Remedy Sought Before Civil Court Can’t Be Effectively Addressed Before DRT: Madras HC Dismisses Application U/s. 34 Of SARFAESI Act To Reject Plaint

The Madras High Court has rejected an application under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) on the ground that the remedy sought before the civil court cannot be effectively addressed before the Debt Recovery Tribunal.

The Court was dealing with an application seeking to reject the plaint on the ground that civil court jurisdiction is ousted in terms of Section 34 of SARFAESI Act and Section 18 of Recovery of Debts and Insolvency Act.

A Single Bench of Justice R.N. Manjula observed, “Even if the mortgage made in favour of the applicant / 5th defendant bank by the defendants 3 & 4 is valid in the eye of law, that will not deprive the plaintiffs from claiming their undivided share and interest in the suit property which according to them has been attached to their respective residential flat in the apartment complex. So in all possibilities, I find no reason to reject the plaint on the basis of the averments and allegations made in the plaint. The plaintiffs have established the case and there are also materials available to show that the remedy which has been sought by the plaintiffs before the civil court cannot be effectively addressed before the Debt Recovery Tribunal.”

The Bench added that the bar under Section 34 of SARFAESI Act cannot be extended to the nature of the claim raised by the applicant in the suit.

Advocate M.L. Ganesh appeared for the applicant while Advocates K.V. Babu and Dipthi Monoth. A appeared for the respondents.

Brief Facts -

The applicant was the Bank and since the loan account of the respondent/defendant was classified as an NPA as per extant RBI guidelines, the loan account was migrated to Circle Sastra South in terms of the internal policy of the bank for proper resolution. A suit was filed under the provisions of Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and Section 34 of the SARFAESI Act, 2002.

Despite knowing that a valid mortgage was created in favour of the applicant, respondents filed a suit without seeking any relief as against the applicant. In fact, the plaintiffs set the law in motion by filing a SARFAESI application by challenging the possession notice issued under Section 13(4) of the SARFAESI Act before the Debt Recovery Tribunal-II, Chennai and the same was dismissed by observing that the applicant had a valid mortgage over the schedule 'B' mentioned property.

The High Court in the above regard noted, “So far as the allegation of fraud is concerned, especially when the fraud has been alleged against the bank itself, it is consistently held by both the Hon'ble Supreme Court and the High Court that the plaintiff's remedy lies only before the Civil Court.”

The Court said that though it is claimed by the applicant/defendant bank that the criminal proceedings have been quashed, some shortsighted action has been shown on the part of the bank in sanctioning the loan.

Furthermore, the Court said, “In the case in hand the respondent 1 to 10 / plaintiffs 1 to 10 have alleged that the applicant/ 5 th defendant bank knowing pretty well that there was no building on the site on the date when the loan was sanctioned, had proceeded to sanction loan to the defendants 3 and 4. In fact a criminal action has also been initiated by the applicant / 5 th defendant bank against its own staff by alleging that they had done something fishy by being hand in glove with the defendants 3 to 4.”

The Court also noted that it is right on the part of the applicant bank to claim a plaintiff can not be allowed to take shelter under an intelligent drafting of a plaint, which is otherwise not maintainable.

“But the plaintiffs have made allegations and produced materials to make out a prima facie case that there was collusion between the bank officials and the defendants 3 & 4 in getting financial assistance for purchasing the suit property from the 2 nd defendant. The various facts revolving the suit can be proved before the Court only through an exhaustive trail, which is possible before the Civil Court and not before the Tribunal”, concluded the Court.

Accordingly, the High Court dismissed the application.

Cause Title- Punjab National Bank v. I.R. Lalitha & Ors.

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