Bar On Civil Courts U/s. 34 SARFAESI Act Shall Be Applicable Only Where DRT/DRAT Is Empowered To Decide Matter: SC

The Supreme Court has held that the bar on civil court jurisdiction under Section 34 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 shall be applicable only where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter.

The bench of Justice MR Shah and Justice Krishna Murari was dealing with an appeal challenging the Order quashing and setting aside the decree passed by the Trial Court directing the Bank to pay to the plaintiff a sum of Rs.58,10,000/­ with interest at the rate of 12% per annum from the date of suit till realization.

In this case, the respondent-bank had secured a property admeasuring 54 cents which was put to auction, by Auction Notice. The appellant submitted her offer of Rs.32,05,000/­ for sale of 54 cents.

In the quotation, the appellant specifically stated that the offer of Rs.32,05,000/­ is subject to the condition that absolute ownership and vacant possession of full extent of property without encumbrances is handed over.

However, the Bank replied that as in the invitation to the public for tenders, it is stated that the property would be sold on "as is where is" and "as is what is" condition, the appellant may confirm that the appellant is ready to offer the bid and take the property in the present condition.

The appellant reiterated that she is ready to purchase the property only if, absolute ownership, vacant possession and full enjoyment of 54 cents of land, free from all encumbrances is given, otherwise, she is not ready to purchase the property.

Thereafter the Bank took possession of the property and the appellant paid a total sale consideration in October, 2007. The Tehsildar submitted a report submitting that the actual measurement of the land is 39.60 cents and that the debtor had already transferred 14.40 cents out of land admeasuring 54 cents prior to the creation of the mortgage with the Bank.

Despite this the Bank issued the sale certificate for 54 cents and handed over the possession admeasuring 39.60 cents only, the sale consideration is issued for 54 cents.

Thereafter the appellant instituted the suit for recovery of damages/compensation with respect to 14.40 cents.

The Trial Court decreed the suit and directed the defendant – Bank to pay the appellant a sum of Rs.58,10,000/­ with future interest @ 12% pa from the date of suit till realization.

However, the High Court quashed and set aside the decree passed by the Trial Court and consequently dismissed the suit.

Aggrieved, appellant-original plaintiff approached Supreme Court.

Advocate M.T. George appeared for the appellant whereas Advocate Kunal Tandon appeared for the respondent-bank.

The Supreme Court observed that the High Court had seriously erred in holding that the suit was barred by Section 34 of the SARFAESI Act.

"…at the outset it is required to be noted that the suit was for damages/compensation, with respect to the balance land, which could not have been decided by the DRT or Appellate Tribunal, Section 34 of the SARFAESI Act shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act.", the Court observed.

The Court also noted that "…at least in the month of November, 2007 when the Tehsildar submitted the report, the Bank was aware that the actual area is 34.60 cents and not 54 cents. Thereafter the Bank ought not to have issued the sale certificate for 54 cents. The Bank ought to have been fair and ought to have issued the sale certificate only for 34.60 cents."

Thus the Court set aside the judgment passed by the High Court and restored the decree passed by the Trial Court decreeing the suit.

The Court also imposed costs of Rs. 25000 on the bank to be paid to the appellant.

Cause Title- Mrs. Leelamma Mathew v. M/s Indian Overseas Bank & Ors.

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