Gujarat High Court
Fenil Bharatbhai Shahh vs Authorized Officer Bank Of India on 29 April, 2019
Equivalent citations: AIRONLINE 2019 GUJ 899
Author: Harsha Devani
Bench: Harsha Devani, Bhargav D. Karia
C/FA/386/2019 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 386 of 2019
With
CIVIL APPLICATION (FOR STAY) NO. 1 of 2019
In R/FIRST APPEAL NO. 386 of 2019
FOR APPROVAL AND SIGNATURE:
HONOURABLE MS.JUSTICE HARSHA DEVANI
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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1 Whether Reporters of Local Papers may be allowed to
see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the
judgment ?
4 Whether this case involves a substantial question of law
as to the interpretation of the Constitution of India or any
order made thereunder ?
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FENIL BHARATBHAI SHAH
Versus
AUTHORIZED OFFICER BANK OF INDIA
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Appearance:
MR MIHIR THAKORE, SENIOR ADVOCATE, MR ADITYA A GUPTA AND
MR MOHIT A GUPTA (8967) for the Appellant(s) No. 1,2,3,4,5
MR RS SANJANWALA, SENIOR ADVOCATE WITH MR KETAN PARIKH for
the Defendant(s) No. 1
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CORAM: HONOURABLE MS.JUSTICE HARSHA DEVANI
and
HONOURABLE MR. JUSTICE BHARGAV D. KARIA
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C/FA/386/2019 JUDGMENT
Date : 29/04/2019
ORAL JUDGMENT
(PER : HONOURABLE MS.JUSTICE HARSHA DEVANI)
1. By this appeal under section 13(1) of the Commercial Courts, Commercial Division and Commercial Appellate Division of High Courts Act, 2015, the appellants have called in question the judgment and order dated 21.1.2019 passed by the Commercial Court, Ahmedabad below Exh.11 and Exh.19 in Commercial Civil Suit No.7 of 2019, whereby the application filed by the respondent under rule 11(d) of Order VII of the First Schedule to the Code of Civil Procedure, 1908 (hereinafter referred to as "the Code") has been allowed and the plaint has been rejected.
2. The appellants (originalplaintiffs) are guarantors for a loan acquired by a company named M/s. Ardor International Limited (hereinafter referred to as "the Company"). The respondent Bank of India, is a leading member of the consortium of banks comprising of Punjab National Bank, Central Bank of India, State Bank of India, Axis Bank, Rajkot Nagrik Sahakari Bank, Bank of Baroda and Union Bank of India. This consortium had advanced loan to the Company. To secure such loan, the appellants had created mortgage by way of deposit of title deeds in favour of the PNB Investment Services Ltd. (hereinafter referred to as "the security trustee") which is a security trustee for the Bank of India consortium. Therefore, the mortgage deed was executed in the favour of PNB Investment Services Ltd. and security interest was registered with the Central Registrar in favour of PNB Investment Services Ltd. Since M/s. Ardor International Ltd. committed default in repayment of the loan Page 2 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT amount, its account was declared as a nonperforming asset (NPA). The Bank of India, acting as the lead bank of the consortium of banks, issued a demand notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "the Securitisation Act") on 3.6.2017. Pursuant thereto, the respondent bank had taken symbolic possession of some of the properties of the appellants on 9.8.2017 and of some other properties on 17.8.2017. After taking symbolic possession of the properties, the respondent bank had scheduled the auction on 27.12.2017. The appellants challenged the entire securitisation action taken by the respondent bank before this court by way of a writ petition under article 226 of the Constitution of India being Special Civil Application No.22635/2017. By a judgment and order dated 20.12.2017, the learned Single Judge dismissed the petition on the ground that a special remedy being the remedy under the special statute by way of appeal under section 17 of the Securitisation Act is available to the appellants.
3. The judgment and order passed by the learned Single Judge came to be challenged by the appellants by way of R/Letters Patent Appeal No.2608/2017 which came to be dismissed by a judgment and order dated 11.5.2018, on the grounds of availability of an alternative remedy. The appellants challenged the order passed by the Division Bench before the Supreme Court by way of a special leave petition, which came to be dismissed by an order dated 20.8.2018.
4. The appellants, instead of availing of the remedy under section 17 of the Securitisation Act, instituted a suit being Page 3 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT Commercial Suit No.7 of 2019 for declaration that the respondent bank is neither a secured creditor nor does it have any security interest created in its favour and consequently, all the action taken under the Securitisation Act by the respondent bank is without jurisdiction. Along with the suit, the appellants also filed an application for temporary injunction for restraining the bank from auctioning of its properties. In the said suit, the respondent bank moved an application under rule 11 Order VII of the First Schedule to the Code on the ground that the commercial suit filed by the appellants is barred by section 34 of the Securitisation Act.
5. By the impugned order dated 21.1.2019, the Commercial Court allowed the application under rule 11 Order VII of the First Schedule to the Code and rejected the plaint on the ground that in terms of section 34 of the Securitisation Act, the civil court does not have the jurisdiction to entertain the case. Being aggrieved, the appellants have preferred the present appeal.
6. Mr. Mihir Thakore, Senior Advocate, learned counsel with Mr. Aditya Gupta and Mr. Mohit Gupta, learned advocates for the appellants, submitted that under section 13 of the Securitisation Act, it is a secured creditor in whose favour any security interest has been created who can invoke the provisions thereof. The attention of the court was invited to the definition of 'secured creditor' as defined under section 2(zd) of the Securitisation Act. It was submitted that in the present case, the mortgage has been created in favour of PNB Investment Services Ltd. which is the secured trustee and hence this case would fall under clause (v) of section 2(zd) of the Securitisation Act. Therefore, in this case 'secured creditor' means any other Page 4 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT trustee holding securities on behalf of a bank or financial institution, which in this case is PNB Investment Services Ltd. It was submitted that therefore, the Bank of India and consortium of banks not being the secured creditors, do not have any authority in law to take any measures under section 13 of the Securitisation Act.
6.1 Reference was made to the provisions of section 17 of the Securitisation Act, to point out that the same provides that any person aggrieved by any of the measures referred to in sub section (4) of section 13, taken by the secured creditor or his authorised officer, may make an application to the Debts Recovery Tribunal against such measures. It was submitted that in the facts of the present case, the secured creditor or his authorised officer, not having taken any measures under sub section (4) of section 13 of the Securitisation Act, it is not open for the appellants to invoke the provisions of subsection (1) of section 17 thereof.
6.2 Referring to section 34 of the Securitisation Act, it was submitted that the same bars the jurisdiction of the civil court 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 the Securitisation Act to determine. It was submitted that therefore, where the Debts Recovery Tribunal or the Appellate Tribunal is not empowered to determine a dispute, the civil court is vested with such jurisdiction. It was submitted that in facts of the present case, the action under section 13 of the Securitisation Act has not been taken by the secured creditor, therefore, the remedy under section 17 is technically not available to the appellants and, therefore, the bar under section 34 is not applicable. It was further submitted that the scope of Page 5 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT jurisdiction of the Debts Recovery Tribunal is limited to sub section (2) of section 17 of the Securitisation Act namely, to consider whether any of the measures referred to under sub section (4) of section 13 taken by the secured creditor for investment of securities are in accordance with the provisions of that Act and the rules made thereunder. It was therefore, submitted that even under section 17(2) of the Securitisation Act, the condition precedent is that the measures should have been taken by the secured creditor. It was submitted that the jurisdiction under section 34 is barred where there is a power vested in the Debts Recovery Tribunal to decide on the validity of the measures taken under subsection (4) of section 13 of the Securitisation Act, otherwise, jurisdiction under section 9 of the Code is wide, unless expressly barred. It was submitted that under clause (d) of rule 11 of Order VII of the Code, the plaint can be rejected where the suit appears to be barred by law, whereas in the facts of the present case, there is an express statement in the plaint that the bank is not a secured creditor and there is no mortgage in favour of the bank. It was submitted that therefore, the plaint could not have been rejected on the ground of jurisdiction of the civil court being barred under section 34 of the Securitisation Act. It was submitted that when the appellants have come with the pleading that the bank is not a secured creditor, the court cannot go into any other document to determine that the plaint is liable to be rejected.
6.3 The attention of the court was invited to the Ninth Supplemental Indenture of Mortgage dated 29.3.2014 executed by and between the mortgagors and PNB Investment Services Ltd as "Security Trustee and or Mortgagee" to point out that first mortgage charge on paripassu basis has been created and Page 6 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT extended over the immovable property as described in Part A to Part O of the Second Schedule thereto in favour of the security trustee. It was submitted that the mortgage is in favour of the security trustee and that such mortgage is a transfer of property in favour of PNB Investment Services Ltd. and not the consortium. Reference was made to page No.131 of the memorandum of appeal which reflects the details of the security registration to point out that the equitable mortgage has been created in favour of the security trustee and the charge is also registered in the name of PNB Investment Services Ltd. It was submitted that therefore, the charge holder is PNB Investment Services Ltd.
6.4 Reference was made to the notice dated 3.6.2017 of the Bank of India issued under section 13(2) of the Securitisation Act, to submit that there is no reference to the Security Trustee Agreement or to the security trustee in the entire notice. Referring to paragraph 9 of the judgment and order passed by the Division Bench dated 11.5.2018 in Letters Patent Appeal No.2608/2017, it was submitted that it was the case of the respondent that the word "any other trustee" used in clause (v) of section 2(zd) of the Securitisation Act does not take away the statutory or other class of creditors, as defined in clause (i) of section 2(zd) of the Securitisation Act. It was also the case of the respondent bank that mortgagors No.1 to 5 of the Ninth Supplemental Indenture of Mortgage dated 29.3.2014 are not parties to the Security Trustee Agreement dated 9.10.2013 and it is their case that, in the absence of they being parties to the Security Trustee Agreement dated 9.10.2013, mortgagors No.1 to 5 cannot take shelter of the Security Trustee Agreement.
