Bombay High Court Grants Interim Relief To Aditya Birla Housing In Dispute With Axis Bank

The Bombay High Court has granted interim protection to Aditya Birla Housing Finance Ltd after finding that Axis Bank, despite knowing that its loan was being taken over, allowed borrowers to misuse a small unpaid balance to continue operating an overdraft account and retain custody of mortgaged title deeds.

Justice Sandeep V. Marne held that interim measures were necessary to protect the subject matter of arbitration between Aditya Birla Housing and the borrowers, even though the relief operated against Axis Bank, which is not a party to the loan agreement.

The dispute arose after borrowers who had cash credit and overdraft facilities with Axis Bank approached Aditya Birla Housing on July 17, 2023 for a loan of Rs. 4.70 crore to take over those facilities. The loan was sanctioned on August 31, 2023 and was intended to be secured by mortgage of a property in Delhi, whose title deeds were already with Axis Bank.

At the borrowers' request, Aditya Birla Housing directly transferred Rs. 17.05 lakh and Rs. 96.25 lakh to Axis Bank towards closure of the cash credit and overdraft accounts. However, due to a time gap between the foreclosure letters and the payments, a small amount of about Rs. 2.36 lakh remained outstanding in the overdraft account.

The court noted that Axis Bank had full knowledge that the transaction involved a loan takeover. Despite this, it allowed the borrowers to lift a debit freeze and revive the overdraft account by taking advantage of the marginal outstanding amount.

Calling this conduct questionable, the court said Axis Bank's silence and subsequent actions were “not of a prudent banker” and were “far from bona fide”.

The court observed that in the arbitration between Aditya Birla Housing and the borrowers, relief would necessarily be sought in respect of the mortgaged property. “This is how the arbitral proceedings are bound to affect the Axis Bank,” it said.

It further held, “If the interim measures are not granted against Axis Bank, it would frustrate the Petitioner's claim against the borrowers by selling the subject property. Petitioner would suffer irreparable loss if interim measures are not granted.”

On that basis, the court concluded that "making interim measures against the third party–Axis Bank is clearly warranted in the facts of the present case."

The High Court directed that the title deeds of the property, already deposited with the court, shall continue to remain in its custody during the pendency of arbitration proceedings.

It clarified that it was not deciding whether disputes between Aditya Birla Housing and Axis Bank were arbitrable, leaving that issue open to be considered in appropriate proceedings.