Private assignee cannot invoke SARFAESI enforcement; civil suit jurisdiction survives where later transactions are independently challenged.

A private assignee of a bank's security interest does not become a secured creditor under the SARFAESI Act merely by assignment, so it cannot invoke the Act's special enforcement powers or support possession for a lessee on that basis. Where later assignment, sub-mortgage and lease arrangements are independently challenged as fraudulent and extend beyond the bank's original recovery steps, civil court jurisdiction is not ousted by the SARFAESI Act or the RDDBFI Act. The note also records that a receiver may continue in possession to preserve the asset pending further orders, and that a court-supervised e-auction sale of the theatre complex may be directed to balance liabilities, protect value and avoid further litigation.

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Issues: (i) Whether the impugned assignment, sub-mortgage and lease transactions were prima facie tainted by fraud and lacked bona fides; (ii) whether a private assignee of a bank's security interest could invoke the special enforcement powers under the SARFAESI framework or place the lessee in possession; (iii) whether the civil suits were maintainable notwithstanding the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993; (iv) whether the receiver appointed in the debt recovery proceedings should continue in possession; and (v) whether the theatre complex could be directed to be sold in the interlocutory stage.

Issue (i): Whether the impugned assignment, sub-mortgage and lease transactions were prima facie tainted by fraud and lacked bona fides.

Analysis: The impugned arrangements did not amount to a genuine redemption of the mortgage. The assignment kept the original debt alive, and the subsequent sub-mortgage and lease only substituted one form of encumbrance for another. The financing structure conferred personal benefit on the second defendant while leaving the company without effective relief from the threat to its principal asset. The transactions also exposed the property to further sale risk at the instance of the sub-mortgagee and did not disclose any workable scheme for repayment within the stipulated time.

Conclusion: The transactions were held to be prima facie not bona fide and susceptible to challenge as fraudulent.

Issue (ii): Whether a private assignee of a bank's security interest could invoke the special enforcement powers under the SARFAESI framework or place the lessee in possession.

Analysis: The statutory enforcement mechanism under the SARFAESI Act is confined to a secured creditor, namely a bank, financial institution, consortium, or specified trustee. A private individual or partnership firm taking an assignment from the bank does not become a secured creditor merely by reason of the assignment. Although a transferee of a secured asset may receive rights in relation to the asset after lawful transfer, the assignee in the present case could not claim the Act's special enforcement powers. Without possession lawfully passing under the statutory scheme, the lease in favour of the proposed lessee could not be treated as validly supported by SARFAESI powers.

Conclusion: The private assignee and the partnership firm were held not entitled to invoke SARFAESI enforcement powers, and the lease could not be supported on that basis.

Issue (iii): Whether the civil suits were maintainable notwithstanding the SARFAESI Act and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

Analysis: Exclusion of civil court jurisdiction is not to be readily inferred. The challenge was not confined to the bank's original recovery steps but extended to a series of subsequent transactions entered into by the second defendant, the partnership firm and the lessee, which were not capable of complete adjudication before the Debt Recovery Tribunal. The reliefs sought were not merely directed against enforcement of a bank debt but against allegedly fraudulent acts affecting the company's asset and control over the theatre business. On that footing, the statutory ouster clauses did not bar the civil court from entertaining the suits.

Conclusion: The suits were held to be maintainable and within civil court jurisdiction.

Issue (iv): Whether the receiver appointed in the debt recovery proceedings should continue in possession.

Analysis: Although the bank's claim had been substantially satisfied, the surrounding disputes, the absence of any immediate workable alternative, the continuing controversy over the sub-mortgage and lease, and the need to preserve the asset pending further directions justified retention of the receiver. The receiver had already generated income and could continue under the court's supervision to protect the property and account for the receipts.

Conclusion: The receiver was directed to continue in possession until further orders.

Issue (v): Whether the theatre complex could be directed to be sold in the interlocutory stage.

Analysis: The company itself, by resolution, and the overwhelming majority of shareholders supported sale as the only practical means of discharging liabilities and preserving value. The court, exercising equitable jurisdiction, treated the sale as a means of balancing competing claims: repayment of the bank, restitution to the parties who had advanced money, protection of minority interests, and avoidance of further fruitless litigation. The sale direction did not amount to winding up the company but to a controlled realisation of the asset in the company's best interests.

Conclusion: The theatre complex was directed to be sold by e-auction under court supervision.

Final Conclusion: The appeals were disposed of by affirming the core findings on fraud, maintainability and continuation of the receiver, while replacing the interim regime with a court-supervised sale of the theatre property to satisfy the liabilities and protect the company's interests.

Ratio Decidendi: A private assignee of a bank's security interest does not acquire the status of a secured creditor under the SARFAESI Act, and where subsequent transactions beyond the bank's enforcement steps are independently impugned as fraudulent and incapable of complete adjudication under the special statutes, the civil court's jurisdiction is not ousted.

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