2023 (4) TMI 1464 - SC - Indian Laws

Civil suit to enforce property sale against bank's SARFAESI recovery steps barred; injunction vacated, appeal allowed.

Section 34 of the SARFAESI Act bars civil court jurisdiction over matters that the DRT/DRAT is empowered to determine, including actions 'to be taken' ... Maintainability of suit filed for specific performance of the terms of the settlement filed in the eviction suit - express bar on the jurisdiction of the civil court, as provided under Section 34 of the SARFAESI Act - refusal to grant the discretionary relief under Order XXXIX Rules 1 and 2 of the Civil Procedure Code, 1908 - HELD THAT:- The issue as to the exclusion of the jurisdiction of a civil court is no more res integra. The provisions of Section 34 of the SARFAESI Act have been considered by a Bench of three Judges of this Court in the case of Mardia Chemicals Limited and Others v. Union of India and Others [2004 (4) TMI 294 - SUPREME COURT] where it was held that 'However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and untenable which may not require any probe whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages.' It could thus be seen that this Court has held that the jurisdiction of the civil court is barred in respect of matters which a DRT or an Appellate Tribunal is empowered to determine in respect of any action taken “or to be taken in pursuance of any power conferred under this Act”. The Court has held that the prohibition covers even matters which may be taken cognizance of by the DRT though no measure in that direction has so far been taken under subsection (4) of Section 13 of the SARFAESI Act. It has been held that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. It has categorically been held that any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The Court held that the bar of civil court thus applies to all such matters which may be taken cognizance of by the DRT, apart from those matters in which measures have already been taken under sub-section (4) of Section 13 of the SARFAESI Act. In the present case, it cannot be said that the action of the secured creditor, i.e. the appellant is either fraudulent or that its claim is so absurd or untenable which may not require any probe whatsoever. It is further to be noted that the SARFAESI Act itself provides remedies to an aggrieved party in view of the provisions of Sections 17 and 18. It has been held by this Court that the Appellate Court would not interfere with the exercise of discretion of the court of first instance and substitute its own discretion except where the discretion has been shown to have been exercised arbitrarily, or capriciously or perversely or where the court had ignored the settled principles of law regulating grant or refusal of interlocutory injunctions. It has been held that an appeal against exercise of discretion is said to be an appeal on principle. Undisputedly, in the present case, while vacating the interim relief granted vide order dated 15th July 2013, the Single Judge had held that the relief claimed by the plaintiff could not have been granted in view of the provisions of Section 34 of the SARFAESI Act. As such, the Single Judge had passed the said order on the basis of a statutory bar - the scope in which a civil suit is maintainable as determined by this Court in the case of Mardia Chemicals Limited [2004 (4) TMI 294 - SUPREME COURT] is very limited. The case of the respondent/plaintiff would not come within the said limited scope. The Division Bench has grossly erred in interfering with the discretion exercised by the Single Judge - The judgment and order dated 30th January 2017 passed by the Division Bench of the High Court is quashed and set aside and the judgment and order passed by the learned Single Judge is upheld - Appeal allowed. 1. ISSUES PRESENTED AND CONSIDERED (i) Whether the civil court could grant or continue an injunction restraining a secured creditor from dealing with or selling a mortgaged secured asset, in view of the bar on civil court jurisdiction under Section 34 of the SARFAESI Act and the availability of statutory remedies under Sections 17 and 18. (ii) Whether the appellate court was justified in interfering with the trial court's discretionary order vacating an interlocutory injunction, when that order was founded on a statutory bar and the case did not fall within the limited civil court carve-outs recognized for allegations such as fraud or claims being absurd/untenable. 2. ISSUE-WISE DETAILED ANALYSIS Issue (i): Civil court's power to injunct SARFAESI measures affecting the secured asset Legal framework (as discussed): The Court examined Section 34 of the SARFAESI Act (bar of civil court jurisdiction) along with the statutory remedial scheme under Sections 17 and 18. The Court also applied the limited exception noted in its reasoning that civil court intervention is permissible only in narrowly confined situations, such as where the secured creditor's action is alleged to be fraudulent or the claim is so absurd and untenable as to require no probe. Interpretation and reasoning: The Court treated the suit and interim prayers as effectively seeking a blanket restraint on the secured creditor from dealing with, disposing of, or encumbering the mortgaged property, thereby directly impeding enforcement of security. The Court held that Section 34 bars civil court jurisdiction in respect of matters which the tribunal is empowered to determine regarding actions taken or to be taken under the SARFAESI Act, and that the respondent's case did not fall within the limited permissible civil court scope. The Court further noted that the secured creditor's action could not be characterized as fraudulent, nor was its claim shown to be absurd or untenable, and that SARFAESI provides remedies to an aggrieved party through the tribunal and appellate tribunal mechanism. Conclusions: The Court concluded that the interim restraint sought/granted against sale of the secured asset was barred in view of Section 34, the case did not meet the narrow exceptions permitting civil court intervention, and the proper avenue lay under the statutory remedies provided by SARFAESI. Accordingly, the trial court was correct in vacating the interim injunction. Issue (ii): Appellate interference with trial court discretion in interlocutory injunction matters Legal framework (as discussed): The Court applied the principle governing appeals from discretionary interlocutory injunction orders: an appellate court should not substitute its discretion unless the trial court acted arbitrarily, capriciously, perversely, or ignored settled principles regulating interlocutory injunctions. The Court characterized the appellate jurisdiction exercised as analogous to an appeal against an order under Order XLIII Rule 1 CPC, requiring restraint in interference. Interpretation and reasoning: The Court found that the trial court vacated the interim order on a statutory basis-namely, that the injunction could not be sustained due to Section 34's jurisdictional bar. Since the trial court's view was reasonably possible on the material and aligned with the statutory bar and limited scope for civil court intervention, the appellate court's interference was unwarranted. The Court held that the appellate court erred in restraining the secured creditor from selling the secured asset pending civil suit determination, thereby effectively reviving an injunction that the trial court had vacated as barred. The Court did not accept the basis adopted by the appellate court to maintain restraint, because the decisive consideration was the statutory bar and the inapplicability of the narrow exceptions. Conclusions: The Court concluded that the appellate court improperly interfered with a discretionary order that was judicially exercised on settled principles and grounded in a statutory bar. The order vacating the interim injunction was restored, and the appellate restraint on sale of the secured asset was set aside.