Thursday, 11 February 2016

When decision of civil court would be binding on Debt recovery tribunal?

 I may however record that the possibility of a conflict in the
judgment of this court in this suit and of the order of the DRT in the
proceedings, if any, initiated by the defendant against the plaintiffs
before the DRT cannot be ruled out. The relief claimed by the
plaintiffs in this suit if granted would tantamount to holding the
plaintiffs not liable for any claims of the defendant against the
company. In the event of proceedings against the plaintiffs being
initiated before the DRT, the DRT would also be called upon to
decide whether the guarantees furnished by the plaintiffs stand
discharged or not. It is this aspect which had bothered this court in
even admitting the suit. However, I find Nahar Industrial
Enterprises Ltd. to have dealt with this aspect of the matter also. It
has in paras 44 & 45 of the judgment referred to judgment of this
court in Cofex Exports Ltd. Vs. Canara Bank AIR 1997 Delhi 355.
This court had held that finality shall attach to the findings arrived at
and reached by each of the two within its respective jurisdictional
competence; issues heard and decided by the DRT shall operate as
res judicata and shall bind the parties in the suit – however the civil
court shall be free to decide such issues as lie within its jurisdictional
competence and if the civil court must decide an issue seized by it
and within its competence and if there be an unavoidable conflict
between the findings of civil court and the DRT, the findings of the
civil court would override and supercede the findings of DRT. It thus
appears that in such eventuality, if the civil court has decided the
matter first, the finding of the civil court would be binding on the
DRT. 
IA No.5814/2009 in CS(OS)No.527/2009 
IN THE HIGH COURT OF DELHI AT NEW DELHI
 IA No.5814/2009 in CS(OS)No.527/2009
Date of decision: 06.10.2009
MRS. SUNAYANA MALHOTRA & ORS. .…Plaintiffs

