2021 (8) TMI 1426 - HC - Indian Laws

SARFAESI Act disputes must be adjudicated by DRT under Section 17, not civil courts

The HC dismissed a suit challenging measures taken under SARFAESI Act 2002, holding that such disputes fall under statutory bar and must be adjudicated by ... Suit for rejection of plaint - statutory bar in receiving the action - cause of action as pleaded in the plaint had no nexus with this court exercising authority on the Original Side - HELD THAT:- The wording of Section 17 of SARFAESI Act, 2002 does not imply that the challenge that must be carried thereunder must be confined to the measure taken by the secured creditor under Section 13(4) of the said Act. The very status of the creditor as a secured creditor may be questioned; as, if the creditor is not a secured creditor within the definition of the expression in the Act of 2002, the creditor could not have invoked the provisions of the said Act. That the opening words of Section 17 of the Act of 2002 permit a challenge to be carried against a measure taken by a secured creditor under Section 13(4) of the Act of 2002, does not preclude even the act of labelling the relevant account as non- performing asset to be questioned. The opening words of the provision must be seen to be indicative of when the right to apply thereunder arises, but cannot be confined merely to a challenge to the measure adopted under Section 13(4) of the Act of 2002, since a challenge to the measure adopted would always include the authority to take the measure, whether on account of the status of the creditor or on any other available count. Thus, when an asset reconstruction company, as the assignee of the debt originally due to a secured creditor, adopts a measure under Section 13(4) of the Act of 2002, any person aggrieved thereby may challenge the same by questioning the assignment of the debt on any of the various grounds that may be available. It is incumbent on the jurisdictional DRT to deal with the matter and, technically, it may be said that upon the DRT coming to a conclusion that the secured creditor had no debt to pursue or that the person who had taken measures under Section 13(4) of the Act of 2002 did not qualify to take recourse to the provisions of such statute, it would lose further authority over the matter - There may be the odd situation where the limited authority of the DRT or the DRAT may not be effective to remedy the wrong; but Section 17(3) of the Act of 2002 confers sufficient authority on the tribunal to pass appropriate directions which are consequential to its finding that the secured creditor was not entitled to invoke the provisions of the Act of 2002 or the measures taken by the secured creditor were not in accordance with the provisions of the Act. The issue as to whether this court had territorial jurisdiction to entertain the suit may not be conclusively answered and left open to the unlikely stage that the plaintiff may have to approach this court again and as to whether the relief claimed then for return of title-deeds is accompanied by a relief for the possession of the immovable property, whereupon the situs of the immovable property may be the deciding factor. Since the suit that the plaintiff brought before this court can no longer be entertained on the grounds indicated, the order impugned does not call for any interference, though on completely different grounds than indicated in the judgment in support thereof. Application disposed off. Issues Involved:1. Maintainability of the appeal.2. Jurisdiction of the High Court to entertain the suit.3. Applicability of Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.4. Authority of the Debts Recovery Tribunal (DRT) versus civil court jurisdiction.5. Validity of the assignment agreement and the right to retain title deeds.Detailed Analysis:1. Maintainability of the Appeal:The court examined whether the appeal was maintainable, considering the order was passed by the Commercial Division of the High Court. The court noted that Section 13(1A) of the Commercial Courts Act, 2015 allows appeals from judgments or orders of the Commercial Division to the Commercial Appellate Division. The court highlighted that the term 'decree' is not explicitly mentioned in the appellate provisions, creating a lacuna. However, the court interpreted that an appeal from a decree should be permitted by enlarging the meaning of 'judgment or order' to include a decree, thereby allowing the appeal to proceed.2. Jurisdiction of the High Court to Entertain the Suit:The trial court initially rejected the plaint on the grounds that the suit was for land outside the court's jurisdiction, and the leave under Clause 12 of the Letters Patent was denied. The court noted that the suit was framed in a manner requiring prior leave under Clause 12. The court emphasized that Original Side Courts are cautious in raising jurisdictional issues unless the suit appears to be barred by law. The court found that the trial court's decision to decline jurisdiction was appropriate, given the statutory bar under Section 34 of the Act of 2002.3. Applicability of Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002:The court discussed the statutory bar under Section 34, which prohibits civil courts from entertaining suits in matters that the DRT or Appellate Tribunal is empowered to determine. The court noted that the first defendant had invoked the provisions of the Act of 2002, bringing the bar into effect. As a result, the suit could no longer be entertained by the High Court, as the jurisdictional DRT was empowered to determine the inter se rights between the parties.4. Authority of the Debts Recovery Tribunal (DRT) versus Civil Court Jurisdiction:The court acknowledged that tribunals, like the DRT, have limited authority as conferred by statute, unlike civil courts with broader jurisdiction. The court clarified that Section 17 of the Act of 2002 allows challenges to measures taken by secured creditors, including questioning the creditor's status or the validity of the measure. The court emphasized that the DRT has sufficient authority under Section 17(3) to pass appropriate directions and remedy wrongs. However, if the DRT's authority is insufficient, the civil court's jurisdiction remains open for further redress.5. Validity of the Assignment Agreement and the Right to Retain Title Deeds:The plaintiff challenged the assignment agreement between the defendants, claiming the debt was discharged, and the assignment was invalid. The court noted that the plaintiff's claim for a declaration and injunction could not be entertained due to the statutory bar. The court also considered the plaintiff's submission that the DRT might lack authority to direct the return of title deeds. However, the court concluded that since the suit could not be entertained, the issue of title deeds was moot.Conclusion:The court upheld the trial court's decision to reject the plaint, emphasizing the statutory bar under Section 34 of the Act of 2002 and the jurisdictional authority of the DRT. The court noted that the appeal was maintainable but ultimately found no grounds to interfere with the trial court's order. The suit was dismissed, and no costs were awarded.