6.5 Referring to the findings recorded in paragraph 10 of the Page 7 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT decision of the Division Bench, it was submitted that the court did not entertain the writ petition on the finding that contentious issues had been raised; however, the criteria for not entertaining the writ petition cannot be applied to a suit. It was further submitted that article 226 of the Constitution of India being a discretionary remedy, the court can refuse to entertain a writ petition on the ground of alternative remedy. But in a suit, the court can reject a plaint only if on the basis of the averments made in the plaint there is no cause of action or there is lack of jurisdiction. Referring to the impugned order passed by the Commercial Court, it was submitted that merely placing reliance upon earlier decisions of this Court rendered in the writ petition and in the letters patent appeal, the Commercial Court, without examining the merits of the case, has allowed the application under rule 11 of Order VII of the First Schedule to the Code holding that the jurisdiction of the civil court is barred under section 34 of the Securitisation Act.
6.6 Reference was made to the decision of Supreme Court in case of Mardia Chemicals Ltd. and others v. Union of India and others, (2004) 4 SCC 311, and more particularly, paragraph 51 thereof, wherein the court has held that the bar of civil court applies to all matters which may be taken cognizance of by the Debts Recovery Tribunal, apart from those matters in which measures have already been taken under subsection (4) of section 13 of the Securitisation Act. 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 Page 8 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT court in the cases of English mortgages.
6.7 Reference was made to section 69 of the Transfer of Property Act, 1882 to submit that where the mortgage is an English mortgage, the mortgagee has the right to directly sell the property without the intervention of this court and that this principle would apply to the facts of the present case. It was submitted that in the present case, the action taken by the respondent Bank is contrary to the terms of the contract inasmuch as a person who is only a beneficiary is taking action under section 13(4) of the Securitisation Act. It was submitted that it is only a mortgagor who can take action and not a third party though it is the beneficiary of such mortgage. It was urged that the provisions of subsection (4) of section 13 can be enforced by PNB Investment Services Ltd. as it is the security trustee but not by the Bank of India. Referring to the plaint, it was submitted that the plaintiffs seek a declaration and that such plaint cannot be rejected under rule 11 of Order VII of the Code. Reliance was placed on the judgment and order dated 6.12.2018 of the Kerala High Court in the case of Elsamma and others v. The Kaduthuruthy Urban Cooperative Bank Ltd and others rendered in RSA No. 763/2018 ,wherein it has been held thus:
"6. Section 13(4) of the SARFAESI Act empowers the secured creditor to take recourse to several measures in case the borrower fails to discharge his liability within the period specified in Section 13(2) thereof. The measures include taking possession of the secured assets of the borrower, taking over the management of the business of the borrower and appointing any person to manage the secured assets. Any person including the borrower aggrieved by any of the measures taken by the secured creditor under Section 13(4) of the SARFAESI Act can move Page 9 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT the Debts Recovery Tribunal under section 17 thereof. The measures referred to in Section 13(4) of the SARFAESI Act are in relation to the secured asset by a secured creditor to recover the secured debt. The remedy under Section 17 of the SARFAESI Act cannot therefore be invoked when the dispute is in relation to a property which is not a secured asset.
7. It was inter alia contended that Subsections (2) and (3) of Section 17 of the SARFAESI Act provide sufficient safeguards for restoration of possession of property which is not a secured asset. Section 17(2) enables the Debts Recovery Tribunal to consider as to whether the measures taken by the secured creditor for enforcement of security are proper. Section 17(3) which follows Section 17(2) empowers the Debts Recovery Tribunal to declare the measures taken as invalid and restore possession. Both Sections 17(2) and 17(3) of the SARFAESI Act are confined to the measures taken by the 'secured creditor' and in relation to the 'secured asset'. We do not think that the above statutory provisions can be called in aid when property which is allegedly not a secured asset is to be taken possession of. The parties need be relegated to Section 17 of the SARFAESI Act only if it is found that the acts complained of are in relation to a property which is a secured asset.
8. Authorised Officer, Indian Overseas Bank and another v. M/s. Ashok Saw Mill [AIR 2009 SC 2420] was cited wherein it was held as follows:
"23. The intention of the legislature is, therefore, clear that the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. The consequences of the authority vested in DRT under subsection (3) of section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue Page 10 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT of section 13(4) of the Act. The legislature by including sub section (3) in section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases ........
24. We are unable to agree with or accept the submissions made on behalf of the appellants that the DRT had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under section 13(4) of the Act. On the other hand, the law is otherwise and it contemplates that the action taken by a secured creditor in terms of section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT ." (emphasis supplied) The above only clarifies that the action of the 'secured creditor' can be scrutinised by the Debts Recovery Tribunal implying thereby that it should relate to the secured asset.
9. Section 34 of the SARFAESI Act is as follows:
"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 power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)."
The bar of jurisdiction of civil court is obviously in relation to a matter which the Debts Recovery Tribunal can determine in respect of any action taken under the SARFAESI Act. The jurisdiction is abundant in the civil court to entertain any suit or proceeding in respect of matters falling outside the scope of Section 13(4) of the SARFAESI Act. True it is that the remedies available to an aggrieved person under the SARFAESI Act are efficacious as held in Union Bank of India v. Satyawati Tondon and Page 11 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT others [(2010) 8 SCC 110]. But a person cannot be pinned down to the remedies under the SARFAESI Act when he asserts in a civil suit that the property is not a secured asset. It may perhaps be open to any person aggrieved to move the Debts Recovery Tribunal to clarify that the measures taken are not in respect of the secured asset.
10.Much reliance was placed on the following observations in Jagdish Singh' case (supra) :
"23. We are of the view that the civil court jurisdiction is completely barred, so far as the 'measure' taken by a secured creditor under subsection (4) of section 13 of the Securitisation Act, against which an aggrieved person has a right of appeal before the DRT or the Appellate Tribunal to determine as to whether there has been any illegality in the 'measures' taken. The bank, in the instant case, has proceeded only against secured assets of the borrowers on which no rights of respondents 6 to 8 have been crystalised, before creating security interest in respect of the secured assets; In such circumstances, we are of the view that the High Court was in error in holding that only civil court has jurisdiction to examine as to whether 'the measures' taken by the secured creditor under subsection (4) of section 13 of the Securitisation Act were legal or not ......... " (emphasis supplied) The property in the above case was admittedly the secured asset and the dispute therein was in relation to the title of the person who created security interest and the partibility thereof. Yet another decision cited is Sree Anandhakumar Mills Ltd. v. Indian Overseas Bank and others [2018 (2) KHC 883] wherein also the property was admittedly a secured asset. It was held therefore that the civil court has no jurisdiction to proceed with the suit for partition of the secured asset pending proceedings under the SARFAESI Act.
11. The following observations in Mardia Chemicals v. Union of India [2004 (2) KLT 273(SC)] are apposite:
".............. A full reading of Section 34 shows that the jurisdiction of the civil court is barred in respect of matters Page 12 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT which a Debt Recovery Tribunal or 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'. That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under subsection (4) of section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, 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 bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under subsection (4) of section 13.
51. 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 their 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 ........ " (emphasis supplied) Attempting to take possession of a property which is not a secured asset under the guise of the SARFAESI Act is certainly a fraudulent action which can be called in question in a civil court.
12. A similar question arose under the Land Acquisition Act, 1894 wherein property not covered by the notifications were assumed possession of under the guise of acquisition. It was held in Kerala State Housing Board, Thiruvananthapuram v. R. Omana and others [2017 (1) KLT 954(DB)] as follows:
"7. The implied bar of jurisdiction however does not apply in respect of lands encroached upon by the State whereby the claimants lose possession of lands otherwise than under the Act. Assume that the lands so lost possession of lie beyond the boundaries marked under section 4(2) and section 8 of the Act in regard to which no dispute as regards measurement could have been raised before. There Page 13 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT was therefore no scope for an award considering also the issue of measurement or an opportunity to seek a reference by the claimants under section 18 of the Act. A suit by the claimants is maintainable either for recovery of possession on title or for damages if the complaint is that the State has taken possession of lands not acquired under the Act ......... "
The bar of jurisdiction under Section 34 of the SARFAESI Act does not apply if the property is not a secured asset in relation to which only measures can be taken under Section 13(4) thereof.
13. To sum up:
(i) The jurisdiction of the civil court is not barred if the plea is that the plaint schedule property is not the secured asset in respect of which a security interest is created.
(ii) The civil court shall decline jurisdiction if it is found in the midst of adjudication that the disputed property is in fact the secured asset over which security interest is created.
(iii) Any person aggrieved can also move the Debts Recovery Tribunal under Section 17 seeking clarification about the measures taken under Section 13(4) of the SARFAESI Act.
(iv) The decision in KHDFC Bank Ltd.'s case (supra) is approved and does not militate against Jagdish Singh's case (supra) wherein the property is admittedly a secured asset. The reference is answered as above. The Registry to post the regular second appeal as per roster for final hearing."
6.8 Reliance was also placed upon the decision of the Andhra Pradesh High Court in the case of D. Ram Reddy v. Asset Reconstruction Company (India) Pvt. Ltd. and others, 2017 (1) ALD 170, wherein it has been held thus:
Page 14 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019C/FA/386/2019 JUDGMENT "7. Section 2(1)(f) of the SARFAESI Act defines 'borrower' to mean a person who has been granted financial assistance by a 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. A 'secured asset' under Section 2(1)(zc) of the SARFAESI Act is defined to mean the property on which 'security interest' is created. In turn, Section 2(1)(zf) defines 'security interest' to mean the right, title and interest of any kind whatsoever upon property created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31.
8. The crucial question that needs to be answered presently is whether any 'secured interest' was created in the subject property, whereby the 1st respondent company, the successorininterest of the IDBI bank, can takesteps in relation thereto in the status of a secured creditor under the SARFAESI Act.
9. According to the petitioner, he was neither a borrower nor a guarantor in respect of any loan given by the IDBI bank to the 3rd respondent company. He asserts that a document was fabricated in favour of Uma Devi, though her vendor, her own mother, had no land left to sell to her and that this fabricated document was the foundation for the guarantee given by Uma Devi for the said loan.