Versus
ICICI BANK ... Defendant

CORAM :-
HON’BLE MR. JUSTICE RAJIV SAHAI ENDLAW



1. Application of the defendant under Order 7 Rule 11 of the CPC
for rejection of the plaint for the reason of the relief claimed in the
suit being barred by Section 18 of the Recovery of Debts Due to
Banks & Financial Institutions Act, 1993 (DRT Act) r/w Section 34 of
the Securitization & Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 (Securitization Act) is for
consideration.
2. The plaintiffs have instituted the suit for declaration and
permanent injunction. They have pleaded that they along with others 
had promoted M/s Sudarshan Consolidated Limited since known as
M/s Willy Agrotech Limited; that the said company had obtained
certain credit limits from the defendant and had executed the loan
documents in favour of the defendant bank; that the plaintiffs had
also executed personal guarantees in favour of the defendant; that
the plaintiffs have sold their shareholding in the company and have
resigned from the Board of Directors of the company and are left
with no concern with the company; that the defendant had got issued
notice dated 31st December, 2008 claiming the plaintiffs to be jointly
and severally liable for the debts of the company; that the plaintiffs
are not so liable for the debts of the company not only for the reason
of having transferred their shares and resigned from the Board of
Directors of the company but also for the reason of the defendant
having altered the terms & conditions of the credit facility with the
company. The plaintiffs have further pleaded that notwithstanding
the aforesaid and in breach of the RBI guidelines with regard to
“willful defaulters”, the defendant had threatened to declare the
plaintiffs as willful defaulters and which would interfere with the
plaintiffs’ right to carry on other businesses. The plaintiffs have
claimed the relief of declaration that the personal guarantees
executed by the plaintiffs in favour of the defendant stand
discharged, the relief of perpetual injunction restraining the
defendant from invoking the personal guarantees and for mandatory
injunction directing the defendant to produce the documents of
personal guarantee and for cancellation thereof.
3. The suit came up first before this court on 20th March, 2009
when the senior counsel for the plaintiffs was asked to satisfy the
court as to how the reliefs claimed in the suit were not barred by the
DRT Act. On the next date i.e. 24th March, 2009, the counsel for the 
defendant appeared and sought time to file the written statement. In
the circumstances, the plaint was registered as a suit. On the
application of the plaintiffs for interim relief the defendant was
restrained from declaring the plaintiff as willful defaulters, subject to
the condition that the plaintiffs shall not alienate any of their
immovable property save in the normal course of business and not
deal with/conduct their affairs to the detriment of the defendant.
The plaintiffs were also directed to file list of their assets in the
court. Thereafter, the application under consideration was filed.
Since it involved only legal questions, arguments thereon were heard
without calling for a reply. The senior counsel for the plaintiffs on 1st
May, 2009 also clarified that the interim order restraining the
defendant from declaring the plaintiffs as defaulters was not
intended to be an embargo to the defendant initiating proceedings
against the plaintiffs before DRT. It was further clarified that in the
event of the defendant initiating proceedings against the plaintiffs
before DRT, the plaintiffs shall not before the DRT take up the plea
of those proceedings being not maintainable owing to pendency of
this suit. The interim order was clarified accordingly.
4. The matter does not require detailed discussion in view of the
judgment of the Supreme Court in Nahar Industrial Enterprises
Ltd. Vs. Hong Kong and Shanghai Banking Corporation
MANU/SC/1330/2009 pronounced since the orders were reserved in
the present case. The Supreme Court has held that no independent
proceedings can be initiated by a debtor before DRT; a debtor under
the common law of contract as also in terms of the agreement may
have an independent right; no forum has been created for
endorsement of that right – jurisdiction of civil court is barred only in
respect of matters which strictly come within the purview of Section 
17 of DRT Act and not beyond the same; the civil court therefore will
continue to have jurisdiction; that even a set off or a counter claim
permitted to be raised under sub Sections 6 to 11 of Section 19 of
the DRT Act can be lodged only if the proceedings have been
initiated by a bank; such set off or counter claim can also be directed
to be instituted in civil court on an application of the bank; an order
of injunction for attachment or appointment of a receiver can be
initiated only at the instance of the bank; DRT can issue a certificate
only for recoveries of dues of a bank – it cannot pass a decree; that
the statutory provisions contained in Sections 17 & 18 of DRT Act
cannot be said to have ousted the jurisdiction of the civil court qua
the suits filed by the debtor – the jurisdiction of the civil court is
barred in relation only to the applications from the bank or recovery
of debts due to such bank; that the jurisdiction of a civil court is
preemptive in nature – unless the same is ousted expressly or by
necessary indication it will have jurisdiction to try all types of suits;
that the possibility of a debtor filing a preemptive suit and obtaining
orders of injunction cannot be ruled out but that by itself cannot be a
ground for ousting the jurisdiction of the civil court. The court
quoted portion of judgment in Indian Bank Vs. A.B.S. Marine
Products Pvt. Ltd. AIR 2006 SC 1899 laying down that Sections 17 &
18 of DRT Act had not been amended and jurisdiction had not been
conferred on DRT even after amendment of Section 19 to try
