast, the SARFAESI Act has no institutional structure for arbitration, including no appointment method, specified dates, or express overriding of the ACA’s consensual requirement.
The ruling also risks undermining precedent. In Booz Allen & Hamilton Inc. v. SBI Home Finance Ltd., the SC established that arbitrability depends on both the nature of the rights involved (whether private or public) and the consent of the parties. In Vidya Drolia v. Durga Trading Corporation, while reaffirming the arbitrability of tenancy disputes, the Court nevertheless required the presence of an arbitration clause. Thus, the trend has been to protect the consensual core of arbitration, even when the subject matter is otherwise arbitrable.
Comparative jurisdictions underscore this approach. English courts in Pittalis v. Sherefettin recognised statutory arbitration only when the parties retained procedural protections and the statutory scheme was exhaustive. Similarly, in Tjong Very Sumito v. Antig Investments, the appeal court of Singapore observed that arbitration must be rooted in an express or implied contractual arrangement unless the statute clearly substitutes it.
Against this backdrop, the ruling in Nangli Rice Mills effectively prioritises efficiency over contractual will, doctrinal consistency, and procedural fairness.
[i] Jan Paulsson, ‘Arbitration Unbound: Award Detached from the Law of the Seat’ (1981) 30(2) ICLQ 358.
[ii] Stavros Brekoulakis, ‘Parties in International Arbitration: Consent v Commercial Reality’ (Presentation, 30th Anniversary of the School of International Arbitration, Queen Mary University of London, 2015).
One of the most immediate consequences of the judgment is its impact on the jurisdiction of DRTs. SARFAESI and RDDBFI Acts were enacted to consolidate and accelerate the enforcement of financial claims. The DRTs were intended as a specialised, expert, quasi-judicial forum with exclusive jurisdiction over creditor-debtor and inter-creditor disputes.
The Supreme Court’s reading effectively removes DRT jurisdiction over inter-creditor disputes arising under SARFAESI. This creates a jurisdictional vacuum. While arbitration offers flexibility, it lacks the uniformity and consistency of a statutory tribunal. Arbitrators vary in their approaches, costs, and procedural rules. Without statutory guidelines for appointment, fee structures, or appellate review, arbitration could become not just inconsistent but inaccessible for smaller financial entities.
Further, the ruling introduces confusion regarding multiplicity of proceedings. For instance, if a borrower challenges the sale of an asset under SARFAESI, that action goes to the DRT. But if the ARC and bank dispute the proceeds of that same sale, they must arbitrate. This leads to bifurcation of causes of action, procedural overlap, and possible inconsistent findings. Even worse, there is no guidance on coordination between parallel DRT and arbitral proceedings.
The lack of procedural clarity also raises enforcement risks. Can the aggrieved party approach the commercial court for interim relief under Section 9 of the ACA when SARFAESI already contains enforcement mechanisms? Who appoints the arbitrator when parties cannot agree? Can proceedings be consolidated with other arbitrations or with insolvency claims under IBC? These questions expose the infrastructural unpreparedness of our system to handle such statutory arbitrations.
The solution to the growing tension between arbitration and statutory enforcement under the SARFAESI Act is not wholesale repudiation, but a more refined model of “mandatory but modular” arbitration. The current discourse treats arbitration as either inherently incompatible with SARFAESI’s public function or as a speed-enhancing silver bullet. Neither extreme serves the interests of doctrinal coherence or procedural integrity. A better balance lies in recalibrating arbitration to fit within SARFAESI’s statutory framework, rather than force-fitting it from the outside.
In fact, marginalizing consent[i] or any cornerstone of arbitration should enlighten these growing demands which are very important for the growth of arbitration because it completely defers from the cornerstones which fabricated arbitration popular to commercial parties in the first place. Instead, a more nuanced adaptation of consent is very important to host various legal, factual, or equitable factors that might show whether the parties agreed to arbitration — or they didn’t.
To resolve this dichotomy, India must pursue a hybrid regime that aligns arbitration’s procedural flexibility with SARFAESI’s public purpose. Such a framework must rest on four legs:
Drawing inspiration from UNCITRAL Model Law Art. 7(2) and the UK Arbitration Act (1996), arbitration could be made presumptive for disputes arising under Section 11 (i.e., pre-enforcement loan disputes), but with a clause permitting opt-out by mutual agreement of the borrower and lender. This preserves voluntariness, a hallmark of arbitration, without sacrificing procedural clarity. In Brazil also, financial consumer disputes are presumptively arbitrable under Law No. 13.129/2015, but only upon mutual written consent recorded in a separate document—a structure balancing autonomy and public interest.
A new Section 11A could be introduced in the SARFAESI Act, providing a mini code for:
This will ensure parity with Section 17 of the ACA (as amended in 2015), which allows interim measures akin to court orders but remains underused in SARFAESI arbitrations. The Singapore International Commercial Court (SICC) uses time-bound case management even in statutory references—showing that structured arbitration can coexist with statutory enforcement.
Instead of isolating arbitration from the SARFAESI ecosystem, the government could create a SARFAESI Arbitration Panel housed within DRT benches, with arbitrators having domain expertise. This mirrors the China International Economic and Trade Arbitration Commission (CIETAC) approach for state-sector financial arbitrations, ensuring sectoral competence and institutional proximity to enforcement regimes.
Clarity in procedural architecture is critical. A model arbitration clause should be notified under the SARFAESI Rules, 2002, with clear demarcations:
Model procedural rules can mirror the UNCITRAL Expedited Arbitration Rules (2021), which limit hearings and mandate award within 6 months—an ideal match for SARFAESI’s time-sensitive logic.
[i] Karim Youssef, ‘The Death of Arbitrability’ in Loukas Mistelis and Stavros Brekoulakis (eds), Arbitrability: International and Comparative Perspectives (Kluwer Law International 2009) 47–68.
As Justice V.R. Krishna Iyer rightfully stated, “The rule of law must run close to the rule of life.” In the landmark case of Bank of India v. Nangli Rice Mills, the SC’s intention was to streamline the resolution of disputes involving financial institutions & to accelerate economic recovery. But in doing so, it risks unravelling the very fabric of arbitration jurisprudence—its consensual soul. Deeming consent where none exists may appear efficient, but it unsettles the carefully woven principles of autonomy, procedural parity, and legal predictability.[i] Arbitration, unlike litigation, is not merely a forum—it is a philosophy built on mutual volition. Substituting it with statutory compulsion without procedural scaffolding leaves us with a well-intended tool, misused.
Instead of forging ahead on the fumes of judicial zeal, what is needed is a structured, “modular” framework that reflects India’s hybrid legal reality—where speed and sanctity must cohabit, not collide. The suggestion of presumptive arbitration, sectoral rosters, and SARFAESI-specific rules is not a detour from reform but the very road toward a more durable and nuanced dispute resolution regime. In the words of Lord Bingham, “The rule of law requires that the law must be intelligible, clear and predictable.” A system based on deemed arbitration without clarity defeats that very test.
India’s aspiration to become a pro-arbitration hub cannot be built on such ever changing & shaken statutory interpretation. To achieve that, we must eliminate the gaps between domestic laws. By anchoring arbitration not in legal fictions but in legal foresight, India could turn a fragile fix into a future-proof formula. SARFAESI can indeed host arbitration—but only when the house has been furnished with fair rules, functional doors, and mutual keys.
[i] Gabrielle Kaufmann-Kohler and Philippe H. Peter, ‘Formula 1 Racing and Arbitration: The FIA Tailor-Made System for Fast Track Dispute Resolution’ (2001) 17(2) Arbitration International 173, 186.
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