10. When the very status of the subject 'secured asset' is in doubt and the applicability of the provisions of the SARFAESI Act is open to question,the statutory prohibition posited under Section 34 of the SARFAESI Act, ousting the jurisdiction of the civil Court, would not be attracted. In this regard, it is relevant to note that in MARDIA CHEMICALS LTD. V/s. UNION OF INDIA (2004) SCC 311, the Supreme Court observed that the prohibition under Section 34 of the SARFAESI Act covers matters which can be taken cognizance of by the Debts Recovery Tribunal but to a very limited extent, jurisdiction of the civil Court can still be invoked. In the event a question arises as to whether a guarantee stood discharged under Sections 133 and 135 of the Indian Contract Act, 1872, then the civil Court would Page 15 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT have jurisdiction to entertain the case as the character of the guarantor is itself denied. By the same analogy, when the status of the party being a 'borrower' and the property being a 'secured asset' is questioned, this Court is of the opinion that the bar under Section 34 of the SARFAESI Act would not apply at all. A third party to a loan transaction who is actually in possession would be left with no remedy if the jurisdiction of the civil Court is held to be barred and no separate remedy is provided to him under the SARFAESI Act, as Section 17 thereof cannot be invoked by him.
11. We are therefore of the considered opinion that Section 34 of the SARFAESI Act would have no application to a fact situation as obtaining in the present case and it would be open to the petitioner to approach the competent civil Court for adjudication of the dispute."
6.9 It was, accordingly, urged that the civil court would have the jurisdiction to entertain the suit in a case where character of the secured creditor is itself denied by the appellants. Therefore, section 34 of the Securitisation Act would have no application to the fact situation as obtaining in the present case and that the Commercial Court was not justified in rejecting the plaint under rule 11 Order VII of the Code considering the bar under section 34 of the Securitisation Act.
7. Vehemently opposing the appeal, Mr. R.S. Sanjanwala, Senior Advocate, learned counsel with Mr. Ketan Parikh, learned advocate for the respondent submitted that the Debts Recovery Tribunal is competent to decide the issues raised in the civil court and, hence, this court should not interdict. It was also submitted that the issue as to whether the Debts Recovery Tribunal is competent to decide the controversy, has already been decided by this court.
Page 16 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019C/FA/386/2019 JUDGMENT 7.1 It was submitted that any party aggrieved by any
action under the Securitisation Act has three remedies:
(i) under section 17 of the Securitisation Act;
(ii) under Article 226 of the Constitution of India; or
(iii) there is a narrow scope of filing the suit.
It was submitted that when at the threshold a party chooses a remedy, in this case, under article 226 of the Constitution of India, he is bound by the decision rendered in that case. According to the learned counsel that the appellants, once having invoked the writ jurisdiction of this court and having been relegated to avail the remedy under section 17 of the Securitisation Act, they could not have instituted the suit.
7.2 It was contended that the suit is frivolous and vexatious and filed just with a view to stall the recovery of money and that the contention that no remedy is available under section 17 of the Securitisation Act is not open to the appellants in view of the decision of the Division Bench in the letters patent appeal preferred by the appellants and that the very purpose of section 34 of the Securitisation Act is to nip such suits in the bud. Referring to the decision of the learned Single Judge in Special Civil Application No. 22653/2017, it was pointed out that the learned Single Judge, after considering the contention of the appellants that the respondent bank cannot be termed as a secured creditor and that only the security trustee, it being secured creditor, is entitled to invoke the provisions of the Securitisation Act, has held that merely because this proposition comes as a contention from the petitioners, it would not automatically relax the rule of alternative remedy. The learned Page 17 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT Single Judge has categorically observed that the remedy available under section 17 of the Securitisation Act is a statutory remedy under the special statute which is an effective and efficacious remedy where the parties have larger scope of leading evidence and going into the facts which is not the domain of writ jurisdiction. The learned counsel submitted that thus when the learned Single Judge has recorded that a statutory remedy is available, the application has to be decided on the basis of the facts recorded by this court and that this contention is, therefore, no longer available to appellants. It was submitted that the Division Bench, in Letters Patent Appeal No. 2608/2017, has concurred with the findings recorded by the learned Single Judge and has dismissed the appeal and that the very action which was challenged in the petition under article 226 of the Constitution of India, has now been challenged in the suit.
7.3 As to whether the issue regarding whether or not the consortium is a secured creditor can be decided by the Debts Recovery Tribunal, the learned counsel referred to the findings recorded by the Division Bench in paragraph 10 of the above decision, to submit that when the court says that there is an effective alternative remedy by way of appeal under section 17 of the Securitisation Act before the Debts Recovery Tribunal, it is implied that the Debts Recovery Tribunal has jurisdiction. Such conclusion is writ large on the face of the order. Reference was made to the findings recorded by the Division Bench in paragraph 14 of the judgment wherein it has been observed thus:
"14. It is true that, there are exceptions to allow to bypass the remedy of appeal in specified circumstances, where there is a Page 18 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT total lack of jurisdiction or when the proceedings initiated are in violation of principles of natural justice. Having regard to the contentious issues raised by the parties, we are of the view that, it cannot be said that the proceedings initiated by the respondent lack inherent jurisdiction. Further, it is not a case of violation of principles of natural justice to allow to bypass the remedy available by way of appeal before the appellate authority. The remedy available under section 17 of the Securitisation Act is a statutory remedy under the special Statute, scope of which is larger, which enables the parties to lead the evidence, by going into facts, which are not in the domain of writ jurisdiction. Further, as rightly held by the learned Single Judge, the rule of alternative remedy has to be applied with great rigour in disputes arising out of commercial matters."
7.4 It was submitted that the findings of the Division Bench come to the aid of the respondent and that such findings have been recorded in a writ petition under article 226 of the Constitution of India and that when such a finding has been recorded by this court that the Debts Recovery Tribunal has the jurisdiction, then the application under rule 11 of Order VII of the Code would have a basis. It was submitted that section 34 of the Securitisation Act bars the jurisdiction of the civil court in respect of any matter which the Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under that Act to determine. The appellants, as a first remedy, in respect of the matter which is in issue, approached this court invoking the writ jurisdiction of this court, wherein a judgment came to be delivered holding that the Debts Recovery Tribunal is capable of deciding the issue and hence, the jurisdiction of the civil court stands barred. It was submitted that thus, the question of Page 19 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT jurisdiction stands decided by this court, and hence, it is not open for the appellants to reagitate the same. 7.5 The learned counsel next, drew the attention of the court to clause (i) of section 2(zd) of the Securitisation Act to point out that a secured creditor inter alia means any bank or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l). Reference was made to clause (l) of section 2 of the Securitisation Act which defines 'financial asset' to mean debt or receivables inter alia including any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent, to submit that even a bank or consortium holding a beneficial right in any tangible or intangible asset would fall within the ambit of the expression "secured creditor" and therefore, the jurisdiction of the Debts Recovery Tribunal or Appellate Tribunal under section 17 of the Securitisation Act is not ousted. It was submitted that therefore, both, the bank as well as the security trustee, are entitled to take action under subsection (4) of section 13 of the Securitisation Act. In support of his submissions, the learned counsel placed reliance upon the decision of the Supreme Court in Jagdish Singh v. Heeralal and others, (2014) 1 SCC 479, wherein it has been held thus :
"19. The expression "any person" used in Section 17 is of wide import and takes within its fold not only the borrower but also the guarantor or any other person who may be affected by action taken under Section 13(4) of the Securitisation Act. Reference may be made to the judgment of this Court in Satyawati Tondon case.
20. Therefore, the expression "any person" referred to in Section 17 would take in the plaintiffs in the suit as well.Page 20 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019
C/FA/386/2019 JUDGMENT Therefore, irrespective of the question whether the civil suit is maintainable or not, under the Securitisation Act itself, a remedy is provided to such persons so that they can invoke the provisions of Section 17 of the Securitisation Act, in case the Bank (secured creditor) adopt any measure including the sale of the secured assets, on which the plaintiffs claim interest.
21. Section 34 of the Securitisation Act ousts the civil court jurisdiction. For easy reference, we may extract Section 34 of the Securitisation Act, which is as follows:
"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 power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)"
22. The scope of Section 34 came up for consideration before this Court in Mardia Chemicals Ltd. and this Court held as follows:
"50. It has also been submitted that an appeal is entertainable before the Debts Recovery Tribunal only after such measures as provided in subsection (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debts Recovery Tribunal or the Appellate Tribunal is empowered to determine. Thus before any action or measure is taken under subsection (4) of Section 13, it is submitted by Mr Salve, one of the counsel for the respondents that there would be no bar to approach the civil court. Therefore, it cannot be said that no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of Section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debts Recovery Tribunal 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'. That is to Page 21 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT say, the prohibition covers even matters which can be taken cognizance of by the Debts Recovery Tribunal though no measure in that direction has so far been taken under sub section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, 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 bar of civil court thus applies to all such matters which may be taken cognizance of by the Debts Recovery Tribunal, apart from those matters in which measures have already been taken under subsection (4) of Section 13."
23. Section 13, as already indicated, deals with the enforcement of the security interest without the intervention of the court or tribunal but in accordance with the provisions of the Securitisation Act.
24. Statutory interest is being created in favour of the secured creditor on the secured assets and when the secured creditor proposes to proceed against the secured assets, subsection (4) of Section 13 envisages various measures to secure the borrower's debt. One of the measures provided by the statute is to take possession of secured assets of the borrowers, including the right to transfer by way of lease, assignment or realising the secured assets. Any person aggrieved by any of the "measures" referred to in subsection (4) of Section 13 has got a statutory right of appeal to the DRT under Section 17. The opening portion of Section 34 clearly states that no civil court shall have the jurisdiction to entertain any suit or proceeding "in respect of any matter" which a DRT or an Appellate Tribunal is empowered by or under the Securitisation Act to determine. The expression "in respect of any matter" referred to in Section 34 would take in the "measures" provided under subsection (4) of Section 13 of the Securitisation Act. Consequently, if any aggrieved person has got any grievance against any "measures" taken by the borrower under subsection (4) of Section 13, the remedy open to him is to approach the DRT or the Appellate Tribunal and not the civil court. The civil court in such circumstances has no jurisdiction to entertain any suit or Page 22 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT proceedings in respect of those matters which fall under subsection (4) of Section 13 of the Securitisation Act because those matters fell within the jurisdiction of the DRT and the Appellate Tribunal. Further, Section 35 says, the Securitisation Act overrides other laws, if they are inconsistent with the provisions of that Act, which takes in Section 9 CPC as well.