independent suits or proceedings initiated by borrowers or others
against Banks/Financial Institutions; nor the jurisdiction of civil court
barred in regard to such suits/proceedings.
5. In the light of the aforesaid dicta, the plea for rejection of the
plaint in so far as on the ground of the relief claimed therein being
barred by Section 18 of DRT Act is not tenable and is rejected. It is IA No.5814/2009 in 
significant to note that the plaintiffs have in the plaint para 14
expressly stated that no proceeding for recovery had been filed by
the defendant against them till the institution of the suit. The
defendant in the application under Order 7 Rule 11 of the CPC has
not stated having filed any proceeding against the plaintiffs before
DRT. For this reason also the question of the plaintiffs being entitled
to make any counter claim against the defendant before DRT under
the provisions of Section 19 (6) to (11) of DRT Act does not arise.
6. That leaves for consideration the ground of rejection of the
plaint owing to the bar of Section 34 of the Securitization Act. The
said provision was not under consideration in Nahar Industrial
Enterprises Ltd. aforesaid.
7. Section 34 of the Securitization Act bars the jurisdiction of the
civil court to entertain any suit or proceeding (i) in respect of any
matter which DRT is empowered by or under the Securitization Act
to determine and (ii) prohibits the civil court from issuing any
injunction in respect of any action taken or to be taken in pursuance
of any power conferred by or under the Securitization Act or under
the DRT Act.
8. Section 13 of the Securitization Act provides for enforcement
of a “security interest” created in favour of any secured creditor.
Section 2(1)(zf) defines “security interest” as any right title and
interest of any kind whatsoever upon property created in favour of
any secured creditor and includes a mortgage, charge hypothecation
and assignment. Section 17 provides for appeal to the DRT against a
measure of enforcement of “security interest” under Section 13 of
the Act. Thus the DRT under the Securitization Act is empowered to IA No.5814/2009 in 
determine the validity of the measure of enforcement of “security
interest” under the said Act.
9. The defendant in the application under consideration has
nowhere pleaded that it has any “security interest” over any
property of the plaintiffs or that the plaintiffs have created any
mortgage, charge, hypothecation or assignment of any of their
properties in favour of the defendant. On the contrary, the defendant
has in the application repeatedly averred that the plaintiffs had
furnished “personal guarantees” to secure the defendant qua the
liability of the company. Thus the question of any matter which DRT
is empowered by or under Securitization Act to determine does not
arise. Thus of the two limbs carved out herein above of Section 34 of
the Securitization Act the first is not applicable.
10. The second limb prohibits the civil court from granting any
injunction in respect of any action taken or to be taken in pursuance
of any powers under the Securitization Act or the DRT Act. In the
absence of any plea of any “security interest” having been created by
the plaintiffs in favour of the defendant, the question of the
defendant taking any action against the plaintiffs under the
Securitization Act does not arise. As far as the prohibition with
respect to any action to be taken by the defendant against the
plaintiffs under or in pursuance to the DRT Act is concerned, the
senior counsel for the plaintiffs has already made a statement that in
the event of the defendant initiating any proceedings against the
plaintiffs before DRT the plaintiffs shall not set up a plea of the same
being not maintainable owing to the pendency of the present suit.
Even otherwise in the suit no relief restraining the defendant from
taking any action under the DRT Act has been claimed. IA No.5814/2009 in 
11. I may however record that the possibility of a conflict in the
judgment of this court in this suit and of the order of the DRT in the
proceedings, if any, initiated by the defendant against the plaintiffs
before the DRT cannot be ruled out. The relief claimed by the
plaintiffs in this suit if granted would tantamount to holding the
plaintiffs not liable for any claims of the defendant against the
company. In the event of proceedings against the plaintiffs being
initiated before the DRT, the DRT would also be called upon to
decide whether the guarantees furnished by the plaintiffs stand
discharged or not. It is this aspect which had bothered this court in
even admitting the suit. However, I find Nahar Industrial
Enterprises Ltd. to have dealt with this aspect of the matter also. It
has in paras 44 & 45 of the judgment referred to judgment of this
court in Cofex Exports Ltd. Vs. Canara Bank AIR 1997 Delhi 355.
This court had held that finality shall attach to the findings arrived at
and reached by each of the two within its respective jurisdictional
competence; issues heard and decided by the DRT shall operate as
res judicata and shall bind the parties in the suit – however the civil
court shall be free to decide such issues as lie within its jurisdictional
competence and if the civil court must decide an issue seized by it
and within its competence and if there be an unavoidable conflict
between the findings of civil court and the DRT, the findings of the
civil court would override and supercede the findings of DRT. It thus
appears that in such eventuality, if the civil court has decided the
matter first, the finding of the civil court would be binding on the
DRT. 
12. I, therefore, do not find any merit in the application. The same
is dismissed, however no order as to costs.
RAJIV SAHAI ENDLAW
(JUDGE)

October 6th , 2009

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1 comment:

  1. Thank you so much for taking the time for you to share such nice information. DRT

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