Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act 2002 (“The Act”) lays down the rule that no civil court shall have jurisdiction over a case which the Debts Recovery Tribunal (“DRT”) or the Appellate Tribunal is empowered to determine. The section primarily excludes the jurisdiction of civil courts to adjudicate upon any matter which a DRT or Appellate Tribunal is empowered to determine under the Act. The section also bars the courts from granting any injunction in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act.
The above section bars the civil courts to decide and adjudicate matters which DRT is empowered to determine. The purpose of establishing DRT as provided under the Recovery of Debts Due to Banks and Financial Institutions Act 1993, is to provide for establishing a separate tribunal to speed up the process of recovery of bad debts, so that the civil courts are not overburdened by huge cases. Hence in matters related to recovery of debts due to banks and financial institutions, or enforcing security interest, DRT is authorized to adjudicate upon such issues, leaving no room for jurisdiction of civil courts.
However, many cases have come up, where the debtor, in order to delay the proceedings, file unnecessary applications in the civil court, where they pray for interim orders or injunction orders against the creditor, who are trying to get their due back. In total disregard to the law, some courts overstep their jurisdiction, thereby stalling the process of justice.
The Supreme Court settled this issue, in the case of M/s Sree Anandhakumar Mills LTD Vs M/s Indian Overseas Bank & Ors, (C.A. No(s). 7214-7216 of 2012). wherein the court held that if the proceedings under the Act have commenced, then the civil suit will not be maintainable. The facts leading up to the case are summarized as follows:
- The first Respondent commenced with proceedings under the Act against the property of the debtor, on which security interest was created.
- The second respondent however, filed a civil suit in 2009, seeking for a partition of the above mentioned property.
- The trial court, after consideration of the facts and evidences passed an injunction order on the sale of the said property.
- On appeal, the High Court upheld the trial court verdict by stating that the said suit filed by second respondent is for partition, hence it is not under the ambit of Section 34 of the Act.
- The petitioner aggrieved with the order of the High Court, filed civil appeal in the Supreme Court.
The main contention, as inferred from the facts is that whether a party is empowered to file a civil case, once the proceedings under the Act have commenced. The maintainability of the civil suit in light of proceedings under Act was questioned.
The Apex Court assailed the order of the High Court. The High Court overstepped its jurisdiction and upheld the order which it was not competent to grant. The Apex Court held that a civil suit will not be maintainable if proceedings under the Act have been commenced.
In order to come to this reasoning, the Court relied on its earlier judgment in the matter of Jagdish Singh vs Heeralal & Ors. (2014 1 SCC 479). In this case, the Court held that a suit for partition would not be maintainable in a situation where proceedings under the Act had been initiated. The reasoning is reproduced as:
“The opening portion of Section 34 clearly states that no civil court shall have the jurisdiction to entertain any suit or proceeding “in respect of any matter” which a DRT or an Appellate Tribunal is empowered by or under the Securitisation Act to determine. The expression “in respect of any matter” referred to in Section 34 would take in the “measures” provided under sub-section (4) of Section 13 of the Securitisation Act. Consequently, if any aggrieved person has got any grievance against any “measures” taken by the borrower under sub-section (4) of Section 13, the remedy open to him is to approach the DRT or the Appellate Tribunal and not the civil court. The civil court in such circumstances has no jurisdiction to entertain any suit or proceedings in respect of those matters which fall under sub-section (4) of Section 13 of the Securitisation Act because those matters fell within the jurisdiction of the DRT and the Appellate Tribunal.”
Section 34 clearly bars the jurisdiction of civil courts, for matters which the DRT is empowered to adjudicate. Both the trial court and High Court ignored this provision of law and went against the spirit of the law.
Further, Section 35 of the Act also provided that the provisions of this Act shall have overriding effects over other laws. The provision is as follows:
Section 35. The provisions of this Act to override other laws.—The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.
The Act was enacted with the purpose of solving the problems of rising Non Performing Assets (“NPA”) and their efficient recovery and in case of failure to recover, there will be appropriate steps to auction properties and legally recover the dues.
The Act itself provides remedy to the aggrieved person (whether borrower or secured creditor) under Section 17. Section 17 gives the right to appeal to any aggrieved person, if any measures have been taken under Section 13 (4) of the Act. The appeal is presented before the DRT. This statutory right of appeal is available to borrower or secured creditor and thus the ambit of this section is quite wide.
Finally, the Apex Court set aside the order of the High Court and permitted the second Respondent to take recourse to the remedies available under the Section 17 Act by way of an application with the DRT.
There is very limited scope of jurisdiction of civil courts in matters empowered to DRT by virtue of Section 34 of the Act and this legal precedent. However in exceptional circumstances, like in cases of fraud, the civil court jurisdiction cannot be ousted.
The precedent was cited in later cases by Courts to oust the jurisdiction of the civil courts, where they have overstepped their authority and acted even when there was lack of jurisdiction. The Punjab & High Court dealt with the same issue and rejected the claim of the petitioners, where they alleged fraud in order to bring the claim under the ambit of civil courts. The High Court dismissed their appeal and reprimanded the matter back to the DRT for adjudication. The Court relied on the reasoning that where it is found that the word fraud has been deliberately used as a clever drafting in order to bring the suit before Civil Court such efforts will be repelled by the Court.
In another case of the Bombay High Court, the Court held that in view of the restriction set out in Section 34 of the Act, a civil court was barred from entertaining any suit and proceeding in respect of matters which the DRT and Debts Recovery Appellate Tribunal (“DRAT”) were empowered to determine under the Act.
The Act was enacted to provide a window for speedy recovery of debts by banks and financial institutions, especially by enforcing security interest created in favour of such banks or financial institutions. Section 13 authorizes the banks and financial institutions to recover their dues from the borrower, without the intervention of the court or tribunal.
Thus the banks and financial institutions are legally entitled to send demand notice under Section 13 (2) of the Act in order to enforce their security interest and in case of failure of borrower to repay the dues, the banks and/or financial institutions can rely on the measures mentioned under Section 13 (4) of the Act to realize the amounts due and payable by the borrower on default.
Thus in view of the legal precedents and object and purpose of the Act, it is justified to bar the civil jurisdiction of the civil courts where cognizance of matters can only be taken by DRT or DRAT. It is only in exceptional circumstances like fraud, can the civil court exercise its authority. Hence no injunction can be granted with regard to any matter taken in consequence of any powers granted under the Act.