25. We are of the view that the civil court jurisdiction is completely barred, so far as the "measures" taken by a secured creditor under subsection (4) of Section 13 of the Securitisation Act, against which an aggrieved person has a right of appeal before the DRT or the Appellate Tribunal, to determine as to whether there has been any illegality in the "measures" taken. The Bank, in the instant case, has proceeded only against secured assets of the borrowers on which no rights of Respondents 6 to 8 (sic Respondents 1 to
5) have been crystallised, before creating security interest in respect of the secured assets."
7.6 It was submitted that insofar as the question as to whether the Debts Recovery Tribunal is competent to decide whether the consortium of banks is a secured creditor is concerned, once, a Division Bench of this court has taken a view that the Debts Recovery Tribunal is competent to decide the issue, it is not permissible for this court to take a view different from that taken by the Division Bench. Reference was made to an unreported decision dated 3.5.2018 of the Supreme Court in case of M/s Sree Anandhakumar Mills Ltd. v. M/s Indian Overseas Bank and others rendered in Civil Appeal No.(S) 72147216 of 2012, wherein the appellant had challenged the order of the Madras High Court holding that the suit filed by the second respondent therein was maintainable in law, notwithstanding the provisions of section 34 of the Securitisation Act. The court placed reliance upon its earlier decision in Jagdish Singh v. Heeralal (supra) Page 23 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT for the proposition that the remedy of any person aggrieved by the initiation of proceedings under the Securitisation Act lies under section 17 which provides for an efficacious and adequate remedy to a party aggrieved and relegated the second respondent to the remedy under section 17 of the Securitisation Act before the Debts Recovery Tribunal. It was submitted that the jurisdiction of the Debts Recovery Tribunal is really wide and it can also pronounce on its own jurisdiction. Reliance was also placed upon the decision of the Supreme Court in Indian Overseas Bank v. Ashok Saw Mill, (2009) 8 SCC 366, wherein it has been held thus:
"14. It was also urged by the Senior Advocate that the Tribunal could not entertain a debate on the question whether the debts had become due or not because the SARFAESI Act proceeds on the basis that the liability is crystallised and the debt becomes due the moment action under Section 13(4) is taken and a security interest is also created in the secured assets. It was also observed that while the DRT is entitled to consider whether the possession of the secured assets had been taken in accordance with the SARFAESI Act and the Rules framed thereunder, once the liability stood crystallised it could no longer be adjudicated upon by the DRT.
15. Mr Gopalan submitted that the scope of the inquiry before the DRT is confined to the action taken by the secured creditor under Section 13(4) of the SARFAESI Act and the subsequent action taken to bring the secured assets to sale or to transfer the interest therein in any manner whatsoever, could not be made the subjectmatter of inquiry before the DRT. In other words, the jurisdiction of the Tribunal under Section 17(3) would have to be confined to any action taken by the secured creditor in taking possession of the secured assets under subsection (4) of Section 13 and not in regard to any subsequent steps which the secured creditor may take to dispose of the secured Page 24 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT assets in accordance with the provisions of the Act.
24. The main question which falls for determination in this appeal is whether the DRT would have jurisdiction to consider and adjudicate with regard to postSection 13(4) events or whether its scope in terms of Section 17 of the SARFAESl Act would be confined to the stage contemplated under Section 13(4), as contended on behalf of the appellants.
36. The intention of the legislature is, therefore, clear that while the banks and financial institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee.
37. The consequences of the authority vested in the DRT under subsection (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The legislature by including sub section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. Resultantly, the submissions advanced by Mr Gopalan and Mr Altaf Ahmed that the DRT has no jurisdiction to deal with a postSection 13(4) situation, cannot be accepted."
7.7 Reference was made to the decision of the Supreme Court in case of United Bank of India v. Satyawati Tondon, (2010) 8 SCC 110, wherein it was held thus:
"53. In Raj Kumar Shivhare v. Directorate of Enforcement the Court was dealing with the issue whether the alternative statutory remedy available under the Foreign Exchange Management Act, 1999 can be bypassed and Page 25 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT jurisdiction under Article 226 of the Constitution could be invoked. After examining the scheme of the Act, the Court observed:
"31. When a statutory forum is created by law for redressal of grievance and that too in a fiscal statute, a writ petition should not be entertained ignoring the statutory dispensation. In this case the High Court is a statutory forum of appeal on a question of law. That should not be abdicated and given a goby by a litigant for invoking the forum of judicial review of the High Court under writ jurisdiction. The High Court, with great respect, fell into a manifest error by not appreciating this aspect of the matter. It has however dismissed the writ petition on the ground of lack of territorial jurisdiction.
32. No reason could be assigned by the appellant's counsel to demonstrate why the appellate jurisdiction of the High Court under Section 35 of FEMA does not provide an efficacious remedy. ln fact there could hardly be any reason since the High Court itself is the appellate forum."
54. In Modern Industries v. SAIL the Court held that where the remedy was available under the Interest on Delayed Payments to Small Scale and Ancillary Industrial Undertakings Act, 1993, the High Court was not justified in entertaining a petition under Article 226 of the Constitution.
55. It is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and the SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection."
7.8 On the merits of the case, the attention of the court was invited to the paragraph 18 of the operative part of the ninth supplemental indenture of mortgage, which reads thus:
Page 26 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019C/FA/386/2019 JUDGMENT "18. The Mortgagors declare that the Principal Mortgage Deed as modified by the 1st Supplemental Mortgage Deed, the 2nd Supplemental Mortgage Deed, 3rd Supplemental Mortgage Deed, and 4th Supplemental Mortgage Deed, 5th Supplemental Mortgage Deed and 6th Supplemental Mortgage Deed and Deed of Mortgage dated 05.12.2012 and 8th Supplemental Mortgage Deed shall with effect from the date hereof be read and construed as if the total aggregate limits of the Working Capital credit facilities therein mentioned in 585.00 crores, enhanced from the respective amount described therein."
It was submitted that therefore the earlier mortgage deeds which are in favour of the consortium still continue and that the Security Trustee Agreement is in addition to and not in substitution of what was already agreed between the parties.
7.9 Reference was made to clause 2.2.2 of the Security Trustee Agreement which provides that the secured parties shall have no legal title to any part of the secured property, provided that the secured parties shall have a beneficial interest in the secured property to the extent that security interests have been created over such secured property to secure the outstanding dues owed to them by the borrower under the financing documents. It was submitted that therefore, the bank has a beneficial interest in the secured property. Reference was to the decision of the Supreme Court in SBI v. Allwyn Alloys (P) Ltd., (2018) 8 SCC 120, wherein it has been held thus:
"6. The Bank has assailed the aforesaid decision of the High Court primarily on the ground that all issues concerning the mortgaged/secured property are required to be decided only by DRT; and not in any civil proceedings as has been observed by the High Court in the impugned judgment. For, Page 27 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT filing of a civil suit in respect of secured assets is barred by law. Secondly, DRT as well as DRAT have examined the merits of the controversy and justly answered the same against the writ petitioners. The concurrent finding of fact recorded by the said Tribunals is that the writ petitioners have failed to establish any right, title or interest in the subject flat. That finding has neither been disturbed nor is it assailable. According to the Bank, the High Court judgment under appeal is untenable and deserves to be set aside.
7. The contesting Respondents 5 and 6 (writ petitioners), however, supported the view taken by the High Court and would contend that it is indisputable that Respondent 5 (Writ Petitioner 1) is in physical possession of the subject flat and was entitled to pursue his claim about the right, title and interest in the subject flat in view of the memorandum of understanding dated 1332011, executed between the writ petitioners and Respondents 2 to 4 regarding resale of the subject flat in their (writ petitioners) favour. Respondents 5 and 6 would also contend that the original share certificate and few receipts of payments made to the Society were still in their possession and that the entries effected in the Society's record to transfer the share certificate in favour of Respondents 2 to 4 are fabricated.
8. After having considered the rival submissions of the parities, we have no hesitation in acceding to the argument urged on behalf of the Bank that the mandate of Section 13 and, in particular, Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the 2002 Act"), clearly bars filing of a civil suit. For, no civil court can exercise jurisdiction to entertain any suit or proceeding in respect of any matter which a DRT or DRAT is empowered by or under this Act to determine and no injunction can be granted by any court or authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act.
9. The fact that the stated flat is the subjectmatter of a registered sale deed executed by Respondents 5 and 6 (writ petitioners) in favour of Respondents 2 to 4 and which sale deed has been deposited with the Bank along with the Page 28 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT share certificate and other documents for creating an equitable mortgage and the Bank has initiated action in that behalf under the 2002 Act, is indisputable. If so, the question of permitting Respondents 5 and 6 (writ petitioners) to approach any other forum for adjudication of issues raised by them concerning the right, title and interest in relation to the said property, cannot be countenanced. The High Court has not analysed the efficacy of the concurrent finding of fact recorded by DRT and DRAT but opined that the same involved factual issues warranting production of evidence and a fullfledged trial. The approach of the High Court as already noted hitherto is completely fallacious and untenable in law."
7.10 It was submitted that under section 13 of the Securitisation Act, certain jurisdictions have to be examined which will have to be decided by the Debts Recovery Tribunal. It was emphatically argued that a contention raised by the party would not vest jurisdiction in the civil court and that the Debts Recovery Tribunal has all powers, including the power to decide on its own jurisdiction. It was submitted that if the issue is capable of being decided by the Tribunal, the bar under section 34 of the Securitisation Act would apply. It was reiterated that the question as to whether the issue raised by the appellants can be decided by the Debts Recovery Tribunal stands concluded by the Division Bench and is fait accompli and, therefore, the bar under section 34 of the Securitisation Act will apply. In this regard, reference was made to the decision of the Bombay High Court in case of State Bank of India v.
