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Civil Court has jurisdiction to try a suit filed by a borrower against a bank/ financial institution

The Supreme Court held that the Civil Court has jurisdiction to try a suit filed by a borrower against a bank or financial institution.

The Supreme Court Full Bench comprising Justices Sanjay Kishan Kaul, Abhay S. Oka and Vikram Nath was hearing an appeal on Thursday and held that there was no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted, but it is the matter of choice of that defendant.

The present appeal arose from a question that had been raised whether the borrower has the legal right to initiate proceedings before a Civil Court against the bank or financial institution, which seeks to recover a loan amount against it.


The appellant bank, Bank sanctioned a term loan to the respondent company on 28.06.1994 with a limit of Rs.1.50 crores at an interest of 19.25% per annum, repayable in twelve quarterly instalments. In order to secure the loan, the guarantors including the respondent, inter alia offered title deeds of immovable properties as security. By mutual agreement, a further credit overdraft facility was granted on 19.09.1995, up to a limit of Rs.5 crores. This additional credit was secured by the deposit of shares, stocks, and securities of various companies. The respondent did not adhere to financial discipline, resulting in the appellant issuing a notice on 01.07.1997, calling upon the respondent to settle the term loan account and overdraft facility account within three days of the receipt of the notice. Since the respondent failed to make the payment, the appellant filed an application for recovery of the amounts due under Section 19 of the RDB Act, 1993 before the DRT, Kolkata on 21.11.1997. The appellant sought a recovery certificate against the respondent for Rs.8,62,41,973.36 including interest at 20.88% per annum.

The respondent entered an appearance to defend the proceedings but in addition, also filed a Civil Suit No.77 of 1998 before the Kolkata High Court against the appellant on 06.03.1998. The respondent inter alia claimed a decree for the sale of the pledged shares, recovery of sale proceeds, and an inquiry into the losses suffered by the respondent along with a decree for payment of money after the same.

A crucial development took place on 18.03.1998 when the appellant sold the pledged shares of BFL Software Ltd. for a total sum of Rs.5,77,68,000/- to adjust the amounts against the dues in view of the authorisation available with them as a part of the loan transaction. The respondent, as a sequitur, filed Civil Suit before the High Court of Calcutta on 09.03.1999 praying for relief. The appellant, in those proceedings, filed applications, being GA No.4206 of 2000 in C.S. No.77 of 1998 and GA No.4171 of 2000 in C.S. No.129 of 1999 in November 2000, seeking rejection of the plaint and dismissal of the suits filed by the respondent. It was claimed that the suits were not maintainable and that the High Court lacked jurisdiction as the same exclusively vested with the DRT. The learned Single Judge vide order dated 06.09.2022 allowed both the applications of the appellant and directed the suits to be taken off from the file of the High Court.

The respondent filed two appeals, challenging the order dated 06.09.2022 of the learned Single Judge. The Division Bench vide its order dated 27.09.2022 stayed the operation of the order of the learned Single Judge while admitting the appeal.

Court’s Analysis:

The Supreme Court noted that there was no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted, but it is the matter of choice of that defendant. The Legislature did not, at any stage, make any further amendment for excluding the jurisdiction of the Civil Court in respect of a claim of a defendant in such a proceeding being filed along with the suit. The Legislature in its wisdom has also not considered it appropriate to bring any amendment to enhance the powers of the DRT in this respect.

The Apex Court observed that there is gainsay that there is no specific power to transfer a suit to the DRT. A plaint can be returned only under the provisions of Order VII Rule 10 of the Code for the reasons specified therein. In the absence of such reasons, Section 151 of the Code cannot be utilised as a residuary power to achieve the transfer, which is really a consequence of the return of the plaint when the grounds under Order VII Rule 10 of the Code are not satisfied. The absence of any legislative power cannot give power by implication to the Civil Court.

The Apex Court noted that it would not be appropriate to read such power to transfer a suit to a DRT under Section 151 of the Code when the DRT is a creature of a statute and that statute does not provide for such eventuality.

The Supreme Court bench also noticed an important aspect that even where a defendant was to invoke the jurisdiction of the DRT by filing a counterclaim, the bank has a right to seek a relegation of that claim to the Civil Court and the DRT has been empowered to do so, albeit, at the final adjudication stage. This was so in view of the summary nature of the remedy provided before the DRT. Thus, if certain inquiries were beyond the contours of what the DRT envisaged, a Civil Court remedy may be considered appropriate.

In the present case, the proceedings under the RDB Act, in any case, have reached a culmination with the satisfaction of the claim and, thus, no proceedings instituted by the appellant were pending before the DRT. As for the suit, there was no question of a counterclaim or a transfer or any other manner other than the trial of the suit instituted by the respondent. In fact, some part of the claim of the bank was not even allowed and some adjustments were directed to be made. Even after that so far as any other claims of the respondent were concerned, the DRT in terms of the order dated 19.05.2003 permitted the respondent to pursue the remedy in accordance with the law - which can only mean the civil proceedings. Thus, the suit was liable to proceed accordingly.

The civil appeals were accordingly dismissed.


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