Summary
The Supreme Court held that Section 34 of the SARFAESI Act did not bar a co-heir's civil suit seeking declarations that a sale deed by another co-owner and the purchaser's later mortgage to the bank were void, and seeking possession. These are not matters the Debts Recovery Tribunal can decide under Section 17, whose power is limited to testing measures under Section 13(4) and 'restoring' possession. Since a plaint cannot be partly rejected under Order VII Rule 11, the High Court rightly restored the suit.
Issues
- Whether Section 34 of the SARFAESI Act ousts the civil court's jurisdiction over a suit by a third party claiming title, seeking declarations that a sale deed and the subsequent mortgage in favour of the bank are void, and recovery of possession.
- Whether the Debts Recovery Tribunal, under Section 17 as it stood before the 2016 amendment, could grant such declarations or hand over possession to a person who was never in possession and whose claim is adverse to the borrower.
- Whether a plaint can be rejected under Order VII Rule 11 CPC where only some of the reliefs claimed may be barred.
Provisions considered
- Section 34, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The bar extends only to matters which the DRT or Appellate Tribunal is empowered by or under the Act to determine; it must be strictly construed and correlated with the Tribunal's powers. The declarations and possession sought by the plaintiff fell outside those powers, so the suit was not barred. (¶¶ 11, 12, 18, 23, 24, 32, 43)
- Section 17 (pre-2016 amendment), especially sub-sections (1) to (4), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002Although 'any person' may apply, the DRT only examines whether measures under Section 13(4) accord with the Act and Rules, and may 'restore' possession to the borrower or one claiming through the borrower; it cannot adjudicate the validity of earlier title documents or hand over possession to a stranger with an adverse claim who was never in possession. (¶¶ 13, 14, 16, 17, 22, 23, 28, 38)
- Section 17(3) as amended in 2016, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002Noted (though not applicable to this 2011 suit) that even the amended provision, which adds 'other aggrieved person', speaks only of restoring possession and confers no power to hand over property to someone never in possession. (¶¶ 23, 38)
- Section 13(4), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002The DRT's jurisdiction, and hence the civil court bar, is tied to measures taken by the secured creditor under this provision; the plaintiff's challenge to the sale deed and mortgage concerned transactions that predated any such measure. (¶¶ 14, 16, 23)
- Section 9, Code of Civil Procedure, 1908The civil court has plenary jurisdiction over civil disputes unless expressly or impliedly barred; jurisdiction to declare a sale deed or mortgage illegal lies with the civil court, and exclusion is not readily inferred, the burden being on the party asserting it. (¶¶ 18, 41, 43)
- Order VII Rule 11, Code of Civil Procedure, 1908A plaint must be rejected as a whole or not at all; if any relief survives, the plaint cannot be rejected, and the court should not record observations that another relief is barred. (¶¶ 24, 25, 34)
Held
- Section 34 bars the civil court only in respect of matters that the DRT or Appellate Tribunal is empowered to determine under the SARFAESI Act. Under Section 17, the DRT's power is confined to examining whether measures taken by the secured creditor under Section 13(4) accord with the Act and Rules and passing consequential orders. (¶¶ 12, 13, 14, 32)
- The SARFAESI Act provides a speedy recovery mechanism, not a forum to adjudicate the validity of documents or decide title finally. Declarations that a sale deed by a co-owner and the purchaser's subsequent mortgage to the bank are void relate to transactions before the secured creditor acted, are outside the DRT's power, and lie within the civil court's jurisdiction under Section 9 CPC; title disputes between third parties and a borrower (e.g. rival wills or a disputed adoption) cannot be decided by the DRT. (¶¶ 16, 17, 18, 19, 20)
- Under unamended Section 17(3), the DRT may only 'restore' possession, that is, return it to the person in possession when the bank took over, namely the borrower or one claiming through the borrower. It cannot hand over possession to a plaintiff whose claim is independent of and adverse to the borrower and who was never in possession; the residual power to pass orders 'in relation to' Section 13(4) measures does not extend that far. The plaintiff's claim for possession was therefore also not barred by Section 34. (¶¶ 22, 23)
- There can be no partial rejection of a plaint under Order VII Rule 11 CPC; even if the claim for possession had been barred, the plaint had to survive because the declaratory reliefs were within the civil court's jurisdiction, and the court should leave the barred relief undecided at that stage rather than comment on it. (¶¶ 24, 25, 34)
- Jagdish Singh v. Heeralal is not a precedent that the DRT can decide partition or title claims: it overlooked that the DRT can only grant relief regarding Section 13(4) measures and only 'restore' possession, and recorded no finding that the DRT could grant partition. Mere allegations of fraud without particulars, however, will not avoid the Section 34 bar. (¶¶ 28, 29, 30, 36)
- The DRT is a creature of statute and cannot act beyond the four corners of the RDB and SARFAESI Acts; provisions barring civil court jurisdiction are to be strictly construed and the court leans towards retaining that jurisdiction. (¶¶ 38, 39, 40, 41, 43)
- The Court observed that banks must guard against inadequate title clearance reports, and that the Reserve Bank of India and other stakeholders should develop a standardised approach to title search reports before sanctioning loans, including fixing responsibility of approving officers and standard guidelines on fees for such reports. (¶ 44)
Result
Lead appeal dismissed and connected appeals disposed of in the same terms; the High Court's order restoring the suit upheld, the interim order vacated, and the civil suits directed to proceed expeditiously in accordance with law.