Fraud and collusion pleadings can preserve civil court jurisdiction and defeat threshold rejection of a plaint.
A plaint alleging fraud and collusion in a loan, mortgage and enforcement transaction was treated as disclosing a narrow civil court exception to the bar under Section 34 of the SARFAESI Act, because the pleadings contained specific factual averments rather than bare labels. For rejection under Order VII Rule 11 CPC, only the plaint and the documents relied on with it could be examined, not the defence version or material beyond the plaint. On that approach, the plaint could not be rejected at the threshold where it disclosed a triable civil cause of action. The supervisory challenge therefore succeeded and the plaint was restored.
Issues: (i) Whether the plaint disclosed specific pleadings of fraud and collusion sufficient to attract the limited civil court exception and avoid the bar under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. (ii) Whether rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908 could be sustained when the controversy had to be examined only on the basis of the plaint and the documents relied upon therein.
Issue (i): Whether the plaint disclosed specific pleadings of fraud and collusion sufficient to attract the limited civil court exception and avoid the bar under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.
Analysis: The plaint was read as a whole and was found to contain specific averments that the loan transaction, mortgage creation, and subsequent enforcement measures were the result of collusion between the secured creditor and the company's directors. The pleadings were not confined to bare use of the words "fraud" or "collusion" but set out concrete instances, including the alleged absence of proper board authorisation and the sequence in which the loan was sanctioned. In such circumstances, the dispute was held to fall within the narrow exception recognised where fraudulent action is alleged, and the declaratory relief claimed was not one which the Debts Recovery Tribunal or the appellate tribunal was empowered to decide.
Conclusion: The bar under Section 34 was held not to be absolute on the facts pleaded, and the suit was held maintainable in civil court on the pleaded case of fraud and collusion.
Issue (ii): Whether rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908 could be sustained when the controversy had to be examined only on the basis of the plaint and the documents relied upon therein.
Analysis: In considering an application under Order VII Rule 11, only the plaint and the documents referred to in it could be examined, and the defence version or material relied upon by the opposite parties could not be used to reject the plaint. The findings of the courts below were held to be perverse because they overlooked the pleaded facts and relied on matters beyond the plaint, including the supposed absence of particulars of fraud and the plaintiff's locus before the debt recovery forum. The supervisory jurisdiction was invoked to prevent denial of any effective remedy where the plaint itself disclosed a triable civil cause of action.
Conclusion: Rejection of the plaint was held unsustainable and the orders of the courts below were set aside.
Final Conclusion: The plaint was restored to the commercial court for decision in accordance with law, and the supervisory challenge succeeded.
Ratio Decidendi: For rejecting a plaint at the threshold, the court must confine itself to the plaint averments and documents relied upon therein, and where those pleadings disclose a specific case of fraud or collusion outside the remedial ambit of the special statute, the civil court's jurisdiction is not barred and the plaint cannot be rejected under Order VII Rule 11.
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AI Drafter ✕
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