In 2003, Bank of India extended credit to a rice mill secured against stocks of rice and paddy held in a godown. The documentation was prepared, the security was registered, and the arrangement proceeded in the conventional way. A decade later, the same borrower pledged the same stocks to Punjab National Bank as security for a second loan. Whether Bank of India was informed, and whether PNB asked the right questions, the record does not illuminate. What the record does illuminate, with uncomfortable clarity, is what happened when the borrower defaulted and both banks arrived at the warehouse at the same time.

The Problem Priority Rules Cannot Solve Alone

The textbook answer to competing charges on the same asset is a priority dispute — first in time, first in right, subject to the complexities of registered versus equitable charges, SARFAESI enforcement mechanics, and the particular geography of agricultural commodity financing. Banks fight these disputes regularly. The question that reached the Supreme Court was not about priority itself — it was about where priority disputes of this kind should be resolved. That question turns out to carry significant practical consequences for the speed of enforcement and the costs of contesting security that may depreciate while litigation continues.

Bank of India and Punjab National Bank ended up in the Debt Recovery Tribunal. The DRT, constituted under the Recovery of Debts and Bankruptcy Act of 1993, is the specialist statutory forum for bank-borrower disputes. It is not, the Supreme Court held, the right forum for an inter-bank priority dispute.

What Section 11 Says

Section 11 of the SARFAESI Act addresses disputes arising not between a bank and its borrower, but amongst banks, financial institutions, securitisation companies, reconstruction companies, and qualified institutional buyers, in connection with securitisation, asset reconstruction, or recovery of dues. Where such a dispute arises, the provision is unambiguous: it shall be settled by conciliation or arbitration under the Arbitration and Conciliation Act, 1996.

The Supreme Court's ruling in May 2025 resolved two questions that had produced conflicting answers across the High Courts.

The first was whether Section 11 applied only to disputes involving asset reconstruction companies and securitisation entities — a reading that would have confined it to the more specialised segments of the financial sector — or whether it applied to ordinary inter-bank priority disputes. The court held that the plain language covers disputes between any of the entities listed, which includes commercial banks. Two banks disputing priority over the same charged security fall squarely within the provision.

The second question was whether a written arbitration agreement between the banks was a prerequisite. It was not. Section 11 creates a deemed statutory consent: the legislature has established arbitration as the mandatory forum for inter-bank disputes of this class, and the statute provides the consent that a bilateral agreement would otherwise have furnished.

Why the DRT Is the Wrong Room

The Debt Recovery Tribunal's institutional logic is organised around a specific relationship — bank as creditor, borrower as defendant. Its procedures, jurisdiction, and the legislative purpose behind its creation all point in that direction. An inter-bank dispute about who gets priority over the same charged asset is a fundamentally different contest: the borrower is, in a sense, beside the point. The real adversaries are the two institutions whose competing security interests must be resolved.

This distinction matters because it answers a practical question that banks and their legal teams face regularly: when you identify a competing charge on your security, what do you do about the other lender? After this ruling, the answer is arbitration. Not the DRT. Not civil court. Those alternatives are not merely inefficient — they are jurisdictionally foreclosed for inter-creditor disputes of this character.

The borrower, meanwhile, does not escape. SARFAESI enforcement under Sections 13 and 14 — the statutory demand, taking of possession, eventual sale — continues in parallel. The inter-creditor arbitration does not pause borrower recovery. The two tracks run simultaneously, which is the design: resolve the inter-bank dispute in a bounded arbitration while maintaining pressure on the defaulting borrower.

The Credit Policy Implication

There is a further consequence that credit teams will want to consider. Banks negotiating intercreditor arrangements have historically been motivated in part by the absence of a clear statutory forum for inter-bank disputes. The implied alternative was contested DRT proceedings or civil litigation that neither institution wanted.

The Supreme Court's ruling changes that calculus. Even where there is no intercreditor documentation — no sharing agreement, no deed of priority — arbitration is compellable as a matter of statute. The absence of a written agreement between the banks is no longer an obstacle.

The Takeaway

For banks that discover a competing charge on security they hold — whether through a Central Registry search, an inspection of the asset, or the discovery that another bank's SARFAESI notice has reached the same borrower — the strategic response is now clearer. File for arbitration under Section 11 of SARFAESI. Do not attempt to resolve the priority question through the DRT; that route is closed for inter-creditor disputes. Enforcement against the borrower continues on its own track.

The ruling does not fix the origination failure — the 2013 pledge should not have been possible without disclosure of the existing Bank of India charge. What it does fix, with some clarity, is what to do once the failure surfaces. That clarity, in a field where parallel enforcement proceedings can erode the value of the underlying security, is worth more than it might initially appear.