Loan Recovery Battles in Maharashtra: Who Has the Power to Decide? DRT vs Civil Judge Senior Division

Introduction

In Maharashtra, as in the rest of India, resolving disputes over unpaid loans involves a clear division of legal responsibilities. But when it comes to deciding which judicial forum holds the power to try loan recovery suits, understanding the pecuniary jurisdiction—the monetary limits defining who hears the case—is key. This jurisdictional threshold determines whether your case lands before the specialized Debt Recovery Tribunal (DRT) or the regular Civil Judge Senior Division courts.

What is Pecuniary Jurisdiction?

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Whether the court can refuse to hear a party if it has disobeyed its interim order?

  An order passed by a competent court interim or final- has to be obeyed without any reservation. If such order is disobeyed or not complied with, the Court may refuse the party violating such order to hear him on merits. We are not unmindful of the situation that refusal to hear a party to the proceeding on merits is a 'drastic step' and such a serious penalty should not be imposed on him except in grave and extraordinary situations, but some time such an action is needed in the larger interest of justice when a party obtaining interim relief intentionally and deliberately flouts such order by not abiding the terms and conditions on which a relief is granted by the Court in his favour.

{Para 21}

25. That, however, does not mean that in each and every case in which a party has violated an interim order has no right to be heard at all. Nor the court will refuse to hear him in all circumstances. The normal rule is that an application by a party will not be entertained until he has purged himself of the contempt. There are, however, certain exceptions to this rule. One of such exceptions is that the party may appeal with a view to setting aside the order on which his alleged contempt is founded. A person against whom contempt is alleged must be heard in support of the submission that having regard to the meaning and intendment of the order which he is said to have disobeyed, his actions did not constitute a breach of it.

 IN THE HIGH COURT OF DELHI AT NEW DELHI

Date of Decision:- 22.04.2021

 W.P.(C) 4539/2021

SHEIKH M. MAROOF  Vs PHOENIX ARC PVT LTD 

CORAM:

HON'BLE MR. JUSTICE VIPIN SANGHI

HON'BLE MS. JUSTICE REKHA PALLI

Author: VIPIN SANGHI, J 

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Whether the civil court has jurisdiction to try the suit in respect of parties' civil rights beyond the jurisdiction of DRT?

Keeping in mind the principles as laid down in Dhulabhai (supra), and what we have considered and discussed above, when we ask ourselves a question as to whether the DRT exercising jurisdiction under Sections 13 and 17 of the SARFAESI Act, has the power, nay jurisdiction to determine the Civil Law rights, which may be available to a person, in the security interest, in the same manner as a Civil Court could ? or in other words, can a person who claims a right of partition, specific performance, reliefs under Sections 31 and 34 of the Specific Relief Act, preemption, redemption, declaration in respect of a property which is a security interest, approach the DRT for claiming adjudication of his such claim ? and can the DRT grant him such relief ? In our considered opinion, the answer has to be in the negative for the reason that it is not permissible for the DRT to embark on an adjudication of the civil rights claimed vis-a-vis the security interest, in light of the clear, precise and specific language of Section 17 (1) and 18 of the DRT Act read with Sections 13, 17 and 34 of the SARFAESI Act, as already discussed above.

 If the DRT is not a Court as held in Nahar Industrial Enterprises Limited (supra), which still holds the field, and the jurisdiction of the DRT is limited and is confined to the extent of examination of the actions of the secured creditor under Section 13 (4) and Section 17 of the SARFAESI Act, within the framework of Sections 17 and 19 of the DRT Act 1993, then the DRT is jurisdictionally incapable and incompetent to adjudicate and decide upon the rights of a civil nature, accruing in favour of citizens, even if such rights are found to be accruing or created by law or otherwise, in the security interest. The jurisdiction to adjudicate and decide such rights of a civil nature, would then continue to vest with the Civil Courts under Section 9 of the C.P.C., whose jurisdiction though otherwise is plenary, omnipotent and unlimited, is limited only by the exclusion clause/provision in various Statutes, which exclusion clause/provision has to be strictly construed.

