The Bombay High Court has directed that the title deeds of a mortgaged property remain deposited with the Registry of the Court during the pendency of arbitral proceedings, after finding a prima facie case that Axis Bank acted in a manner that enabled borrowers to misuse a loan takeover transaction, leaving the petitioner’s substantial lending unsecured.
The petition was filed under Section 9 of the Arbitration and Conciliation Act, 1996, by Aditya Birla Housing Finance Ltd., seeking interim protection pending arbitration against borrowers who had availed fresh credit from it to take over existing cash credit and overdraft facilities from Axis Bank.
Justice Sandeep V. Marne recorded that the borrowers had obtained foreclosure letters from Axis Bank dated 28 August 2023 showing comparatively small outstanding amounts. Acting on the borrowers’ request, the petitioner directly disbursed ₹17.05 lakhs towards the cash credit account and ₹96.25 lakhs towards the overdraft account with Axis Bank. However, due to a timing gap between the foreclosure letters and the actual disbursal on 13 September 2023, a residual amount of ₹2.3 lakhs remained outstanding in the overdraft account.
The Court noted that this “insignificant differential amount” was used by the borrowers to keep the overdraft account technically operational. It observed that the borrowers “misused the insignificant outstanding amount of Rs. 2 odd lakhs to ensure that the charge over the mortgaged property is not transferred from Axis Bank to Petitioner”
Examining Axis Bank’s role, the Court found that the bank was fully aware that the transaction was a loan takeover. It observed that Axis Bank had “a fair idea of the nature of transaction where the borrowers intended to shift the loan facilities from Axis Bank to the Petitioner,” which was evident from the foreclosure letters, the direct disbursal by the Petitioner, and the borrowers’ debit freeze request dated 13 September 2023
Rejecting Axis Bank’s submission that it had merely acted on a debit freeze request and not an account closure, the Court held that this contention was “prima facie… without any substance,” noting that the debit freeze was sought to ensure the overdraft facility was not operated while closure formalities were completed
The Court further observed that Axis Bank failed to respond to the petitioner’s letter dated 10 January 2024, which clearly informed the bank that the loans had been taken over and title deeds should not be returned to the borrowers. It held that Axis Bank ought to have communicated that some balance had remained outstanding in the OD account. The Court observed that such conduct was neither prudent nor bona fide.
On the bank’s subsequent conduct, the Court recorded a prima facie finding that Axis Bank officials “acted hand-in-gloves with the borrowers” by lifting the debit freeze in February 2024 and permitting further withdrawals, even though the borrowers had defaulted on repayments to the petitioner. It noted that this resulted in the overdraft liability swelling to over ₹77 lakh by July 2025.
The Court concluded that allowing Axis Bank to retain custody of the title deeds posed serious risks, including potential sale of the property or its return to borrowers, which could defeat the petitioner’s arbitral claims. It therefore held that a “perfect case is made out for grant of interim measures,” irrespective of the position as to whether there can be arbitration between the Petitioners and Axis Bank. It directed that the title deeds remain with the Court Registry until the conclusion of the arbitration.
While leaving the question of arbitrability between the petitioner and Axis Bank open, the Court emphasised that interim measures against a third party were justified to preserve the subject matter of arbitration. The petition was accordingly allowed.
Appearances
Ms. Megha Gupta with Ms. Lavanita Chityala and Ms. Pranjali Khemnar i/b. Hedgehog & Fox LLP,for the Petitioner.
Mr. Cyrus Ardeshir, Senior Advocate with Mr. Rushil Mathur, Mr. Aadil Parsurampuria, Mr. Yash Pitroda, Ms. Amrita Natrajan and Mr. Smit Solanki i/b. Mr. Mayur Shetty c/o. Kocchar & Co., for Respondent No.1.
Mr. Sarfaraz Shaikh i/b. Mr. Rishi Kapoor and Mr. Ankur G. for Respondent Nos.2 to 5.