Jigishaben B. Sanghavi, 2011(2) MhLJ 342, wherein the court has held that the bar in the first part of section 34, is in respect of any matter which the Tribunal or the Appellate Tribunal is empowered by or under the Securitisation Act to determine. When the Tribunal or the Appellate Tribunal is empowered to Page 29 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT determine any matter by or under the Securitisation Act, the jurisdiction of the civil court to entertain a suit in respect of that matter is barred. The court held that an action to be taken is a course of conduct which is in contemplation, but one which is necessarily referable to the provisions of the Securitisation Act or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act). The court further held that once a measure is adopted under section 13(4), a statutory remedy is provided not only to the borrower but to any person aggrieved by the taking of a measure. While enquiring into an appeal under section 17, the Tribunal is empowered to determine whether the action which is taken by the secured creditor is in accordance with the provisions of the Securitisation Act and the rules made thereunder. If the Tribunal comes to the conclusion that the action was invalid, it is vested with wide powers, including both to restore the management of the business or restoration of the possession to the borrower and to pass such orders as it may consider appropriate and necessary in relation to the recourse taken by a secured creditor under subsection (4) of section 13. In facts of that case, the grievance voiced by a third person was that there was no mortgage; there was no mortgage by the HUF; the mortgage, if any, is illegal in relation to the share alleged to be that of the HUF and; no action had been instituted against the HUF before the Tribunal. The court held that these are all grounds of challenge which, in substance, can be asserted before the Debts Recovery Tribunal. These are matters which the Debts Recovery Tribunal is empowered by or under the Act to determine. The court held that none of the grounds which are Page 30 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT sought to be urged in the plaint fall outside the province and jurisdiction of the Debts Recovery Tribunal. Once it comes to that conclusion, the necessary corollary is that recourse to proceedings in the form of a civil suit is barred by section 34.
7.11 Reliance was also made to the decision of Delhi High Court in case of Oriental Bank of Commerce v. Harminder Singh & others, 2017 SCC OnLine Del 9236, wherein the issue which required determination between the parties was whether a valid equitable mortgage was created in favour of the appellant/Bank or that there was no valid mortgage and, therefore, the respondent No.1/plaintiff had a valid title to the property. The court held that since with respect to this issue, decision can only be of the authorities as prescribed under the RDDBFI Act and the SARFAESI Act, in view of the provisions of sections 34 of both the Acts and which bars the jurisdiction of the civil courts, it is hence not open to the civil court, before whom the subject suit is pending to decide the issues which are directly or incidental to deciding the issues of recoveries filed by the banks and actions taken by the banks under the RDDBFI Act and the SARFAESI Act.
7.12 In the conclusion, Mr. Sanjanwala submitted that taking the matter in totality, the bank is entitled to proceed under the Securitisation Act and that Debts Recovery Tribunal, in exercise of powers under section 17 of the Securitisation Act, can decide whether the bank is a secured creditor or not. That the Commercial Court did not commit any error in rejecting the plaint under rule 11 of Order VII of the Code and that the appeal being devoid of merits deserves to be dismissed.
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8. In rejoinder, Mr. Mihir Thakore, learned counsel for the appellants, submitted that the bar contained in section 34 of the Securitisation Act operates only when the Tribunal is empowered to decide such dispute. Under section 17 of the Securitisation Act, the Tribunal is empowered to adjudicate the dispute only when the measure is by the secured creditor. It was submitted that the appellants are guarantors to the bank and have not mortgaged the property in favour of the bank; and they have not created any security interest in favour of the bank. According to the learned counsel, to invoke the provisions of section 13 of the Securitisation Act, there has to be security interest in favour of the secured creditor and in this case it is PNB Investment Services Ltd. which is the secured creditor and, therefore, it is the security trustee which has to enforce it. It was, accordingly, urged that the Commercial Court was not justified in rejecting the plaint under rule 11 Order VII of the Code and that the appeal, therefore, deserves to be allowed.
9. The facts are not in dispute. Against the action taken by the respondent under subsection (4) of section 13 of the Securitisation Act, the appellants first approached this court by way of a writ petition under article 226 of the Constitution of India which came to be dismissed on the ground of availability of an alternative remedy under section 17 of the Securitisation Act. The decision of the learned Single Judge was called in question before the Division Bench in a Letters Patent Appeal, which also came to be dismissed on the ground of availability of an efficacious alternative remedy under section 17 of the Page 32 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT Securitisation Act. The challenge to the judgment of the Division Bench before the Supreme Court, also failed. Thereafter, the appellants instituted the suit being Commercial Suit No. 7 of 2018 seeking the following reliefs:
"32. In view of what is stated hereinabove, the Plaintiffs pray for the following relief:
(A) Be pleased to declare that the defendant bank is not a secured creditor of the loan as no security interest is created in its favour by the plaintiffs in the interest of justice;
(B) Be pleased to declare that the demand notice dated 3.6.2017, at AnnexureE to this plaint, issued by the defendant bank under section 13(2) of the SARFAESI Act, 2002 is illegal, without jurisdiction and without authority of law in interest of justice.
(C) Be pleased to declare that the entire action and all the steps taken by the defendant bank under the provisions of the SARFAESI Act, 2002 against the plaintiffs including the auction notice dated 14.12.2018, annexed at AnnexureI (colly) are illegal, without jurisdiction and without authority of law in the interest of justice.
(D) Be pleased to declare that all the three guarantee deeds dated 24.7.2014 executed between the plaintiffs and the respondent bank are null and void ab initio as there is no valid consideration.
(E) Be pleased to permanently restrain the defendant, its representatives, agents etc. from entering, selling, disposing or auctioning of the properties as mentioned in the auction notice in the interest of justice.
(F) Be pleased to pass such other and further orders as may be deemed fit in the interest of justice."
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10. In the present case, the plaint in the suit filed by appellants has been rejected under clause (d) of rule 11 of Order VII of the First Schedule to the Code, on the ground that in view of the provisions of section 34 of the Securitisation Act, the jurisdiction of the civil court is barred. It is the validity of such order of the Commercial Court that is the subject matter of challenge in this case.
11. The case of the appellants is that the respondent is not a secured creditor and hence, the Debts Recovery Tribunal is not empowered to adjudicate upon the validity of the measures taken by the respondent under section 13(4) of the Securitisation Act. According to the appellants, it is only if the Debt Recovery Tribunal is empowered to decide a dispute under section 17(1) of the Securitisation Act, that the jurisdiction of the civil court is barred, whereas in the present case, the condition precedent for assumption of jurisdiction by the Debts Recovery Tribunal namely, measures taken by a secured creditor, is not satisfied and, therefore, the jurisdiction of the civil court is not barred and hence, the plaint could not have been rejected under rule 11(d)of Order VII of the First Schedule to the Code.
12. At this juncture it may be germane to refer to the provisions of section 17 of the Securitisation Act, which read thus:
"17. Application against measures to recover secured debts (1) Any person (including borrower), aggrieved by any of the measures referred to in subsection (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, may make an application along with such fee, Page 34 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT as may be prescribed to the Debts Recovery Tribunal having jurisdiction in the matter within fortyfive days from the date on which such measures had been taken Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower.
Explanation.-- For the removal of doubts it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitle the person (including borrower) to make an application to the Debts Recovery Tribunal under subsection (1) of section 17.] (1A) An application under subsection (1) shall be filed before the Debts Recovery Tribunal within the local limits of whose jurisdiction
(a) the cause of action, wholly or in part arises;
(b) where the secured asset is located; or (c) the branch or any other office of a bank or financial
institution is maintaining an account in which debt claimed is outstanding for the time being] (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in subsection (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.
(3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in subsection (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management or restoration of Page 35 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT possession of the secured assets to the borrower, or other aggrieved person, it may by order,
(a) declare the recourse to any one or more measures referred to insubsection (4) of section 13 taken by the secured creditor as invalid; and
(b) restore the possession of the secured assets or management of secured assets to the borrower or such other aggrieved person, who has made an application under sub section (1), as the case may be; and
(c) pass such other direction as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under subsection (4) of section 13.
(4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under subsection (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under subsection (4) of section l3 to recover his secured debt.
(4A) Where
(i) any person, in an application under subsection (1), claims any tenancy or leasehold rights upon the secured asset, the Debts Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine whether lease or tenancy
(a) has expired or stood determined; or
(b) is contrary to section 65A of the Transfer of Property Act, 1882 (4 of 1882); or
(c) is contrary to terms of mortgage; or Page 36 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT
(d) is created after the issuance of notice of default and demand by the Bank under subsection (2) of section 13 of the Act; and
(ii) the Debt Recovery Tribunal is satisfied that tenancy right or leasehold rights claimed in secured asset falls under the subclause (a) or subclause (b) or subclause (c) or sub clause (d) of clause (i), then notwithstanding anything to the contrary contained in any other law for the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act.
(5) Any application made under subsection (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application:
Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under subsection (1).
(6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in subsection (5), any party to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal.
(7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made thereunder."
13. Thus, subsection (1) of section 17 of the Securitisation Act Page 37 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT can be invoked by any person including the borrower;
such person should by aggrieved by any of the measures referred to in subsection (4) of section 13; such measures should have been taken by the secured creditor or his authorised officer under Chapter III of the Securitisation Act;
in which case such person may make an application to the Debts Recovery Tribunal in the manner provided such application should be made within a period of forty five days from the date on which such measure was taken.
Therefore, to invoke subsection (1) of section 17 of the Securitisation Act, the aggrieved person should be aggrieved by any measure referred to in section 13(4) taken by a secured creditor or his authorised officer. Unless that condition is satisfied, no action can be taken under that subsection.
14. Section 34 of the Securitisation Act reads as under:
"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 power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)."
Thus, under section 34 of the Securitisation Act, the jurisdiction of the civil court is barred in respect of any matter which a Debts Recovery Tribunal or an Appellate Tribunal is empowered by or Page 38 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT under the Act to determine.
15. The question that therefore arises for consideration is whether the Debts Recovery Tribunal or the Appellate Tribunal is empowered to determine the controversy in issue in the present case. If the answer is in the affirmative, the jurisdiction of the civil court would be barred under section 34 of the Securitisation Act.