24. The purpose of creation of the Special Statutes i.e. the SARFAESI Act and the DRT Act, 1993, was to facilitate creation of special machinery for speedy recovery of the debts, due to Banks and Financial Institutions, which had gained alarming proportions and  still are alarmingly high, and not to obviate or set at naught the civil rights as available to litigants by availing the Civil Law remedy.

25. A meaningful interpretation has to be put to the language of the bar as contained in Section 34 of the SARFAESI Act so that the object and purpose sought to be achieved by the Act is not rendered illusory and is fulfilled. However, at the same time, the civil rights, which may be available in respect of security interest, cannot be lost sight of, which also have to be protected and the common law remedy available for the enforcement cannot be rendered ineffective. No doubt, Section 34 by creating a bar of jurisdiction ensures the recovery of public money in a speedy manner, however, the bar has to be read and construed in light of the language it contains and not otherwise so as to impeach upon the rights of a civil nature as available, which are equally important for a citizen. In the zeal to ensure speedy recovery of money, the civil rights which a citizen has, cannot be permitted to be rendered redundant and balance between both the rights has to be maintained, which would only be possible on a case to case basis. The bar under Section 34 of the SARFAESI Act, therefore, in view of the discussion made above, in our considered opinion, is not absolute, but is restricted to examination by the DRT of the actions of the secured creditor under Section 13 of the SARFAESI Act and the rights available under Section 17 of the SARFAESI Act, to be in accordance with the provisions of the SARFAESI Act and the Rules made thereunder, as indicated.

26. The propositions laid down in para 33 of Sagar Pramod Deshmukh (supra), in our considered opinion, correctly define the distinction between the jurisdiction of the Civil Court and that of the DRT vis-a-vis Section 9 of the C.P.C., as compared to Sections 17 (1) and 18 of the DRT Act read with Sections 13, 17 and 34 of the SARFAESI Act, though they may not be exhaustive.

27. In view of what we have discussed above, our considered opinion to the question as referred to is as under :-

Question :

"Whether the jurisdiction of a Civil Court to decide all the matters of civil nature, excluding those to be tried by the Debts Recovery Tribunal under Section 17 of the Securitisation Act, in relation to enforcement of security interest of a secured creditor, is barred by Section 34 of the Securitisation Act ?

 Answer :

The answer, looking to the nature of the question, in our view, is in parts :-

(A) Jurisdiction of the Debts Recovery Tribunal, to decide all matters relating to Sections 13 and 17 of the SARFAESI Act, is exclusive.

(B) In all cases, where the title to the property, in respect of which a 'security interest', has been created in favour of the Bank or Financial Institution, stands in the name of the borrower and/or guarantor, and the borrower has availed the financial assistance, it would be only the DRT which would have exclusive jurisdiction to try such matters, to the total exclusion of the Civil Court. Any pleas as raised by the borrowers or guarantors, vis-a-vis the security interest, will have to be determined by the DRT.

(C) The jurisdiction of the Civil Court to decide all the matters of civil nature, excluding those to be tried by the Debts Recovery Tribunal under Sections 13 and 17 of the SARFAESI Act, in relation to enforcement of security interest of a secured creditor, is not barred by Section 34 of the SARFAESI Act.

(D) Where civil rights of persons other than the borrower(s) or guarantor (s) are involved, the Civil Court would have jurisdiction, that too, when it is prima facie apparent from the face of record that the relief claimed, is incapable of being decided by the DRT, under Section 17 of the DRT Act, 1993 read with Sections 13 and 17 of the  SARFAESI Act.

(E) Even in cases where the enforcement of a security interest involves issues as indicated in Mardia Chemicals (supra) of fraud as established within the parameters laid down in A. Ayyasamy (supra); a claim of discharge by a guarantor under Sections 133 and 135 of the Contract Act [Mardia Chemicals (supra)]; a claim of discharge by a guarantor under Sections 139, 142 and 143 of the Contract Act; Marshaling under Section 56 of the Transfer of property Act [J.P. Builders (supra)]; the Civil Court shall have jurisdiction.

(F) Examples as indicated in para 22.3, are illustrative of the Civil Court's jurisdiction.

(G) The principles laid down in para 33 (i) to (ix) of Sagar Pramod Deshmukh (supra) are in accordance with what we have discussed and held above.

