Civil courts lack jurisdiction to restrain secured creditors from SARFAESI Act recovery proceedings under Section 34

The HC quashed orders granting interim injunction and restraining secured creditor from recovery proceedings. The lower court lacked jurisdiction under Section 34 of SARFAESI Act, which bars civil courts from entertaining disputes regarding secured creditor's actions. The orders violated Section 41(b) of Specific Relief Act by restraining proceedings before coordinate/superior forums like Debts Recovery Tribunal. Despite available appeal remedy, HC exercised supervisory jurisdiction under Article 227 due to patent jurisdictional error affecting public policy where secured creditor was prevented from recovering debts from non-performing asset account. The suit was held non-maintainable.

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Issues Involved:

1. Jurisdiction of the Lower Court.
2. Application of Section 34 of the SARFAESI Act.
3. Violation of Section 41(b) of the Specific Relief Act, 1963.
4. Maintainability of the Revision Petition under Article 227 of the Constitution of India.

Detailed Analysis:

1. Jurisdiction of the Lower Court:

The primary issue concerns whether the Lower Court had jurisdiction to entertain the suit. The petitioner argued that the jurisdiction was exclusively with the Courts of Mumbai and Guwahati as per the Restructuring Agreement dated October 3, 2019. The agreement explicitly stated that disputes would be subject to these courts' jurisdiction, which was supported by the legal maxim "expressio unius est exclusio alterius," meaning the expression of one is the exclusion of another. The court found that the intention of the parties was clear in conferring exclusive jurisdiction to the specified courts, thus excluding the jurisdiction of other courts, including the Lower Court.

2. Application of Section 34 of the SARFAESI Act:

The petitioner contended that the suit was barred under Section 34 of the SARFAESI Act, which prohibits civil courts from entertaining suits in matters that fall within the jurisdiction of the Debts Recovery Tribunal. The court agreed, noting that the non-discharge of liabilities by the respondent fell within the purview of disputes to be addressed by the Tribunal. The court referenced the decision in Mardia Chemicals Ltd. vs. Union of India, which clarified that the bar of civil court jurisdiction applies to matters cognizable by the Debts Recovery Tribunal, even if no action has been taken under Section 13(4) of the SARFAESI Act.

3. Violation of Section 41(b) of the Specific Relief Act, 1963:

The petitioner argued that the injunction order violated Section 41(b) of the Specific Relief Act, which prohibits courts from granting injunctions that restrain a person from instituting or prosecuting proceedings in a court not subordinate to the one granting the injunction. The court found merit in this argument, as the impugned orders effectively restrained the petitioner from initiating proceedings before superior forums like the Debts Recovery Tribunal or the Company Law Tribunal. The court cited the Supreme Court's judgment in Cotton Corporation of India Limited vs. United Industrial Bank Limited, which emphasized that an injunction should not preclude a person from seeking relief in a court of co-ordinate or superior jurisdiction.

4. Maintainability of the Revision Petition under Article 227:

The respondent argued that the petition under Article 227 was not maintainable due to the availability of an alternative remedy. However, the court noted that the powers under Article 227 could be invoked in cases of erroneous jurisdiction assumption or procedural errors. Given the involvement of public money and the thwarting of the secured creditor's rights, the court deemed it appropriate to exercise its supervisory jurisdiction. The court concluded that the peculiar facts of the case justified interference, as the Lower Court's orders were contrary to law and public policy.

Conclusion:

The court quashed the impugned orders dated 28.01.2022 and 17.08.2022, holding that the Lower Court lacked jurisdiction to try the suit. The Revision Application was allowed, enabling the petitioner to pursue its legal and statutory rights for recovery of debts through appropriate forums. No order as to costs was made.

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