2025 (1) TMI 1669 - SC - Indian Laws

Civil jurisdiction preserved despite SARFAESI; Order VII Rule 11 CPC rejection upheld, Section 9 CPC allows title declarations

SC dismissed the appeal by the appellant-Bank challenging rejection of its application under Order VII Rule 11 CPC. The Bank had contended that, in view ... Rejection of plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908 - possession of the suit land - appellant-Bank herein preferred an application under Order VII Rule 11 of the CPC and prayed that the plaint be rejected as the civil court has no jurisdiction to try the same in view of Section 17 of the SARFAESI Act - HELD THAT:- The Tribunal would have no jurisdiction under Section 17 of the SARFAESI Act to grant the declarations sought in the first and the second reliefs - Further, the SARFAESI Act is enacted essentially to provide a speedy mechanism for recovery of debts by banks and financial institutions. The SARFAESI Act has not been enacted for providing a mechanism for adjudicating upon the validity of documents or to determine questions of title finally. The DRT does not have the jurisdiction to grant a declaration with respect to the mortgage deed or the sale deed as sought by the Plaintiff. The jurisdiction to declare a sale deed or a mortgage deed being illegal is vested with the civil court under Section 9 of the Code of Civil Procedure. Therefore, the civil Court has the jurisdiction to finally adjudicate upon the first two reliefs. This Court in State Bank of Patiala v. Mukesh Jain & Anr. [2016 (12) TMI 810 - SUPREME COURT] relied on Section 34 and declared that no civil court can entertain any suit wherein the proceedings initiated under Section 13 are challenged. Thus, this judgment highlighted that when the measures under Section 13 are challenged before the civil court, its jurisdiction to look into the challenge is ousted under Section 34. In Madhav Prasad Aggarwal & Anr. v. Axis Bank Limited & Anr. [2019 (7) TMI 191 - SUPREME COURT], this Court declared that under Order VII Rule 11, plaint cannot be rejected in part or against one of the defendants. The plaintiff's claim was based on allotment letters for agreement to specific flats, which were prior in time to the mortgage in favour of the bank by the builder. Hence when the plaintiff became aware of the subsequent mortgage it filed the suit against the builder and the bank. Bank moved an application under Order VII Rule 11. This Court in Electro steel Castings Ltd. V. UV Asset Reconstruction Co. Ltd. & Ors. [2021 (11) TMI 941 - SUPREME COURT] has held that mere allegations of fraud in the plaint will not overcome the bar under Section 34. The said case involved the assignment deed whereby Section 13(2) notice was issued to the plaintiff. The plaintiff claimed the assignment deed to be fraudulent and filed the suit. This Court declared that the suit was barred under Section 34. The case is crucial because it hinged on the fact that there were only allegations of fraud in the plaint without anything further. The drafting was clever to overcome Section 34. Thus, if there is something more than mere allegations of fraud, certainly, the civil court's jurisdiction won't be ousted. Thus, it is deemed necessary to observe that Banks should remain very careful with inadequate title clearance reports, more particularly, when such reports are obtained cheaply and at times for external reasons. This concerns the protection of public money and is in the larger public interest. Therefore, it is essential for the Reserve Bank of India and other stakeholders to collaborate in developing a standardized and practical approach for preparing title search report before sanctioning loans and also for the purpose of determining liability (including potential criminal action) of the Officer who approves loan. Additionally, there should be standard guidelines for fees and costs associated with title search reports so as to ensure that they maintain high quality. In such circumstances, no error not to speak of any error of law could be said to have been committed by the High Court in passing the impugned order. The interim order earlier granted by this Court stands vacated. The civil suits shall now proceed further expeditiously in accordance with law - appeal dismissed. ISSUES PRESENTED AND CONSIDERED 1. Whether Section 34 of the SARFAESI Act ousts civil court jurisdiction to entertain a suit seeking (a) a declaration that antecedent sale and mortgage deeds are null and void, and (b) possession of the property, when the secured creditor has taken measures under Section 13. 2. Whether the Debts Recovery Tribunal (DRT) under Section 17 has jurisdiction to adjudicate title disputes or to grant declarations as to the invalidity of sale or mortgage deeds executed prior to invocation of SARFAESI measures. 3. Whether, under the unamended statutory scheme applicable to the suit, the DRT can 'restore' possession to a person who was not in possession when the secured creditor took possession. 4. Whether a plaint may be rejected in part under Order VII Rule 11 CPC where some prayers fall within the exclusive jurisdiction of the DRT but other prayers fall within the civil court's jurisdiction. 5. The scope and effect of precedents dealing with the bar under Section 34 - how they apply or are to be read in relation to the limited jurisdiction of the DRT under Section 17. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Whether Section 34 ousts civil court jurisdiction to decide declarations as to antecedent sale and mortgage deeds Legal framework: Section 34 bars civil courts from entertaining suits or proceedings 'in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine' and prohibits injunctions in respect of actions under the SARFAESI Act. Section 17 (pre-2016 amendment) confines DRT jurisdiction to considering whether measures under Section 13(4) were in accordance with the Act and to restoring possession/management to the borrower. Precedent treatment: The Court analysed Mardia Chemicals, Jagdish Singh, Nahar, Robust Hotels, Allwyn Alloys, Madhav Prasad Aggarwal, and others - acknowledging their holdings but reading their ratio narrowly where necessary. It followed the principle that Section 34 ousts civil jurisdiction only in respect of matters the DRT is empowered to determine, but it distinguished earlier pronouncements to stress the limited remedial powers of the DRT under Section 17(3). Interpretation and reasoning: The Court held that declarations as to the invalidity of sale and mortgage deeds executed prior to the secured creditor's measures do not concern measures taken under Section 13(4) and therefore do not fall within the DRT's jurisdiction under Section 17. The SARFAESI Act is a recovery/enforcement statute and was not enacted to provide a forum for finally adjudicating title or invalidating antecedent documents; such powers remain with the civil courts under Section 9 CPC. Consequently, the civil court's jurisdiction to decide the first and second reliefs (declarations of nullity of sale and mortgage) is not ousted by Section 34. Ratio vs. Obiter: Ratio - Section 34 ousts civil jurisdiction only insofar as the matter is one that the DRT/Appellate Tribunal is empowered to determine; declarations attacking antecedent deeds not arising out of Section 13(4) measures remain within civil court jurisdiction. Observations distinguishing prior cases on their facts are explanatory but integral to the decision. Conclusion: Civil court retains jurisdiction to adjudicate declarations about the antecedent sale and mortgage; Section 34 does not bar those parts of the plaint. Issue 2 - Whether the DRT can adjudicate title or grant declarations as to validity of antecedent documents Legal framework: Section 17(2)-(4) empowers the DRT to examine whether measures under Section 13(4) were in accordance with the Act and to pass consequential orders, including restoration of possession or management to the borrower (unamended wording: 'restore'). Precedent treatment: The Court accepted that Section 17 uses the phrase 'any person' (broadly interpreted in earlier cases) but held that breadth of the phrase cannot be read to enlarge the remedial powers conferred by Section 17(3). It distinguished readings that imply the DRT can adjudicate general title disputes or pass decrees beyond restoring possession/management. Interpretation and reasoning: The DRT's jurisdiction is limited to reviewing the legality of the secured creditor's measures and giving reliefs that reverse such measures (i.e., restoring things to the status quo ante as to the borrower). The statute does not vest the DRT with power to finally determine rival title claims between third parties or to pass declarations nullifying antecedent deeds; those fall outside the 'measures' under Section 13(4) and beyond the DRT's statutory remit. The Court stressed that tribunals are creatures of statute and constrained within the four corners of the Act. Ratio vs. Obiter: Ratio - DRT cannot finally adjudicate title disputes or declare antecedent sale/mortgage deeds void; its remit is confined to determining legality of measures under Section 13(4) and restoring possession/management to the borrower (or person in possession through the borrower in limited circumstances). Conclusion: The DRT lacks jurisdiction to decide title disputes or to grant declarations attacking antecedent sale/mortgage deeds; civil courts retain domain over such matters. Issue 3 - Meaning of 'restore possession' and whether DRT may hand over possession to a third party not in possession when the bank took possession Legal framework: Section 17(3) (unamended) empowers the DRT to 'restore the possession of the secured assets to the borrower' if measures are found invalid; the language employed is 'restore' not 'hand over'. Precedent treatment: The Court reviewed prior authorities and found that some earlier pronouncements did not sufficiently consider the restrictive significance of the word 'restore'. It cited later statutory amendment (2016) which enlarged wording but still retained 'restore'. Interpretation and reasoning: 'Restore' implies returning to a prior condition or person who was in possession when the secured creditor took possession. DRT's power is to return possession to the borrower (or to a person holding on behalf of/through the borrower), not to hand over possession to a third party whose claim is adverse to the borrower and who was not in possession at the time the secured creditor intervened. Consequently, a plaintiff not in possession and not claiming under/through the borrower cannot obtain possession from the DRT