Karnataka High Court
Smt. Tulasi. D. K vs The Chief Manager And Authorized ... on 26 September, 2025
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NC: 2025:KHC:39056-DB
COMAP No. 477 of 2025
HC-KAR
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 26TH DAY OF SEPTEMBER, 2025
PRESENT
THE HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
AND
THE HON'BLE MS. JUSTICE J.M.KHAZI
COMMERCIAL APPEAL NO. 477 OF 2025
BETWEEN:
1. SMT. TULASI. D. K.
WIFE OF MR. RAKESH
AGED ABOUT 46 YEARS
2. RAKESH H.N.
SON OF SRI N.H. SRIKANTAIAH
AGED ABOUT 48 YEARS
BOTH ARE RESIDING AT
Digitally FLAT NO. 008
signed by GROUND FLOOR
SUMATHY
KANNAN EMINANCE PARK APARTMENT
Location: High SRIRAMPURA VILLAGE
Court of MYSURU.
Karnataka ...APPELLANTS
(BY SRI SANGAMESH R.B., ADVOCATE)
AND:
1. THE CHIEF MANAGER AND
AUTHORIZED OFFICER
KARNATAKA BANK LIMITED
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NC: 2025:KHC:39056-DB
COMAP No. 477 of 2025
HC-KAR
HEAD OFFICE AT POST BOX NO. 599
MAHAVEER CIRCLE
KANKANADY
MANGALURU - 575 003.
2. BRANCH MANAGER
KARNATAKA BANK LTD.,
KUVEMPUNAGAR
MYSURU - 570 023.
...RESPONDENTS
THIS COMMERCIAL APPEAL IS FILED UNDER SECTION
13 (1-A) OF THE COMMERCIAL COURTS ACT, 2015, PRAYING TO
SET ASIDE THE ORDER DATED 30.06.2025 IN COM.O.S.
NO.106/2023 PASSED BY THE COMMERCIAL COURT AND II
ADDITIONAL DISTRICT AND SESSIONS JUDGE, MYSURU &
ETC.
THIS APPEAL, COMING ON FOR ORDERS, THIS DAY,
JUDGMENT WAS DELIVERED THEREIN AS UNDER:
CORAM: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE
and
HON'BLE MS. JUSTICE J.M.KHAZI
ORAL JUDGMENT
(PER: HON'BLE MR. VIBHU BAKHRU, CHIEF JUSTICE)
1. The appellants have filed the present appeal under Section 13(1A) of the Commercial Courts Act, 2016, inter alia impugning an order dated 30.06.2025 [impugned order], passed by the learned -3- NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR commercial court allowing the respondent's application under Order 7 Rule 11(d) Code of Civil Procedure [CPC] in Com OS. No. 106/2023 and rejecting the said action as barred by law. The appellants had filed the said suit, inter alia, praying for declaration that the classification of their loan account as a Non-performing Asset [NPA] by the defendant-Bank, is null and void.
2. The appellants (plaintiffs in the suit), are husband and wife and joint owners of a residential flat bearing No.86/2, Ground Floor- 008 in residential complex known as "Eminence Park" constructed on the land bearing Survey No.80/2 measuring 24 guntas situated at Srirampura Village, Kasaba Hobli, Mysuru ['the subject property'].
3. The appellants had jointly purchased the subject property by a registered sale deed dated 05.11.2018. Admittedly, the appellants had availed a loan to an extent of ₹44,50,000/- (Rupees forty-four lakhs fifty thousand only), from the Karnataka Bank Limited ['the respondent Bank']. As per the loan agreement executed with the respondent bank, the appellants were required to repay the said loan in equated monthly installments [EMIs] which -4- NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR was fixed at ₹37,192/- per month. The appellants had also executed a Memorandum of Deposit of Title Deed in respect of the subject property.
4. It is the appellants' case that they have been regular in servicing the loan of ₹44,50,000/- (Loan Account No.5047001601098401) and have been paying the EMIs in time. They were thus shocked to receive a notice dated 26.12.2022, calling upon the appellants to repay the entire loan amount. The appellants state that they had responded to the said notice, claiming that they are not in default of their obligations of servicing the loan in question.
5. The learned counsel for the appellant submits that the appellant No.1 (wife of appellant No.2), had also taken another loan from the respondent bank and had defaulted in repayment obligations. However, there was no default in servicing the joint loan availed by the appellants for purchasing the subject property.
6. The response submitted by the appellants to the notice dated 26.12.2022 was not accepted and the respondent / Bank issued a notice dated 15.02.2023 under Section 13(2) of the Securitization -5- NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ['SARFAESI Act']. A copy of the said notice has not been placed on record but is submitted by the counsel that the said notice reflected the joint loan account of the appellants (Loan Account bearing No.5047001601098401) as NPA. And, called upon the appellants to repay the entire loan, within a period of sixty days. According to the appellants, the said classification of their joint loan account as an NPA, is erroneous since the appellants have never defaulted in their repayment obligations relating to the said loan. In the aforesaid context, the appellants had filed a suit being Com.O.S.No.106/2023, before the learned Commercial Court, inter alia, praying that the classification of their housing loan as an NPA, be declared as null and void. The learned Commercial Court dismissed the suit by allowing the application filed by the respondent bank under Order VII Rule 11(d) of the Code of Civil Procedure, 1908. The learned Commercial Court has held that the suit is not maintainable and was barred by virtue of Section 34 of the SARFAESI Act. Aggrieved by the same, the appellants have preferred the present appeal. -6-
NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR
7. It is contended on behalf of the appellants that the appellant No.2 is neither a defaulter nor a borrower in respect of the loan where the default has occurred. Therefore, the classification of the joint loan as an NPA, is invalid. He also submits that the learned Commercial Court had erred in dismissing the suit on the ground that it was barred under Section 34 of the SARFAESI Act, without considering that the appellant No.2 was not a borrower and therefore, has no recourse under Section 17 of the SARFAESI Act.