 

 Bombay High Court

Bank Of Baroda, Through Its Branch ... vs Gopal Shriram Panda And Another on 25 March, 2021

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Whether creditor can seek more than one remedy simultaneously?

 We may only end by saying that cases like the present one have to be decided by balancing the interest of creditors to whom money is owing, with a debtor company which will now go in the red since a winding up petition is admitted against it. It is not open for persons like the appellant to resist a winding up petition which is otherwise maintainable without there being any bona fide defence to the same. We may also hasten to add that the respondent cannot be said to be blowing hot and cold in pursuing a remedy under the Recovery of Debts Act and a winding up proceeding under the Companies Act, 1956 simultaneously. Here, it is important to refer to the judgment of Lord Atkin in Lissenden v. C.A.V Bosch, Ltd., [1940] 1 All E.R 425, at 436-437, which says:

“The doctrine of election could have no place in the present case. The applicant is not faced with alternative rights. It is the same right that he claims, but in larger degree. In Mills v. Duckworth, [1938] 1 All E.R 318, a plaintiff who had been awarded damages for negligence had taken the judgment sum out of a larger sum paid into Court and had then appealed against the quantum of damages, and was met by a similar objection to his appeal. Greer, L.J, in overruling the objection, pointedly said, at p. 321:

“He [the plaintiff] said: “I am not going to blow hot and cold. I am going to blow hotter.”

Here the applicant is not faced with a choice between alternative rights. He has exercised an undisputed right to compensation, and claims to have a right to more. One has not lost one's right to a second helping because one has taken the first.”

30. When secured creditors like the respondent are driven from pillar to post to recover what is legitimately due to them, in attempting to avail of more than one remedy at the same time, they do not “blow hot and cold”, but they blow hot and hotter. The appeals are accordingly dismissed with no order as to costs.

In the Supreme Court of India

(Before R.F Nariman and Navin Sinha, JJ.)

Civil Appeal No. 1291 of 2019

Swaraj Infrastructure Pvt. Ltd.v.  Kotak Mahindra Bank Ltd

Citation: 2019 SCC OnLine SC 92

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Whether civil suit is maintainable against auction sale conducted by recovery officer of DRT?

The challenge is to the jurisdiction of the Civil Court to entertain the civil suit. It is well established that the jurisdiction of the civil Court cannot be ousted unless any express or implied bar is pointed out. Keeping this established principle in mind, the provisions of sub-rule (6) of Rule 11 of the Second Schedule under the Income-tax Act, 1961 are required to be examined. The submission that a party gets right to institute civil suit only if the Recovery Officer passes an order against that party on merits, if accepted, then it will amount to giving a meaning to the provisions, which is not intended. The order dated 31st October, 2005 endorsed by the Recovery Officer on the notice, in terms amounts to refusal on his part to take cognizance of the objection raised by the plaintiff and in my view it would amount to an order made against the plaintiff, consequently, giving right to the plaintiff to institute civil suit.

IN THE HIGH COURT OF BOMBAY (NAGPUR BENCH)

Appeal Against Order No. 11 of 2017

Decided On: 14.03.2018

 Bank of India Vs.  Shivcharan and Ors.

Hon'ble Judges/Coram:

Z.A. Haq, J.

Citation: 2018(5) MHLJ 604

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Whether plaint can be rejected against some of defendants?

We have to consider the application for rejection of plaint under Order 7 Rule 11(d) filed by Axis Bank in these five suits in the light of the facts recounted above. Various issues arise in connection with this application. The first, of course, is whether or not a plaint can be rejected as against one particular Defendant, whilst maintaining the same against others, under Order 7 Rule 11 of the Code. Ms. Iyer, learned Senior Counsel appearing for Axis Bank, relies on a Division Bench judgment of our court in the case of M.V. "Sea Success I" v. Liverpool and London Steamship Protection and Indemnity Association Ltd. MANU/MH/0842/2001 : AIR 2002 BOMBAY 151 Relying on this judgment, learned Counsel submits that there is no legal bar under Order 7 Rule 11 in rejecting the plaint only against some of the Defendants. The Division Bench of our court noted various precedents in this behalf, including some judgments of the Supreme Court where plaint was rejected against one or other of the Defendants, and held that there was no such bar. In view of the clear exposition of law by the Division Bench in m.v. Sea Success, it cannot be gainsaid that a plaint in an appropriate case can be rejected under Order 7 Rule 11 of the Code against some of the Defendants. 