under unamended Section 17(3). Ratio vs. Obiter: Ratio - DRT's power to restore possession is limited to restoring possession to the borrower or those in-possession connected to the borrower; it does not extend to conferring possession on strangers who were not in possession. Conclusion: The third relief (possession in favour of a non-possessory third party) could not have been obtained from the DRT under the unamended Section 17(3); but this limitation does not oust the civil court from entertaining the possession claim where appropriate. Issue 4 - Whether a plaint may be rejected in part under Order VII Rule 11 CPC when only some reliefs are barred by Section 34 Legal framework: Order VII Rule 11 CPC permits rejection of plaint on specified grounds but does not permit partial rejection; the Court relied on Sejal Glass and Madhav Prasad Aggarwal construing the scope of Order VII Rule 11. Precedent treatment: The Court followed the line that a plaint cannot be rejected in part - it must survive in whole if any relief or claim survives. It relied on binding precedents that a partial rejection is impermissible and that a court should not make adverse observations on those reliefs that it declines to decide in a Rule 11 application. Interpretation and reasoning: Even if one relief (e.g., possession) might fall within the DRT's exclusive domain, the presence of other reliefs (declarations as to antecedent deeds) within the civil court's jurisdiction prevents rejection of the plaint in toto under Order VII Rule 11. A civil court should not record adverse findings on reliefs it leaves undecided at the Rule 11 stage. Ratio vs. Obiter: Ratio - plaint cannot be partially rejected under Order VII Rule 11; if any relief in the plaint is maintainable before the civil court, the Rule 11 application must fail. Conclusion: The trial court's rejection of the plaint under Order VII Rule 11 was not appropriate where the declarations (first and second reliefs) were within civil jurisdiction; the plaint must be permitted to proceed in respect of those claims. Issue 5 - Treatment of existing precedents on the bar under Section 34 and the correct approach to interpretation Legal framework: Principles that bar of civil jurisdiction must be strictly construed; the tribunal is a statutory creature and limited to its powers; Section 34 must be read in relation to what the DRT is empowered to determine. Precedent treatment: The Court reaffirmed the core holdings of Mardia (that Section 34 bars civil jurisdiction in respect of matters DRT can determine) and other cases that applied the bar, but it qualified earlier applications where those cases did not examine whether the DRT had statutory power to grant the specific relief sought (noting instances where earlier judgments overlooked limitations such as the word 'restore' or the DRT's inability to finally determine title or partition). The Court followed Sejal Glass and Madhav Prasad Aggarwal on the impermissibility of partial rejection of plaints and followed RDB Act jurisprudence that civil jurisdiction is not to be ousted by implication. Interpretation and reasoning: The correct approach is contextual: identify whether the relief claimed is a measure or consequence falling within Section 13(4) and whether Section 17 empowers the DRT to grant that relief. If yes, Section 34 may oust civil jurisdiction; if not, civil courts retain jurisdiction. Precedent must be applied with attention to the statutory limits of the DRT's powers. Ratio vs. Obiter: Ratio - Section 34's bar operates only in respect of matters the DRT is empowered to determine; precedents affirming broader bars must be read in light of the DRT's limited remedial powers. Observations distinguishing earlier cases are operative to the extent necessary to clarify limits on DRT jurisdiction. Conclusion: Precedents remain authoritative where applied on comparable facts; where prior reasoning overlooked statutory limits on DRT powers, those cases are to be read narrowly. The civil suit may proceed when the reliefs sought lie outside the DRT's statutory remit; existing doctrines requiring strict construction of jurisdictional bars were reaffirmed. FINAL CONCLUSIONS AND ORDERS (AS DERIVED FROM THE JUDGMENT) 1. The civil court retains jurisdiction to adjudicate declarations as to the invalidity of antecedent sale and mortgage deeds; those reliefs are not barred by Section 34. 2. The DRT under pre-2016 Section 17 could not finally adjudicate title disputes or hand over possession to a third party not in possession when the bank took possession; its power was limited to restoring possession/management to the borrower (or to those holding through the borrower). 3. Even if some relief sought in the plaint might fall for consideration under the SARFAESI scheme, the plaint could not be rejected in part under Order VII Rule 11 CPC; survival of any claim within the civil court's jurisdiction defeats a Rule 11 rejection. 4. The trial court's Order VII Rule 11 dismissal was not sustainable to the extent it rejected the whole plaint; the suits were directed to proceed expeditiously in accordance with law. 5. The Court dismissed the appeal against the High Court's order restoring the suit and directed expeditious continuation of civil proceedings; interim orders previously granted were vacated.