16. In this case the proceedings under subsection (4) of section 13 of the Securitisation Act have been taken by the respondent/defendant. Under subsection (4) of section 13 of the Securitisation Act, it is the secured creditor who can enforce any security created in his favour in accordance with the provisions of that Act and it is a person who is aggrieved by any such measure taken by a secured creditor who can make an application to the Debts Recovery Tribunal under subsection (1) of section 17. Therefore, for the purpose of taking any action under subsection (4) of section of the Securitisation Act as well as for vesting jurisdiction in the Debts Recovery Tribunal, the person taking such measures must be a secured creditor. In other words if a person other than the secured creditor resorts to the provisions of section 13(4) of the Securitisation Act, the dispute would lie outside the scope of the jurisdiction of the Debts Recovery Tribunal or the Appellate Tribunal.
17. The moot question that therefore arises is, whether the respondent/defendant who has taken measures under sub Page 39 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT section (4) of section 13 is a secured creditor within the meaning of such expression as contemplated under section 2(zd) of the Securitisation Act?
18. In this regard reference may be made to section 2(zd) of the Securitisation Act, which reads as under:
"(zd) "secured creditor" means
(i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l):
(ii) debenture trustee appointed by any bank or financial institution; or
(iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or
(iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or
(v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance."
19. Thus, to fall within the ambit of clause (zd) of subsection (1) of section 2 of the Securitisation Act, a security interest must be created by any borrower for due repayment of any financial security by such person. Security interest has been defined under section 2(zf) of the Securitisation Act, which reads as under:
Page 40 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019C/FA/386/2019 JUDGMENT "(zf) "security interest" means right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor and includes
(i) any mortgage, charge, hypothecation, assignment or any right, title or interest of any kind, on tangible asset, retained by the secured creditor as an owner of the property, given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of the asset or an obligation incurred or credit provided to enable the borrower to acquire the tangible asset; or
(ii) such right, title or interest in any intangible asset or assignment or licence of such intangible asset which secures the obligation to pay any unpaid portion of the purchase price of the intangible asset or the obligation incurred or any credit provided to enable the borrower to acquire the intangible asset or licence of intangible asset;"
Thus, "security interest" means a right, title or interest of any kind, other than those specified in section 31, upon property created in favour of any secured creditor. Whereas, a secured creditor may be a bank or a financial institution or any consortium of group of banks or financial institutions, a debenture trustee appointed by any bank or financial institution or an asset reconstruction company or debenture trustee registered with the Board, or any other trustee holding securities on behalf of a bank or financial institution.
20. While it is the case of the appellants that this case falls within the ambit of subclause (v) of clause (zd) of section 2 of the Securitisation Act, namely, a trustee holding securities on behalf of a bank or financial institution, it is the case of the respondent that the case falls within the ambit of subclause (i) Page 41 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT thereof namely, any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l). Reference may therefore be made to clause (l) which reads thus:
"(l) "financial asset" means debt or receivables and includes
(i) a claim to any debt or receivables or part thereof, whether secured or unsecured; or
(ii) any debt or receivables secured by, mortgage of, or charge on, immovable property; or
(iii) a mortgage, charge, hypothecation or pledge of movable property; or
(iv) any right or interest in the security, whether full or part underlying such debt or receivables; or
(v) any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or (va) any beneficial right, title or interest in any tangible asset given on hire or financial lease or conditional sale or under any other contract which secures the obligation to pay any unpaid portion of the purchase price of such asset or an obligation incurred or credit otherwise provided to enable the borrower to acquire such tangible asset; or (vb) any right, title or interest on any intangible asset or license or assignment of such intangible asset, which secures the obligation to pay any unpaid portion of the purchase price of such intangible asset or an obligation incurred or credit otherwise extended to enable the borrower to acquire such intangible asset or obtain licence of the intangible asset; or Page 42 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT
(vi) any financial assistance;"
On a plain reading of the definition of financial asset as defined under section 2(l) of the Securitisation, it prima facie appears that financial asset would also cover any beneficial interest in property.
21. The next question that arises for consideration is what meaning should be given to the expression "any interest"
as envisaged in clause (l) of section 2 of the Securitisation Act and whether beneficial interest would amount to interest within the meaning of such expression as contemplated in clause (l) of section 2?
22. In this regard reference may be made to recitals contained in the mortgage deed and the security trustee agreement. The ninth supplemental indenture of mortgage has been executed by and between the mortgagors and PNB Investment Services Ltd. in its capacity as Security Trustee/mortgagee acting for and on behalf of the banks and financial institutions described in the First Schedule thereto. Paragraph 18 of recitals contained in the ninth supplemental indenture of mortgage records that by consent of all the parties, PNB Investment Services Ltd. is designated and recognised as the Security Trustee for the BOI Consortium by entering into a Security Trustee Agreement dated 9.10.2013. Pursuant thereto, the said security trustee has called upon the Mortgagors to create/extend the aforesaid first charge on paripassu basis by executing a supplemental deed of mortgage in its favour which the mortgagors have agreed to do in Page 43 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT the manner appearing thereafter.
23. In paragraph 19 of recitals of the ninth supplemental indenture of mortgage, it is recorded that by the Eighth Supplemental Indenture of Mortgage dated 9.10.2013, made by the mortgagors in favour of PNB Investment Services Ltd, is designated and recognized as the security trustee for the BOI consortium, has created/extend first charge over the immovable properties as described in the Part A to N of the Second Schedule written therein under to secure various working capital credit facilities to the extent of Rs.410.00 crores granted by BOI Consortium. In paragraph 20 of the recitals, it is recorded that as per the terms of sanction letters/appraisal notes of the members Banks of the BOI consortium, the total working capital credit facilities of Rs. 585.00 crores to be secured interalia by first charge on pari passu basis over the immovable properties of the mortgagors, which are described in the Part "A" to part "O" of the Second Schedule written therein under in favour of Security Trustee for the said BOI Consortium.
24. The Security Trustee Agreement is executed by and between Ardor International Private Limited (as borrower) and Banks and Financial Institutions as setforth in Schedule IA thereto (as lenders) and PNB Investment Services Limited (as security trustee) and Bank of India (as lender's agent) and is dated 9.10.2013. It is on the basis of this agreement that the ninth supplemental mortgage deed has been executed.
25. Paragraph No.2.2.2 of the Security Trustee Agreement reads as under :
Page 44 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019C/FA/386/2019 JUDGMENT "2.2.2 The Secured Parties shall have no legal title to any part of the Secured Party, provided that the Secured Parties shall have a beneficial interest in the Secured Property to the extent that Security Interests have been created over such Secured Property to secure the Outstanding Dues owed to them by the borrower under the Financing Documents."
26. In the present case, admittedly the appellants have mortgaged their properties towards the loans given by the respondent and admittedly, such loans have been secured by the properties in question. Therefore the properties in question having been offered as security towards loans advanced by the respondent is not in doubt. The only issue is that while initially the properties were mortgaged in favour of the respondent, now by virtue of a Security Trustee Agreement entered into between the borrower, the consortium of banks and PNB Investment Services Ltd., the properties are mortgaged in favour of the PNB investments as security trustee for the benefit of the respondent. The question raised before the Commercial Court was whether the respondent who had a beneficial interest in the secured properties can invoke the provisions of section 13 of the Securitisation Act? The case of the appellants is that since the respondent is not secured creditor within the meaning of such expression as contemplated under section 2(zd) of the Securitisation Act, the provisions of section 17 of the Securitisation Act would not apply and it is not permissible for the appellants to invoke the jurisdiction of the Debts Recovery Tribunal under section 17 of the Securitisation Act as the Debts Recovery Tribunal is not empowered to decide a dispute where the action which is challenged is not an action taken by a Page 45 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT secured creditor.
27. At first blush, the contention of the appellants appears to be attractive, namely, that the Debts Recovery Tribunal has jurisdiction under section 17 of the Securitisation Act in case where a person is aggrieved by any of the measures referred to in subsection (4) of section 13 of the Securitisation Act taken by a secured creditor; whereas according to the appellants, the respondent herein is not a secured creditor and hence, the very foundation for entertaining a dispute against the measure taken under subsection (4) of section 13 of the Securitisation Act is missing.
28. However, the matter is not as simple as is sought to be put forth by the appellants. While it is true that by the ninth supplemental indenture of mortgage, the secured properties have been secured in favour of PNB Investment Services Ltd., such mortgage is subject to the Security Trustee Agreement entered into by and between the borrower, the lenders and PNB Investment Services Ltd. and the principal deed of mortgage and the other supplemental deeds of mortgage, which have not been cancelled but are modified to the extent specified therein. By the ninth supplemental indenture of mortgage, a first charge has been created on pari passu basis over the immovable properties described in Part A to Part 0 of the Second Schedule thereto in favour of the security trustee for the BOI Consortium. In paragraph 18 of the operative part of in the Ninth Supplemental Indenture of Mortgage, it is recorded thus:
Page 46 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019C/FA/386/2019 JUDGMENT "18. The Mortgagors declare that the Principal Mortgage Deed as modified by the 1st Supplemental Mortgage Deed, the 2nd Supplemental Mortgage Deed, the 3rd Supplemental Mortgage Deed, and 4th Supplemental Mortgage Deed, 5th Supplemental Mortgage Deed and 6th Supplemental Mortgage Deed and Deed of Mortgage dated 05.12.2012 and 8th Supplemental Mortgage Deed shall with effect from the date hereof be read and construed as if the total aggregate limits of the Working Capital credit facilities therein mentioned in 585.00 crores, enhanced from the respective amount described therein."
29. In paragraph 18 of the recitals contained in the Ninth Supplemental Indenture of Mortgage, it is recorded thus:
"By consent of all the parties, PNB INVESTMENT SERVICES LTD. is designated and recognized as the Security Trustee for the BOI Consortium, by entering into a Security Trustee Agreement dated 09.10.2013. Pursuant thereto the said Security Trustee has called upon the Mortgagors to create/extend the aforesaid first charge on paripassu basis by executing a Supplemental Deed of Mortgage in its favour being these presents, which the Mortgagors have agreed to do in the manner hereinafter appearing."