IN THE HIGH COURT OF BOMBAY

Notice of Motion No. 7 of 2017 in Suit No. 8 of 2017, Notice of Motion No. 1206 of 2017 in Suit No. 8 of 2017, 

Decided On: 26.07.2017

Padma Ashok Bhatt and Ors. Vs. Orbit Corporation Ltd. and Ors.

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Whether partial rejection of plaint is permissible?

 Granted that as a matter of principle, a plaint can be rejected against some of the defendants, it is important to consider in what circumstances it can be so rejected. Whether under Order 7 Rule 11(a) or under Order 7 Rule 11(d), non-disclosure of cause of action or legal bar, as the case may be, must be in respect of the plaint or the suit as a whole. If the plaint as a whole and read in the light of all its averments does not disclose any cause of action against a particular defendant, it may well be rejected under Order 7 Rule 11(a). So also, if the suit as a whole appears from the statements in the plaint to be barred by any law against any particular defendant, the plaint may be rejected. In either of these cases, the rejection must be of the whole of the plaint or the suit, as the case may be. There is no manner of doubt that the plaint cannot be rejected partially on the ground that that part does not disclose any cause of action or that part of the suit is barred by law against any defendant. In other words, it is not permissible to split the cause of action brought before the court by a plaintiff and based on such splitting, reject the plaint partially.

IN THE HIGH COURT OF BOMBAY

Notice of Motion No. 7 of 2017 in Suit No. 8 of 2017, Notice of Motion No. 1206 of 2017 in Suit No. 8 of 2017, 

Decided On: 26.07.2017

Padma Ashok Bhatt and Ors. Vs. Orbit Corporation Ltd. and Ors.

Hon'ble Judges/Coram:

S.C. Gupte, J.

Citation: 2017(6) MHLJ 102

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Whether Appeal Before DRT Maintainable Even If Amount Involved Is Less Than Rs 10 Lakh?

 In the instant case, we are concerned with the challenge to the proceedings initiated underSection 13 of the Act. There is a specific provision in the Act to the effect that the proceedings initiated under the Act cannot be challenged before a Civil Court because the Civil Court has no jurisdiction to entertain any matter arising under the Act and in that event, the concerned debtor has to approach the Tribunal under the provisions of Section 17 of the Act.

23. Thus, the Tribunal would be exercising its appellate jurisdiction when the action initiated under the provisions of Section 13 of the Act is challenged before the Tribunal. There is a difference between the Tribunal’s original jurisdiction under the provisions of the DRT Act and the appellate jurisdiction under the Act.

24. The issue with regard to availability of a forum for challenging the action under the provisions of the Act had been dealt with by this Court in the case of Mardia Chemicals Ltd. (supra). This Court, in the said case, unequivocally held that the aggrieved debtor can never be without any remedy and we firmly believe that the legislature would normally not leave a person without any remedy when a harsh action against him is initiated under the provisions of the Act.

25. So as to know the appellate jurisdiction of the Tribunal, one has to look at the provisions of the Act as Section 17 of the Act specifically provides a right to the aggrieved debtor to challenge the validity of an action initiated under Section 13(4) of the Act before the Tribunal. Moreover, the Act was enacted in 2002 and the legislature is presumed to have knowledge about the provisions of Section 1(4) of the DRT Act. So harmonious reading of both the aforestated Sections would not be contrary to any of the legal provisions.

26. For the aforestated reasons, we are of the view that the application submitted by the appellant bank under Order VII Rule 11 of the CPC should have been granted by the trial Court as, according to Section 34 of the Act, a Civil Court has no jurisdiction to entertain any appeal arising under the Act.

27. Thus, we hold that the Debt Recovery Tribunal constituted under the DRT Act has jurisdiction to entertain an appeal as per Section 17 of the Act even if the amount involved is less than Rs.10 lakh. But, the said appellate jurisdiction need not be misunderstood with the original jurisdiction of the Tribunal.

