SARFAESI priority disputes between secured creditors must go to statutory arbitration under Section 11, not the DRT.

A dispute between secured creditors over competing claims to the same secured asset and priority of charge falls within Section 11 of the SARFAESI Act when it arises from the common borrower's non-payment. The provision applies even where the competing interests are described as pledge and hypothecation, because the real controversy concerns priority to the secured asset or sale proceeds. No separate written arbitration agreement is required, as Section 11 creates a statutory deeming fiction of consent to arbitration or conciliation. The provision is mandatory, so the prescribed mechanism cannot be bypassed and the DRT has no jurisdiction over such disputes.

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Issues: (i) Whether Section 11 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 applies to disputes between two banks concerning competing claims over the same secured asset and priority of charge; (ii) whether a written arbitration agreement is necessary to invoke Section 11; (iii) whether Section 11 is mandatory in nature.

Issue (i): Whether Section 11 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 applies to disputes between two banks concerning competing claims over the same secured asset and priority of charge.

Analysis: Section 11 is confined to disputes arising between the specified classes of parties and relating to securitisation, reconstruction, or non-payment of any amount due including interest. A dispute between two banks over rival claims to the same stock and the priority of their respective charges falls within that statutory field because it is a dispute inter se secured creditors connected with non-payment by the common borrower and the resulting entitlement to the secured asset or sale proceeds. The fact that one charge is described as a pledge and the other as hypothecation does not take the controversy outside Section 11 when the real controversy is priority between the secured creditors.

Conclusion: Section 11 applies to the dispute and the remedy lies under that provision.

Issue (ii): Whether a written arbitration agreement is necessary to invoke Section 11.

Analysis: Section 11 uses the words "as if the parties to the dispute have consented in writing", which creates a statutory deeming fiction of consent to arbitration or conciliation. That fiction operates without the need for an actual written arbitration agreement between the specified parties. The provision itself supplies the consent required for reference to arbitration.

Conclusion: No written arbitration agreement is required for invocation of Section 11.

Issue (iii): Whether Section 11 is mandatory in nature.

Analysis: The use of the word "shall" in Section 11, read with the object of the Act to ensure speedy enforcement of security interests and to prevent inter se disputes among secured creditors from delaying recovery, indicates a mandatory command. Where the statutory conditions are satisfied, the parties cannot bypass the prescribed mechanism by approaching another forum. The DRT therefore has no jurisdiction over such disputes.

Conclusion: Section 11 is mandatory in nature.

Final Conclusion: The appeal failed because the dispute was held to be one that must be resolved by statutory arbitration under Section 11 of the Act, and the High Court's direction to pursue that remedy was sustained.

Ratio Decidendi: A dispute between specified secured creditors over priority or competing rights in the same secured asset, arising from non-payment by the common borrower, is mandatorily referable to arbitration under Section 11 of the SARFAESI Act, by a statutory deeming fiction of consent, and not to the DRT.

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