The Bombay High Court (Goa Bench) comprising Justice Bharat P. Deshpande was hearing an Application on SARFAESI Act and held that the provisions of the SARFAESI Act bar the jurisdiction of civil courts except in cases where the action of the secured creditor is alleged to be fraudulent or the claim is absurd and untenable, requiring no further investigation.
In the present case, the High Court examined the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The High Court observed that the Act empowers secured creditors to enforce the security interest without the intervention of the court, for the repayment of secured debt. The secured creditor is required to give written notice to the borrower, giving them 60 days to discharge their liabilities, failing which the creditor can exercise certain rights.
The High Court explained the provisions of the Act that allow secured creditors to take measures to recover the debt, such as taking possession of the secured assets, taking over the management of the business, or appointing a person to manage the assets. It also highlighted that Section 14 of the Act provides for the District Magistrate to assist the secured creditor in taking possession of the assets.
Section 17 of the Act allows any person, including the borrower, who is aggrieved by the measures taken by the secured creditor under Section 13(4), to make an application to the Debts Recovery Tribunal (DRT) within 45 days. The DRT decides on such applications within 60 days. Section 18 provides for an appeal to the Appellate Tribunal against any order passed by the DRT. The High Court concluded that the provisions of Section 34 of the Act bar the jurisdiction of the civil court in matters that can be determined by the DRT or the Appellate Tribunal.
The High Court referred to a previous Supreme Court judgment, Mardia Chemicals Limited Etc Etc v. Union of India and Others Etc, REED 2004 SC 04201 case, which recognized a limited scope for invoking the jurisdiction of the civil court in cases of alleged fraud or absurd and untenable claims by the secured creditor. However, in the present case, the HC Bench found that the allegations of fraud made by the plaintiff are unrelated to the procedure adopted by the secured creditor in enforcing the security interest. The High Court noted that the plaintiff's allegations pertain to a separate transaction with a third party and do not implicate the bank or its actions.
The High Court emphasized that the plaintiff's allegations were vague and general, lacking specific details or evidence of fraud. It held that making general and vague allegations of fraud is insufficient to avoid the specific bar under Section 34 of the SARFAESI Act and bring a civil action before the civil court.
Based on these findings, the High Court rejected the plaintiff's application for an injunction against the bank's actions under the SARFAESI Act and concluded that the suit is barred under Section 34 of the Act, as the jurisdiction lies with the DRT or the Appellate Tribunal for matters covered by the Act.