Reportable

Supreme Court of India

State Bank Of Patiala vs Mukesh Jain & Anr on 8 November, 2016

Bench: Anil R. Dave, L. Nageswara Rao

Citation: (2017)1 SCC 53

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Whether debts recovery Triunal can permit cross examination of witnesses?

 Mr. Sahu, who appears for respondent no. 2 in the present
matter, candidly admitted that on the basis of the impugned order,
leave to cross-examine will have to be applied in practically all the
pending cases and such leave, will have to be granted as, the facts
and circumstances in each of these cases are the same. Therefore, if
the impugned order is allowed to stand, leave to cross-examine will
have to be granted, as a matter of course, in several matters
concerning the same transaction, thereby, rendering such proceedings
virtually interminable. All this, will only contribute to the very frustration
of the objective behind enactment of the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 and the said Rules. The
said Act came to be enacted to facilitate expeditious resolution of
disputes concerning payment of dues to banks and financial
institutions. In order that the tribunals constituted under the said Act
are not fettered by technicalities, having regard to larger public
interest, the tribunals have been freed from shackles of procedural law
and are to be only guided by the principles of natural justice and fair
play. The tribunals constituted under the said Act are required to
bestow attention and give priority to the real controversy arising before
them out of the special legislations. Tribunals therefore, cannot permit
themselves to be derailed at the behest of parties resisting recovery,
particularly where such parties fail to take any prompt steps for the
assertion or enforcement of their alleged rights or privileges.

10] In the present case, there is no explanation whatsoever as to
why the respondents did not apply for leave to cross-examine, no
sooner, affidavit was filed for and on behalf of MSFC. The plea of
delay was rightly upheld by DRT and DRAT was obviously not right in
ignoring the same, merely on the ground that the proceedings, in any
case, had protracted for over 20 years. Besides, the DRAT has failed
to notice the impact of its order on several other cases arising out of
the very same transaction. This was certainly a very relevant
consideration, which has been totally ignored by DRAT in making the
impugned order.


IN THE HIGH COURT OF JUDICATURE AT BOMBAY
 ORDINARY ORIGINAL CIVIL JURISDICTION
WRIT PETITION NO. 2066 OF 2014
Maharashtra State Financial Corporation .. Petitioner
versus
Debts Recovery Appellate Tribunal,
Mumbai & Ors. .. Respondents

CORAM: D. H. WAGHELA, C. J. AND
M. S. SONAK, J.

 Dated : 02 April 2016
Citation: 2016(4) MHLJ 458

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When the right to sue on indemnity will arise?

Instead of touching the heart of the problem, the appellants have just skirted it. Their argument does seem attractive at first sight but loses its sheen the moment examined on the touchstone of Hon'ble Supreme Court's authority in the case Himachal Pradesh Financial Corporation v. Smt. Pawna and Ors. Civil Appeal No. 1971/1998, decided on 18.12.2003, a true copy of the said order has been placed with the written arguments filed by the Counsel for the respondent No. 1, Himachal Pradesh Financial Corporation. In both the cases, Clause 7 of the mortgage deed runs as follows:

(7) Without prejudice to the above rights and powers conferred on the HPFC by these presents and by Sections 29 and 30 of the State. Financial Corporation Act, 1951 (as amended in from time-to-time) and the special remedies available to the HPFC under the said Act, it is hereby further agreed and declared that if the sole proprietor of the industrial concern fails to pay the said principal sum with interest and other moneys from him, under these presents, to the HPFC in the manner agreed, the HPFC shall be entitled to realize its dues by sale of the mortgaged properties, the said fixtures and fittings and other assets, and if the sale proceeds thereof are insufficient to satisfy the dues of the HPFC to recover the balance from the sole proprietor and the other properties owned by him though not included in this security.