The expression used in paragraph 18 of the recitals, is "to create/extend the first charge." A question would therefore, arise as to whether the charge of the consortium under the earlier supplemental mortgage deeds stands extinguished or whether the same stand extended. Therefore, this is not a clear cut case where it can be said that the respondent is not a secured creditor, inasmuch as, the question as to whether the respondent is a secured creditor or not is required to be decided on the basis of documentary evidence on record.
30. In view of the provisions of section 17 of the Securitisation Page 47 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT Act, the Debts Recovery Tribunal is empowered to decide on the validity of any measure taken under subsection (4) of section 13 of the Securitisation Act by a secured creditor. Therefore, if the appellants are aggrieved by the measures taken by the respondent on the ground that it is not a secured creditor, it has to establish such fact before the Debts Recovery Tribunal which has the power to decide even on the question of its own jurisdiction. In view of the provisions of section 34 of the Securitisation Act, if the Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the Act to determine any matter, the jurisdiction of the civil court is ousted. Therefore, unless the Tribunal comes to the conclusion that the respondent is not a secured creditor, it has the power to decide on the validity of the measures taken by it under subsection (4) of section 13 of the Securitisation Act.
31. This court is in respectful agreement with the decision of the Bombay High Court in State Bank of India v. Jigishaben (supra), wherein it was the case of the plaintiff that there was no legal and valid mortgage nor was any security created in favour of the bank as against the right of the HUF of which the plaintiffs were members. According to the plaintiffs, there was no valid basis for the bank to initiate action under section 13(4) of the Securitisation Act. It was averred in the plaint that the defendant No.1 had no security interest as well as no secured asset, as against the plaintiffs' HUF in the suit premises, upon which, the defendant No.1 could take any action under any law much less under section 13(4) of the Securitisation Act. It was Page 48 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT contended that even if the bank had enforceable remedies against the second to fourth defendants, it was not entitled to take possession of the premises of the plaintiffs who were not borrowers or guarantors. The court held thus:
"11. Under Section 34, the jurisdiction of a Civil Court to entertain a suit or proceeding is barred in respect of any matter which the Debts Recovery Tribunal and/or Appellate Tribunal, "is empowered by or under this Act to determine".
The second part of Section 34 bars the grant of an injunction by any Court or authority "in respect of any action taken or to be taken" in pursuance of the power conferred by the Act or by the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The first part of Section 34 operates as a bar in respect of a Civil Court entertaining any suit or proceeding. The bar applies in respect of a matter which can be determined under the Act by the Debts Recovery Tribunal or the Appellate Tribunal. The second part of Section 34 prohibits the issuance of an injunction by a Court or other authority in respect of an action which has been taken or which is to be taken in pursuance of the Act or the RDDB Act.
12. Now, in evaluating what the Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the Act to determine, a reference must be made to the provisions of Sections 13 and 17. Section 13 provides for the enforcement of a security interest created in favour of a secured creditor without the intervention of the Court or Tribunal. Subsection (2) of Section 13 contemplates the issuance of a notice by the secured creditor to the borrower in default to fulfill his liability within sixty days failing which the secured creditor is entitled to exercise his rights under subsection (4). The provisions of Section 13 were amended by Amending Act 30 of 2004 in view of the judgment of the Supreme Court in Mardia Chemicals Ltd. vs. Union of India, 2004 (2) MhL.J. (SC) 1090 = AIR 2004 SC 2371. Under subsection 3(a) as amended, on receipt of a notice under subsection (2), the borrower is permitted to raise an objection or make a representation. The secured creditor has to furnish reasons Page 49 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT to the borrower in the event that the objection/representation of the borrower is not accepted. The proviso to subsection 3(a) entails that the communication of reasons of the likely action of the secured creditor at that stage shall not confer a right upon the borrower to prefer an application to the Tribunal under Section 17. Under subsection (4), the secured creditor is entitled to take recourse to various measures to recover the secured debt in the event that the borrower fails to discharge his liability in full within the period specified in subsection (2). Among the powers which are conferred on the secured creditor is the power to take possession of the secured assets including the right to transfer them by assignment or sale.
13. Section 17 provides a right of appeal to the Debts Recovery Tribunal to any person, including a borrower, aggrieved by any of the measures referred to in subsection 4 of Section 13 taken by the secured creditor or his authorised officer. While construing the provisions of Section 34, the crucial words which have a bearing on the bar of jurisdiction of the civil court to entertain a suit or proceeding are "in respect of any matter which the Tribunal or Appellate Tribunal is empowered by or under this Act to determine". Once a matter is of a description which the Tribunal or Appellate Tribunal is empowered to determine by or under the provisions of the Act, the jurisdiction of the civil court to entertain a suit in respect of that matter is barred. Similarly, no Court or authority can grant an injunction in respect of an action taken or which is to be taken under the Act or the RDDB Act. The powers of the Debts Recovery Tribunal under Section 17 are powers of width and amplitude. If the Tribunal comes to the conclusion that any of the measures referred to in subsection (4) of Section 13 have not been taken by the secured creditor in accordance with the Act and the Rules, the Tribunal may require the restoration of the management of the business of the borrower or the restoration of the possession of the secured assets to the borrower. The Tribunal is empowered to pass such orders as it may consider appropriate and necessary in relation to the recourse taken by the secured creditor under Section 13(4). This power of the Tribunal includes a power to direct the restoration of the status quo ante in order to provide relief to Page 50 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT the borrower against an action which is not in accordance with law.
14. On behalf of the Appellant, it is urged that (i) The Learned Single Judge has erred in coming to the conclusion that the averments contained in paragraphs 3, 4, 12 and 15 of the plaint brought the case of the Plaintiffs within the ambit of the exception carved out by the Supreme Court in paragraph 51 of the judgment in Mardia Chemicals (supra);
(ii) Clearly in view of the law laid down by the Supreme Court in Mardia Chemicals, until the Bank had taken recourse to a measure under Section 13(4) no cause of action would have accrued to the borrower or to a third person and the provisions of the Act cannot be rendered nugatory by taking recourse to the Civil Court on the basis that no measure under Section 13(4) has yet been adopted; (iii) Section 17 of the Act confers a remedy of an appeal to any person, including a borrower. The remedy would, therefore, be available even to the Plaintiffs once possession was taken over under Section 13(4); (iv) Admittedly, the Second Defendant is the Karta of the HUF. Whether the mortgage by deposit of title deeds executed by the Second Defendant was for the benefit of the HUF or for compelling legal necessity, is a matter which could and ought to be decided by the Debts Recovery Tribunal under Section 17. The Debts Recovery Tribunal is competent to decide whether there was a mortgage at all and whether, if a mortgage existed, it would govern the alleged share of the HUF in the residential flat. The averments contained in the plaint, would show that there was both a challenge to the validity of the securitization notice under Section 13(2) besides which, the Plaintiffs claim that there was no valid basis to invoke the provisions of Section 13(4). These are all matters which have to be exclusively decided by the Debts Recovery Tribunal; (v) The Supreme Court in its judgment in Mardia Chemicals carved out a limited exception in respect of the maintainability of a civil suit in cases involving fraud on the part of the secured creditor or where the claim is so absurd or untenable that it does not require any probe whatsoever. The mere use in a stray averment in the plaint of the expression "systematic fraud", would not be sufficient to bring the case within the scope of the exception carved out in Mardia Chemicals since the plaint has to be read and Page 51 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT construed as a whole. So construed, it is clear that the case of the Plaintiffs clearly falls within a matter which the Debts Recovery Tribunal is empowered by and under the Act to determine. Moreover, no injunction of the nature sought could be granted by the Court in respect of any action taken or to be taken in pursuance of the Act.
19. The Securitization Act provides a comprehensive scheme, under which initially upon a notice being served under Subsection (2) of Section 13, a remedy is provided, to raise an objection, to the borrower. The objection has to be considered by the secured creditor and reasons for non acceptance have to be communicated. No cause of action accrues to challenge the action of the secured creditor at that stage. Once a measure is adopted Subsection (4) of Section 13, the Act provides for a remedy of an appeal under Section
17. The scheme which is enunciated under the Act cannot be rendered nugatory by seeking recourse to the jurisdiction either of a Civil Court or, for that matter, in adopting a writ proceeding under Article 226 of the Constitution at the stage where notice is issued under Section 13(2). A challenge at the stage of a notice under Section 13(2) is not envisaged by the legislation and to allow it at that stage is to defeat the law. Such a challenge is barred. When the law expressly contemplates a challenge to a measure taken under Section 13(4) and a challenge before the Tribunal, it bars a challenge at an anterior stage and a challenge before any forum other than that created for hearing an appeal under Section 17 after a measure is taken. Once a measure is adopted under Section 13(4), a statutory remedy is provided not only to the borrower but to any person aggrieved by the taking of a measure. While enquiring into an appeal under Section 17, the Tribunal is empowered to determine whether the action which is taken by the secured creditor is in accordance with the provisions of the Act and the Rules made thereunder. If the Tribunal comes to the conclusion that the action was invalid, it is vested with wide powers, including both to restore the management of the business or restoration of the possession to the borrower and to pass such orders as it may consider appropriate and necessary in relation to the recourse taken by a secured creditor under Subsection (4) of Section 13. When a person other than a borrower is aggrieved by a measure taken by the secured Page 52 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT creditor under Subsection (4) of Section 13, a remedy is equally made statutorily available to such a person.
19A. In a recent judgment of the Supreme Court in Authorised Officer, Indian Overseas Bank vs. M/s.Ashok Saw Mill, 2009(2) Bankers' Journal 721 the Supreme Court adverting to the wide powers conferred upon banks and financial Institutions observed that in order to prevent a misuse of those powers and to prevent prejudice to a borrower on account of an error on the part of a bank or financial Institution, certain checks and balances have been introduced in Section 17 which allow any person, including a borrower, who is aggrieved by the measures taken under Section 13(4) by the secured creditor to make an application before the Debts Recovery Tribunal. In that context, the Supreme Court held as follows:
"The intention of the legislature is, therefore, clear that while the Banks and Financial Institutions have been vested with stringent powers for recovery of their dues, safeguards have also been provided for rectifying any error or wrongful use of such powers by vesting the DRT with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession may have been made over to the transferee. The consequences of the authority vested in DRT under subsection (3) of Section 17 necessarily implies that the DRT is entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(A) of the Act. The Legislature by including sub section (3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases. .... The action taken by a secured creditor in terms of Section 13(4) is open to scrutiny and cannot only be set aside but even the status quo ante can be restored by the DRT".