8. Before proceeding further, it may be relevant to refer to the definition of the term 'borrower' as defined under clause (f) of Section 2(1) of the SARFAESI Act. The said clause, is reproduced below:
"2(1)(f): "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a asset reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance or who has raised funds through issue of debt securities;"-7-
NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR
9. There is no dispute that the appellants had jointly availed of financial assistance and had created a mortgage of the subject property. In view of the above, both the appellants would fall within the definition of the expression 'borrower'.
10. It is relevant to refer to the provisions of Section 13(2), 13(3), 13(3A) and 13(4) of the SARFAESI Act. The said sub-sections are set out below:
"13. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
[Provided that--
(i) the requirement of classification of secured debt as non-
performing asset under this sub-section shall not apply to a borrower who has raised funds through issue of debt securities; and
(ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be -8- NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR necessary and in accordance with the terms and conditions of security documents executed in favour of the debenture trustee.] (3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
[(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate [within fifteen days] of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.] (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:--
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;-9-
NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR [(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt;]
(c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt."
11. It is clear from the plain language of Section 13(2) of the SARFAESI Act, that notice was required to be issued in respect of a debt, which was classified as an NPA. In the present case, the respondent / Bank has ‒ rightly or wrongly ‒ classified the account of the appellants as an NPA. In the event the appellants were aggrieved by the said notice, they were at liberty to make a
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NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR representation and raise objections under sub-section (3A) of Section 13 of the SARFAESI Act.
12. In terms of sub-section (4) of Section 13 of the SARFAESI Act, the respondent / Bank has the right to take recourse to the measures as set out for enforcement of their security interest. In the event the appellants are aggrieved by the said measures, they are entitled to avail of the remedy under Section 17 of the SARFAESI Act.
13. It is material to note that the remedies under Section 17 of the SARFAESI Act are not confined to the borrower alone. A borrower of the loan or any person aggrieved by the measures under Section 13(4) of the SARFAESI Act, is entitled to make an application to the Debts Recovery Tribunal having jurisdiction. As noted above, the appellants are borrowers within the scope of the definition under Section 2(1)(f) of the SARFAESI Act. However, even if it is accepted that the status of appellant no. 2 as a borrower is required to be ascertained only in respect of the loan availed by appellant no.1 - in respect of which defaults have occurred - the appellants are not precluded from availing their remedy under Section 17 of the SARFAESI Act.
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14. Plainly, they are aggrieved by their loan account being declared as an NPA and the measures initiated for recovery of the joint loan.
15. Indisputably, the appellants would be entitled to remedy under Section 17 of the SARFAESI Act. Even if it is accepted - which we do not - that the appellants are not borrowers, the remedy under Section 17 of the SARFAESI Act is available to appellants.
16. We reiterate that the question whether the respondent bank is correct in initiating the measures under Section 13(2) of the SARFAESI Act, is not relevant in determining whether the jurisdiction of the Commercial Court is barred under Section 34 of the SARFAESI Act. The scope of Section 34 of the SARFAESI Act is required to be determined on the basis of the language of the said provision. It is relevant to refer to Section 34 of the SARFAESI Act. The same is set out below:
"34. Civil court not to have jurisdiction.--No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any
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NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)."
17. A plain reading of Section 34 indicates the jurisdiction of the Civil Courts to entertain a suit or proceeding in respect of any matter which a Debt Recovery Tribunal or an Appellate Tribunal is empowered to determine under the SARFAESI Act, is barred. In the present case, the classification of the appellants' loan an NPA, is the foundational for initiation of measures under Section 13 of the SARFAESI Act. Any challenge to the said measures would involve on an examination whether such measures had been rightly initiated and the necessary foundational conditions exist.
18. Undoubtedly, the question whether the appellants' loan could be classified as an NPA is a matter which could be determined by the Debts Recovery Tribunal in proceedings under Section 17 of the SARFAESI Act.
19. In the aforesaid view, we find no infirmity with the impugned judgment. The appeal is unmerited and accordingly, dismissed.
20. We however, make it clear that in any event the appellants avail of the remedies under the SARFAESI Act, they would also be
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NC: 2025:KHC:39056-DB COMAP No. 477 of 2025 HC-KAR entitled to claim exclusion of the time spent in pursuing the suit before the Commercial Court as well as before this Court.
21. Pending applications also stand disposed of.
Sd/-
(VIBHU BAKHRU) CHIEF JUSTICE Sd/-
(J.M.KHAZI) JUDGE KS List No.: 1 Sl No.: 21