2015 (12) TMI 1424 - HC - Indian Laws

Court clarifies jurisdiction for debt recovery cases under SARFAESI Act

GSL (India) Ltd. Versus Asset Reconstruction Co. (India) Ltd. and others

The court held that the Debt Recovery Tribunal (DRT) should determine its jurisdiction for a Securitization Application under Section 17 of the SARFAESI ... Jurisdiction to entertain the Securitization Application filed by the Petitioner - Held that:- DRT is required to send a copy of the Recovery Certificate for execution to the DRT within whose jurisdiction the property is situated. As mentioned earlier, section 19(23) clearly stipulates that where the tribunal, which has issued a certificate of recovery, is satisfied that the property is situated within the local limits of the jurisdiction of two or more tribunals, it may send copies of the Recovery Certificate for execution to such other tribunals where the property is situated. The word “may” clearly indicates that this provision is discretionary and not mandatory in nature. Under section 19(23), discretion is given to the DRT to either itself execute the Recovery Certificate issued by it against a property not within its jurisdiction, or to send it to the concerned DRT where the property is situated. This is a distinct departure from the provisions of the CPC and more particularly section 39 thereof. DRT whilst deciding whether it has territorial jurisdiction to entertain a Securitisation Application filed under section 17 of the SARFAESI Act would be guided by the principles enshrined in section 19(1) of the RDDB Act and not by section 16 of the Code of Civil Procedure, 1908. Rule is accordingly made absolute and the Petition is granted in terms of prayer clause (a). Securitisation Application is restored to the file of the DRT – III, Mumbai, to be decided on merits and in accordance with law. We would request the DRT to dispose of the Securitisation Application as expeditiously as possible and in any event, within a period of three months from today. Issues Involved:1. Jurisdiction of the Debt Recovery Tribunal (DRT) to entertain a Securitization Application under Section 17 of the SARFAESI Act.2. Applicability of Section 16 of the Code of Civil Procedure (CPC) versus Section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act (RDDB Act) for determining the jurisdiction of the DRT.3. Interpretation of Section 17(7) of the SARFAESI Act in conjunction with the RDDB Act.4. Analysis of the Full Bench judgment of the Delhi High Court in the case of Amish Jain v/s ICICI Bank Ltd.Detailed Analysis:1. Jurisdiction of the Debt Recovery Tribunal (DRT) to entertain a Securitization Application under Section 17 of the SARFAESI Act:The petitioner challenged the orders of the DRT-III, Mumbai, and the Debt Recovery Appellate Tribunal (DRAT), which held that DRT-III, Mumbai, had no jurisdiction to entertain the Securitization Application because the secured property was situated in Gujarat. Both authorities relied on the Full Bench decision of the Delhi High Court in the case of Amish Jain v/s ICICI Bank Ltd. The petitioner argued that the entire cause of action arose within the jurisdiction of DRT-III, Mumbai, as the bidding process and other related activities took place in Mumbai.2. Applicability of Section 16 of the Code of Civil Procedure (CPC) versus Section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act (RDDB Act) for determining the jurisdiction of the DRT:The court examined whether the jurisdiction of the DRT for entertaining a Securitization Application under Section 17 of the SARFAESI Act should be determined based on Section 16 of the CPC or Section 19(1) of the RDDB Act. The court noted that Section 17(7) of the SARFAESI Act stipulates that the DRT shall dispose of the Securitization Application in accordance with the provisions of the RDDB Act. Section 19(1) of the RDDB Act allows the DRT to entertain an application where the defendant resides or where the cause of action arises, without being limited to the location of the secured property.3. Interpretation of Section 17(7) of the SARFAESI Act in conjunction with the RDDB Act:The court emphasized that Section 17(7) of the SARFAESI Act mandates that the DRT dispose of the Securitization Application in accordance with the RDDB Act, thus making Section 19(1) of the RDDB Act applicable for determining jurisdiction. The court rejected the applicability of Section 16 of the CPC, which requires suits related to immovable property to be filed where the property is situated, as the Securitization Application under Section 17 of the SARFAESI Act is not equivalent to a suit under the CPC.4. Analysis of the Full Bench judgment of the Delhi High Court in the case of Amish Jain v/s ICICI Bank Ltd:The court disagreed with the Delhi High Court's interpretation that the DRT's jurisdiction for a Securitization Application under Section 17 of the SARFAESI Act should be determined based on the location of the secured property. The Bombay High Court held that the principles enshrined in Section 19(1) of the RDDB Act should apply, allowing the DRT to entertain applications based on the residence of the defendant or where the cause of action arises. The court found that the Full Bench of the Delhi High Court had erred in its interpretation and reasoning.Conclusion:The court held that the DRT should determine its jurisdiction for a Securitization Application under Section 17 of the SARFAESI Act based on Section 19(1) of the RDDB Act, not Section 16 of the CPC. Consequently, the court restored the Securitization Application to the file of DRT-III, Mumbai, to be decided on merits and in accordance with the law, requesting the DRT to dispose of the application expeditiously within three months. The rule was made absolute, and the petition was granted in terms of prayer clause (a). The parties were directed to bear their own costs.