The Bombay High Court addressed a critical jurisdictional question: whether a financial institution's status under the SARFAESI Act bars the invocation of arbitration for dispute resolution. The court ruled decisively that it does not.

Background

The financial institution in question had the option of proceeding under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 for recovery of dues. The respondent argued that the availability of SARFAESI remedies should preclude the institution from invoking arbitration.

The Court's Ruling

The Bombay High Court held that the existence of remedies under the SARFAESI Act does not operate as a bar to arbitration. The two are not mutually exclusive — a financial institution may choose to pursue arbitration as an alternative or additional remedy, provided the arbitration agreement is valid.

Implications

• Financial institutions are not compelled to use only SARFAESI remedies — arbitration remains available.
• The existence of a statutory recovery mechanism does not nullify a contractual arbitration clause.
• This provides financial institutions with greater flexibility in choosing their dispute resolution strategy.
• Borrowers and guarantors cannot use the availability of SARFAESI as a shield to avoid arbitration.

Financial institutions can pursue arbitration even if the SARFAESI Act is available as an alternative remedy.