2015 (4) TMI 984 - HC - Indian Laws

Civil Court lacks jurisdiction under SARFAESI Act; Plaintiff directed to seek relief before DRT

The Court held that the Civil Court lacked jurisdiction under Section 34 of the SARFAESI Act as the Plaintiff's fraud allegations did not meet the ... Re-auction of property - default committed by the Plaintiff in payment of the balance sale consideration/bid amount - Defendant Bank proceeded to forfeit the Earnest Money Deposit made - permanent injunction - whether a suit against the measures taken under Section 13 of the SARFAESI Act is maintainable has once again attracted the attention of this Court - Held that:- Defendant in the auction notice and in terms of the conditions of the auction has not disclosed or suppressed the factum of there being an attachment of the Income Tax Department on the secured asset. The plaint does not contain any complicated facts leading to the case of fraud or how the action of the Defendant Bank is fraudulent. There are therefore no complicated issues of fact which are to be tried. It would have to be borne in mind that the auction was on “as is where is basis” and “as is what is basis”. The intending participant in the said auction is therefore expected to make necessary inquiries if one can say so having regard to the general practice adopted at the time of auction. In fact in the instant matter the Plaintiff in Paragraph 6 of the plaint accepts the position that the attachment of the Income-Tax Department does not mean that there is a bar for the sale of the said property which is under attachment. In so far as the conduct of the auction is concerned, Rule 8 applies and in terms of clause (f) thereof the authorized officer is required to disclose any other thing which the authorized officer considers it material for a purchaser to know. Hence assuming that there was a non-disclosure by the Defendant of the attachment of the Income¬Tax Department at the time of auctioning the secured assets, the same at the highest may amount to the auction being conducted in violation of Rule 8 of the Rules of 2002, and for the said reason also the instant suit does not fall within the exception carved out by Mardia Chemicals Ltd.'s case (2004 (4) TMI 294 - SUPREME COURT OF INDIA). Rules of 2002 are mandatory in nature and if the requirements of the Rules have not been waived by the borrower, the consequences would have to follow. As indicated above, in the instant case though it has been alleged against the Defendant that the sale was carried out without disclosing the attachment of the Income¬Tax Department, the Plaintiff has thereafter alleged that the re¬auction is sought to be carried out by deceit and in criminal breach of trust as a right has already been created in favour of the Plaintiff by virtue of the acceptance of the offer of the Plaintiff in the first auction. As observed in the earlier part of this order, non-disclosure of the fact of there being an attachment of the Income¬Tax Department, assuming it be so, can at the highest amount to the breach of clause (f) of Rule 8 and may therefore amount to auction sale being carried out in violation and in breach of the Rules of 2002. The Debts Recovery Tribunal is therefore vested with the jurisdiction to adjudicate whether the measures taken are in accordance with the Act and Rules. Hence apart from the fact that in the light of the averments made in the plaint of the instant suit, they cannot be said to fall in the exception carved out in Mardia Chemicals Ltd.'s case (2004 (4) TMI 294 - SUPREME COURT OF INDIA). It would also have to be held that in the instant case the suit is not maintainable in view of the fact that in the instant case there is no issue which cannot be adjudicated upon by the Debts Recovery Tribunal. - Trial Court has committed an error of jurisdiction by coming to a conclusion that the suit filed is maintainable. The impugned order is therefore required to be set aside in the revisionary jurisdiction of this court and is accordingly set aside. It is held that the suit filed by the Plaintiff is not maintainable and is accordingly dismissed. However, it would be open for the Plaintiff to take recourse to Section 17 of the SARFAESI Act and adopt appropriate proceedings before the concerned Debts Recovery Tribunal, Pune. - Appeal not maintainable. Issues Involved:1. Jurisdiction of the Civil Court under Section 34 of the SARFAESI Act.2. Allegations of fraud by the Plaintiff.3. Compliance with Rule 8 of the Security Interest (Enforcement) Rules, 2002.4. Availability of alternative remedy under Section 17 of the SARFAESI Act.Issue-wise Detailed Analysis:1. Jurisdiction of the Civil Court under Section 34 of the SARFAESI Act:The primary issue was whether the Civil Court had jurisdiction to entertain the suit filed by the Plaintiff seeking a permanent injunction against the re-auctioning of the property. The Defendant argued that the Civil Court's jurisdiction was barred under Section 34 of the SARFAESI Act, which states that no Civil Court shall have jurisdiction in respect of any matter which a Debts Recovery Tribunal (DRT) or Appellate Tribunal is empowered to determine. The Court concluded that the DRT is empowered to adjudicate on matters related to the enforcement of security interests and compliance with the SARFAESI Act and Rules, thus barring the Civil Court's jurisdiction in this case.2. Allegations of Fraud by the Plaintiff:The Plaintiff alleged that the Defendant committed fraud by not disclosing the Income Tax Department's attachment on the property during the auction. The Court referred to the Supreme Court's judgment in Mardia Chemicals Ltd. v. Union of India, which allows a limited exception for Civil Court jurisdiction in cases of fraud. However, the Court emphasized that mere allegations of fraud without detailed and complicated facts do not suffice to invoke Civil Court jurisdiction. The Court found that the Plaintiff's allegations did not meet the threshold for this exception.3. Compliance with Rule 8 of the Security Interest (Enforcement) Rules, 2002:The Plaintiff argued that the Defendant violated Rule 8(f) of the Security Interest (Enforcement) Rules, 2002, by not disclosing the Income Tax Department's attachment. The Court noted that any non-compliance with Rule 8 could be addressed by the DRT under Section 17 of the SARFAESI Act. The Court held that the DRT has the jurisdiction to determine whether the measures taken by the secured creditor were in accordance with the Act and Rules.4. Availability of Alternative Remedy under Section 17 of the SARFAESI Act:The Defendant contended that the Plaintiff had an alternative remedy under Section 17 of the SARFAESI Act, which allows any aggrieved person to file an application before the DRT. The Court agreed, noting that the DRT is equipped to handle disputes regarding the enforcement of security interests and compliance with the SARFAESI Act. The Court cited several Supreme Court judgments emphasizing the need to exhaust alternative remedies before approaching the Civil Court.Conclusion:The Court concluded that the Civil Court's jurisdiction was barred under Section 34 of the SARFAESI Act, as the Plaintiff's allegations did not meet the criteria for the limited exception of fraud. The Court found that the Plaintiff had an adequate and effective remedy under Section 17 of the SARFAESI Act to address any grievances related to the auction process. Consequently, the Court set aside the Trial Court's order and dismissed the suit, allowing the Plaintiff to seek relief before the DRT.