14. The facts of the case before the Hon'ble Supreme Court were these: The principal debtor committed defaults in repayment. Therefore, on 4th January, 1977, a notice was issued to them. Thereafter, a publication declaring intention to take over the assets was made on 25th July, 1981. On 25th October, 1982 in exercise of powers under Section 29 of the Financial Corporations Act, possession was taken over. The Corporation sold the assets on 28th March, 1984 and 14th March, 1985. From such sale, they recovered a sum of Rs. 2,90,000/-. The Corporation then issued a notice dated 27th May, 1985 to the respondents who had executed the indemnity. As the balance was not paid up, a civil suit for recovery of the balance amount was filed on 15th September, 1985. In the said case, the Hon'ble Supreme Court was pleased to hold as under:

Whilst considering the question of limitation the Division Bench has given a very lengthy judgment running into approximately 50 pages. However, they appear to have not noticed the fact that under Clause 7 an indemnity had been given. Therefore, the premise on which the judgment proceeds i.e. that the loan transaction and the mortgage deed, are one composite transaction which was inseparable is entirely erroneous. It is settled law that a contract of indemnity and/or guarantee is an independent and separate contract from the main contract. Thus the question which they required to address themselves, which unfortunately they did not, was when does the right to sue on the indemnity arose. In our view, there can be only one answer to this question. The right to sue on the contract of indemnity arose only after the assets were sold off. It is only at that stage that the balance due became ascertained. It is at that stage only that a suit for recovery of the balance could have been filed. Merely because the Corporation acted under Section 29 of the Financial Corporation Act did not mean that the contract of indemnity came to an end. Section 29 merely enabled the Corporation to take possession and sell the assets for recovery of the dues under the main contract. It may be that on the Corporation taking action under Section 29 and in their taking possession they became deemed owners. The mortgage may have come to an end, but the contract of indemnity, which was an independent contract, did not. The right to claim for the balance arose, under the contract of indemnity, only when the sale proceeds were found to be insufficient.

In this case, it is an admitted position that the sale took place on 28th March, 1984 and 14th March, 1985. It is only after this date that the question of right to sue on the indemnity (contained in Clause 7) arose. The suit having been filed on 15th September, 1985 was well within limitation. Therefore, it was erroneous to hold that the suit was barred by the law of limitation.

Even otherwise, it must be mentioned that the Division Bench was in error in stating that the right to personally recover the balance terminates after the expiry of three years. It must be remembered that the question of recovery of balance will only arise after the remedy in respect of the mortgage deed has first been exhaustive. If a mortgage suit was to be filed, the period of limitation would be 12 years. Of course, in such a suit, a prayer can also he made for a personal decree on the sale proceeds being insufficient. Even though such prayer may be made, the suit remains a mortgage suit. Therefore, the period of limitation in such cases will remain 12 years.

Equivalent Citation: II(2010)BC79

DEBTS RECOVERY APPELLATE TRIBUNAL
DELHI

Decided On: 06.01.2010

 Shri Krishan Kumar Khemka Vs. Himachal Pradesh Financial Corporation and Ors.

Hon'ble Judges/Coram:
J.M. Malik, J. (Chairperson)

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Whether bonafide tenant has right to approach DRT under securitisation Act?

  Bearing in mind

the decision in Harshad Govardhan Sondagar (supra), in a case where the

aggrieved person claims to be or is a bona fide lessee or a tenant from whom

possession is yet to be taken over but a sale notice has been issued involving the

leasehold or tenanted property, different considerations would apply and even

without losing possession or handing over of possession of the portion of the

secured asset under lease or tenancy to the secured creditor, the lessee or the

tenant, as the case may be, being a non-borrower would have the right to

approach the tribunal no sooner the sale notice is issued in terms of the provisions

of Rule 8(6) of the Rules, and notwithstanding the decisions in V. Noble Kumar

(supra) and Mercury (supra). This, I hold, because V. Noble Kumar (supra) did not

have the occasion to deal with a grievance espoused by a person who claimed

himself to be a bona fide lessee or tenant and any observation made therein may

not apply to a non-borrower. If this right of the non-borrower is not recognized, he

shall be without a remedy.

 Consequently, I hold that the relevant tribunal having jurisdiction under Section 17

of the Act on being approached has a duty to consider the status of the party

approaching it to arrive at a considered opinion as to whether the application should be entertained or not. 

Kolkata High Court (Appellete Side)

S. Vision Comptech Integrators ... vs State Bank Of India on 20 June, 2014

Author: Dipankar Datta

Citation; AIR 2014 Calcutta 161

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