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DRT cannot adjudicate civil rights claimed vis-a-vis security rights outside S.13&17 of SARFAESI Act

DRT cannot adjudicate civil rights claimed vis-a-vis security rights outside S.13&17 of SARFAESI Act

A Division Bench of the Hon’ble Bombay High Court (Nagpur Bench) comprising Justices Sunil B. Shukre and Avinash G. Gharote in the matter of Bank of Baroda v. Gopal Shriram Panda and Another, REED 2021 Bom 03238, held that it is not permissible for the Debt Recovery Tribunal (DRT) to embark on the adjudication of the civil rights claimed vis-a-vis the security interest, such as the right of partition, specific performance, reliefs under sections 31 and 34 of the Specific Relief Act, 1963 preemption, redemption, declaration in respect of a property, and therefore it is the Civil Court which has the jurisdiction in such cases under section 9 of the Code of Civil Procedure, 1908 (C.P.C).


The moot question that arose for adjudication before the Bombay High Court in the present case, which contained a batch of appeals was whether the jurisdiction of a Civil Court to decide all the matters of civil nature, excluding those to be tried by the DRT under section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), in relation to enforcement of security interest of a secured creditor, is barred by section 34 of the SARFAESI Act.


Section 9 the C.P.C provides that in all types of civil disputes, the civil courts have inherent jurisdiction unless a part of that jurisdiction is carved out from such jurisdiction, expressly or by necessary implication by any statutory provision and conferred on other tribunal or authority. It is noteworthy that civil disputes are those relating to civil rights, which are accrued under the Personal Law, the Indian Contract Act, the Transfer of Property Act, and the Specific Relief Act etc. Thus, based on a catena of rulings, including Dhulabhai etc. v. State of Madhya Pradesh and Another, AIR 1969 SC 78, the Bombay High Court noted that the jurisdiction of the Civil Court is of the widest amplitude and scope, rather is plenary and omnipotent, and if the legislature intends to oust the jurisdiction of Civil Courts, it must say so expressly or by necessary implication.


For the enforcement of rights created by the provisions of section 13 of the SARFAESI Act i.e. for the recovery of dues, the Banks/ Financial Institutions have to approach the DRT under section 17(1) of the Recovery of Debts and Bankruptcy Act, 1993. On the other hand, the powers available to a third person, including a borrower against the measures under section 13(4) of the SARFAESI Act are contained in section 17 of the SARFAESI Act, wherein the jurisdiction is only limited to the extent of considering as to whether the action of the secured creditor is in accordance with the provisions of the SARFAESI Act and rules made thereunder. In light of this, the Bombay High Court observed that any independent right claimed by an aggrieved person, vis-a-vis the security interest, cannot be determined by the DRT under section 17 of the SARFAESI Act.


Bombay High Court also adverted to section 34 of the SARFAESI Act that bars the jurisdiction of civil courts over any suit or proceeding, in respect of any matter, which the DRT is empowered by or under the SARFAESI Act to determine. However, the Bombay High Court noted that the Constitution Bench of the Hon’ble Supreme Court in Mardia Chemicals v. Union of India, 2004(1) Bank CLR 641 (SC) has held that the jurisdiction of the civil court to a limited extent is available despite Section 34, in case the action of the secured creditor is alleged to be fraudulent or the claim is so absurd or untenable which may not require any probe whatsoever. Similarly, in the case of J.P. Builders and Another v. A. Ramadas Rao and Anr (2011) 1 SCC 429 it was held that merely because for recovery of the loan secured by banks, a special Act, namely, the DRT Act has been enacted, it is not a bar for the civil court to apply to other relief such as section 56 of the Transfer of Property Act, 1882.


Hence, the Bombay High Court held that civil rights accruing to the citizens under the various Statutes which are enforceable under the Common Law by the Civil Courts are not capable of being adjudicated by the Special Forum as created under the DRT Act and hence, it would be the Civil Court which would have jurisdiction, in such cases. Resultantly, the DRT cannot embark on the adjudication of the civil rights claimed vis-a-vis the security interest, in light of section 17(1) of the DRT Act read with sections 13, 17 and 34 of the SARFAESI Act.


In view of the foregoing, the Bombay High Court concluded that the jurisdiction of the Civil Court to decide all the matters of civil nature, excluding those to be tried by the DRT under sections 13 and 17 of the SARFAESI Act, in relation to enforcement of security interest of a secured creditor, is not barred by section 34 of the SARFAESI Act. 

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