During process of Arbitration SARFAESI proceeding can be initiated over mortgaged property in India with case laws

Yes, SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) proceedings can be initiated over mortgaged property in India even if there is an ongoing arbitration process. The courts in India have clarified that the SARFAESI Act, 2002 and the Arbitration and Conciliation Act, 1996 operate in distinct fields and one does not bar the other.

Here are some key case laws that elucidate this principle:

1. M/s. Transcore v. Union of India & Anr. [(2008) 1 SCC 125]

In this landmark case, the Supreme Court of India held that the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions (RDDBFI) Act, 1993, provide additional remedies to secured creditors. The Court clarified that these acts do not bar the initiation of parallel proceedings, including arbitration. The key takeaway from this case is that the SARFAESI Act is a special statute aimed at enforcing security interest without judicial intervention and can proceed independently of arbitration.

2. L&T Finance Ltd. v. Maneesh Upadhyaya [2015 SCC Online Del 10825]

The Delhi High Court in this case held that proceedings under the SARFAESI Act can proceed independently of any arbitration proceedings. The Court reasoned that the arbitration agreement does not oust the jurisdiction of the Debt Recovery Tribunal (DRT) or the secured creditor’s rights under the SARFAESI Act.

3. M.D. Frozen Foods Exports Pvt. Ltd. v. Hero Fincorp Ltd. [(2017) 16 SCC 741]

The Supreme Court held that the initiation of proceedings under the SARFAESI Act is not in conflict with the Arbitration and Conciliation Act, 1996. It affirmed that secured creditors are entitled to take recourse to the SARFAESI Act notwithstanding the pendency of arbitration proceedings. The Court emphasized that the remedies under the SARFAESI Act are cumulative and not mutually exclusive to arbitration.

4. Sundaram Finance Limited v. State of Kerala [(2017) 13 SCC 26]

In this case, the Supreme Court further clarified that SARFAESI proceedings can be initiated despite the existence of an arbitration clause in the loan agreement. The Court observed that the rights conferred upon a secured creditor under the SARFAESI Act to enforce the security interest are not affected by the arbitration proceedings.

Summary

These case laws collectively establish that SARFAESI proceedings can be initiated over mortgaged property even if there is an ongoing arbitration process. The rationale is that SARFAESI provides a special mechanism for the enforcement of security interests which operates independently of the arbitration process.