20. Where as in the present case, the grievance by a third person is that: (i) There was no mortgage; (ii) There was no mortgage by the HUF; (iii) The mortgage, if any, is illegal in relation to the share alleged to be that of the HUF; and (iv) No action had been instituted against the HUF before the Page 53 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT Tribunal; these are all grounds of challenge which, in substance, can be asserted before the Debts Recovery Tribunal. These are matters which the Debts Recovery Tribunal is empowered by or under the Act to determine. None of the grounds which are sought to be urged in the plaint fall outside the province and jurisdiction of the Debts Recovery Tribunal. Once we come to that conclusion, the necessary corollary is that recourse to proceedings in the form of a civil suit is barred by Section 34."
32. Another relevant aspect of the matter is that against the measures taken by the respondent under section 13(4) of the Securitisation Act, the appellants opted for the remedy under article 226 of the Constitution of India. However, the writ petition was not entertained by the learned Single Judge by observing that the submission of the appellants was that the respondent had not validly and competently exercised the powers to take resort to the provisions of the Securitisation Act because according to the appellants, the respondent bank could not term itself as secured creditor within the meaning of the definition and that the security trustee could only become the secured creditor having security interest to be entitled to invoke the provisions of the Act. The learned Single Judge held that merely because this proposition comes as a contention from the appellants, it would not automatically relax the rule of alternative remedy so as to contend that the jurisdiction under article 226 of the Constitution may be exercised, notwithstanding the availability of the alternative statutory remedy. The learned Single Judge further held that the remedy under section 17 is a statutory remedy under the special statute which is an effective and efficacious remedy where the parties have larger scope of leading evidence and going into the facts, which is not the domain of writ jurisdiction. The learned Single Page 54 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT Judge ultimately held that he is not inclined to entertain the petition on the sole ground that the special remedy under the special statute being appeal under section 17 of the Securitisation Act is available to the appellants, and without going into the merits of the contentions left the appellants at liberty to avail of the said remedy and take all the contentions before the alternative forum.
33. Being aggrieved, the appellants preferred a letters patent appeal before a Division Bench of this court, being Letters Patent Appeal No.2608 of 2017. By a judgment and order dated 26.12.2017, the Division Bench dismissed the letters patent appeal. In paragraph 9 of its judgment, the Division Bench referred to the definition of secured creditor as defined under section 2(zd) of the Securitisation Act and held thus :
"9. The appellants herein are the guarantors for the credit facilities extended by the Consortium of Banks and the respondent bank is a lead bank. It is the case of the respondent bank that, huge amount is due and all the accounts in the Banks of Consortium were declared as Non Performing Assets and proceedings are initiated under the Securitisation Act. A perusal of the demand notice issued under section 13(2) of the Act reveals that the appellants were called upon to discharge the liability of all the Consortium Banks for a total sum of Rs.523,60,42,751=65. It is not in dispute that, initially, the appellants have executed documents of mortgage in favour of the respondent bank and there are supplementary documents in favour of the Security Trustee. It is the case of the respondent that the word "any other trustee" used in clause (v) of section 2(zd) of the Securitisation Act, 2002 does not take away the statutory and contractual rights of other class of creditors, as defined in clause (i) of Section 2(zd) of the Act. It is also the case of the respondent bank that mortgagor Nos.1 to 5 of Ninth Supplemental Indenture of Mortgage dated 29/3/2014 are not parties to the Security Trustee Page 55 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT Agreement dated 9/10/2013. It is their case that, in absence of there being parties to the Security Trustee Agreement dated 9/10/2013, mortgagor Nos.1 to 5 cannot take shelter of the Security Trustee Agreement. Further, it is apt to extract the definition of "secured creditor", as defined under section 2(zd) of the Securitisation Act, 2002, as under:
"2(zd) secured creditor" means (i) any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l);
(ii) debenture trustee appointed by any bank or financial institution; or
(iii) an asset reconstruction company whether acting as such or managing a trust set up by such asset reconstruction company for the securitisation or reconstruction, as the case may be; or
(iv) debenture trustee registered with the Board appointed by any company for secured debt securities; or
(v) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created by any borrower for due repayment of any financial assistance.
Definition of section 2(zd) is substituted by Amending Act 44 of 2016. After amendment, the definition of "secured creditor" reads as under:
""secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes
(i) debenture trustee appointed by any bank or financial institution; or
(ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such Page 56 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or
(iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance."
10. From the above definition, "secured creditor" includes any bank or financial institution or any consortium or group of banks or financial institutions holding any right, title or interest upon any tangible asset or intangible asset as specified in clause (l). It is the plea of the respondent that, in view of the definition clause, they still continue as "secured creditor". It is also the case of the respondent that, in view of the documents executed in favour of the respondent bank, they continue to hold the charge of the properties, which are created as security interest to secure the loan advanced to the principal debtor, i.e. M/s Ardor International Pvt. Ltd. In view of such contentious issues, which are raised, we are in agreement with the view expressed by the learned Single Judge that there is no reason to entertain the petition filed under Article 226 of the Constitution of India, when there is an effective alternative remedy by way of appeal before the Debt Recovery Tribunal, under section 17 of the Securitisation Act. It is time and again held that, unless there is an inherent lack of jurisdiction to the authority, who initiated proceedings, no writ can be issued by way of prohibition, interdicting the authorities in prohibiting further. When the appellants rely on certain documents in support of their case, such documentary evidences also can be produced before the appellate authority."
34. The Division Bench referred to the decisions of the Supreme Court in Authorised Officer, Indian Overseas Bank v. Ashok Saw Mill (supra), in Kanaiyalal Lalchand Sachdev v. State of Maharashtra, (2011) 2 SCC 782, as well as in the case of United Bank of India v. Satyawati Tandon (supra), and dismissed the appeal by holding thus:
Page 57 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019C/FA/386/2019 JUDGMENT "14. It is true that, there are exceptions to allow to bypass the remedy of appeal in specified circumstances, where there is a total lack of jurisdiction or when the proceedings initiated are in violation of principles of natural justice. Having regard to the contentious issues raised by the parties, we are of the view that, it cannot be said that the proceedings initiated by the respondent lack inherent jurisdiction. Further, it is also not a case of violation of principles of natural justice to allow to bypass the remedy available by way of appeal before the appellate authority. The remedy available under section 17 of the Securitisation Act is a statutory remedy under the special Statute, scope of which is larger, which enables the parties to lead the evidence, by going into facts, which are not in the domain of writ jurisdiction. Further, as rightly held by the learned Single Judge, the rule of alternative remedy has to be applied with great rigour in disputes arising out of commercial matters."
35. Against the above decision of the Division Bench, the appellants approached the Supreme Court in Special Leave to Appeal (C) No.21569 of 2018, which came to be dismissed.
36. Thus, the appellants chose to approach this court by way of a writ petition, wherein the learned Single Judge as well as the Division Bench, have held that the appellants have an alternative remedy under section 17 of the Securitisation Act and that the proceedings initiated by the respondent do not lack inherent jurisdiction; and the appeal filed before the Supreme Court against the decision of the Division Bench has been dismissed. The appellants are therefore, bound by the findings recorded by the Division Bench regarding the availability of statutory remedy under section 17 of the Securitisation Act and there being no lack of inherent jurisdiction. As rightly contended by the learned counsel for the respondent, the Division Bench Page 58 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT has impliedly held that the Debts Recovery Tribunal has the jurisdiction to decide the controversy raised by the appellants.
37. The Commercial Court, in the impugned order, has referred to the above proceedings and has observed that the superior courts have held that the Debts Recovery Tribunal has the jurisdiction under the Securitisation Act, and therefore, in view of the provisions of section 34 of the Securitisation Act, the jurisdiction of the civil court is barred and has allowed the application filed by the respondent under rule 11 of Order VII of the Code.
38. In the light of the above discussion, it is not possible to say that the Commercial Court was not justified in allowing the application of the respondent under rule 11 Order 7 of the First Schedule to the Code and rejecting the plaint on the ground that the jurisdiction of the civil court was barred by section 34 of the Securitisation Act.
39. In the light of the view that the court has taken in this case, it is not necessary to refer to and deal with the decisions cited by the learned counsel for the respective parties on the question as to whether the Debts Recovery Tribunal has the jurisdiction to decide an application under section 17 of the Securitisation Act, leaving it open for the Tribunal to decide such issue in case the appellants move an application under section 17 of the said Act before it.
40. For the foregoing reasons, the appeal fails and is, accordingly, dismissed. The appellants are at liberty to avail the Page 59 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019 C/FA/386/2019 JUDGMENT remedy under section 17 of the Securitisation Act. If the appellants prefer any application under section 17 of the Securitisation Act, they would be entitled to exclusion of the time taken in prosecuting the proceedings before the Commercial Court as well as this court.
41. It is clarified that any opinion on the merits of the case is merely a prima facie opinion recorded for the purpose of deciding the limited controversy involved in the present case and may not be construed as an expression on the merits of the controversy raised in the suit before the Commercial Court. It shall be open for the appellants to raise all the contentions, including the contention that the respondent is not a secured creditor and, therefore, the Debts Recovery Tribunal lacks the jurisdiction to entertain an application under section 17 of the Securitisation Act. If the appellants make an application under section 17 of the Securitisation Act before the Debts Recovery Tribunal, the said Tribunal shall consider the same in accordance with law, without in any manner being influenced by any observations made in this judgment.
42. In the light of the order passed in the first appeal, civil application does not survive and is disposed of accordingly.
(HARSHA DEVANI, J) (BHARGAV D. KARIA, J) RAGHUNATH R NAIR Page 60 of 60 Downloaded on : Sun Jun 30 12:20:08 IST 2019