Bombay High Court
Allahabad Bank, Nagpur Through Its ... vs Hemantkumar S/O Omprakash Malpani And ... on 20 July, 2017
CRAJ 43-16.odt
1
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
NAGPUR BENCH, NAGPUR
CIVIL REVISION APPLICATION NO.43 OF 2016
Allahabad Bank, A body Corporate
constituted under the Banking Company
Acquisition and transfer of (Undertaking) Act V
of 1970, having its Head Office at 2,
Netaji Subhash Road, Kolkatta, and a Branch
Office amongst other places at Gandhibagh
Branch, Nagpur through its Chief Manager,
Shri. R. Jagdishwar Rao,
Aged 53 years, Occ.: Service
Resident of Nagpur. ....... APPELLANT
...V E R S U S...
1] Hemantkumar s/o Omprakash Malpani
Aged about 30 years, Occ.: Business
R/o 78, Radhey Govind, Wardhman Nagar,
Nagpur-08.
2] Kiran Hemantkumar Malpani
Aged about 30 years, Occ.: Business
R/o 78, Radhey Govind Wardhman Nagar,
Nagpur-08.
3] M/s Salasar Whiteley Pvt.Ltd.
A company registered under
the Companies Act, 1956, having
its Registered Office at 1186,
Radha Niwas, Bhawsar Chowk,
Gandhibagh, Nagpur.
4] Satyanarayan Bankatlal Malu (Director)
Office at 1186, Radha Niwas, Bhawsar Chowk,
Gandhibagh, Nagpur.
5] Rajesh Satyanarayan Malu (Director)
Office at 1186, Radha Niwas,
Bhawsar Chowk, Gandhibagh,
Nagpur. ...... RESPONDENTS
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CRAJ 43-16.odt
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Shri. Masood Shareef, Advocate for Appellant.
Shri. Shyam Dewani, Advocate for Respondent Nos.1 & 2
Shri. R. H. Agrawal, Advocate for Respondent No.3 to 5
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CORAM : DR. (SMT.) SHALINI PHANSALKAR-JOSHI, J.
Date of reserving the Judgment : 29.06.2017
Date of pronouncing of Judgment : 20.07.2017
JUDGMENT
This revision raises a very short point for consideration as to maintainability of the suit in view of the bar created under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (hereinafter referred to as "SARFAESI Act"). 2] By this revision the legality, validity and propriety of the order dated 4.5.2016 passed by Joint Civil Judge, Junior Division, Nagpur below Exh.20 in Regular Civil Suit No. 449/2016 is challenged, as by the said order, the trial Court has rejected the petitioner's primary objection with regard to the jurisdiction of the Civil Court in view of the express bar created under Section 34 of the Act and also for rejection of the plaint on the count that it is not properly valued.
3] Brief facts of the revision are as follows:-
Respondent Nos. 1 and 2 herein had filed instant suit against ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:25 ::: CRAJ 43-16.odt 3 the present petitioner contending inter-alia that they were the Directors of respondent no.3- Company and they had in September, 2009 availed financial assistance in the nature of cash credit facility to the tune of Rs. 390.00 lakh from the petitioner herein. Towards the satisfaction and repayment of said cash credit facility, they had executed their personal guarantees in favour of the petitioner-bank. However, subsequent thereto, they resigned from the post of the Directors of the said Company by their resignation letter dated 8.1.2014 and in their place respondent nos. 4 and 5 have been appointed as Directors. The fact of their resignation was communicated to the petitioner-bank by writing various letters from time to time. The said letters were acknowledged by the petitioner-bank. By the said letters, respondent nos. 1 and 2 had also requested the petitioner- bank to release their personal guarantees, but there was absolutely no response from the petitioner-bank.
4] In this fact situation, respondent nos. 1 and 2 were served with notice on 2.3.2016 purporting to be issued under Section 13(2) of the SARFAESI Act, demanding the dues recoverable from respondent no.3. The bank further informed that they will be enforcing the right of recovery against respondent nos. 1 to 3. As per respondent nos. 1 and 2, there were required to be released from the alleged guarantee as per the letters issued by them. However, as the petitioner bank has not taken cognizance of the ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:25 ::: CRAJ 43-16.odt 4 said letters and was persisting in taking action for recovery of the amount against them, who are no more Directors of respondent no.3 Company and no more the guarantors of the cash credit facility availed by respondent no.3. Hence, it was submitted that as the new Directors like respondent nos. 4 and 5 have already taken the charge of the Company and also given a letter to the petitioner bank undertaking the liability of respondent nos. 1 and 2, according to respondent nos.1 and 2, the notice issued by the petitioner bank under Section 13(2) of the SARFAESI Act was totally illegal and hence, it is necessary to restrain the petitioner bank from enforcing the alleged liability under the guarantee-deeds. Respondents no. 1 and 2, therefore, filed the suit for a decree of declaration that the liability of respondent nos. 1 and 2 as guarantors/sureties for respondent no.3-Company be treated as come to an end and further declaration that they should be discharged from the alleged guarantee dated 23.9.2009. By way of permanent injunction, a relief was sought for restraining the petitioner-bank from taking any coercive action of recovery against them, like issuing any further notice and publication of notice, in newspaper in respect of the alleged transaction.
5] In this suit, on its appearance, petitioner herein filed an application at Exh.20 challenging the jurisdiction of the Civil Court, in ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:25 ::: CRAJ 43-16.odt 5 view of the express bar created under Section 34 of the SARFAESI Act and requested for framing of preliminary issue under Section of the 9-A the Code of Civil Procedure.
6] It was submitted by the petitioner that by the instant suit, the respondents-plaintiffs are restraining the petitioner from taking any action in pursuance of the notice issued under Section 13(2) of the SARFAESI Act and, therefore, the dispute involved in the suit being squarely covered under Section 17 of the said Act, the effective and adequate remedy is available to the respondents. They could file the appeal under Section 17 of the Act to the Debt Recovery Tribunal but the bar under Section 34 of the SARFAESI Act being clearly attracted to the facts of the case, the suit itself was not maintainable. Hence, preliminary issue to that effect be framed and tried 7] In the said application itself, petitioner also contended that on the bare averments of the plaint, it is clear that respondents are claiming declaration that their liability as guarantors/sureties for respondent no.3 has come to an end and they be discharged from the said guarantee. Respondents are also claiming for perpetual injunction restraining the petitioner from taking any action for recovery of the dues. The total amount due from the respondents is to the extent of ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:25 ::: CRAJ 43-16.odt 6 Rs.4,22,70,742/-. As the relief claimed by the respondents in the suit was thus susceptible to monetary evaluation, it was necessary to value the suit on the amount of Rs.4,22,70,742/- and pay the court fee stamp accordingly. However, respondents have valued the suit for the purposes of court fees at Rs.1,000/- only and hence, on this count also the plaint was required to be rejected.
8] This application came to be resisted by respondent nos. 1 and 2, contending inter-alia that the valuation of the suit claim made by them is proper, as they are claiming relief of inunction and declaration which is not susceptible to monetary evaluation. In respect of objection to jurisdiction of the Civil Court, it was submitted that as the dispute raised by them in the suit is not covered under the provisions of SARFAESI Act, the bar under Section 34 of the said Act is not attracted. It was submitted that the said bar can be applicable only in the case of secured creditor. However, the respondent nos. 1 and 2 are not 'secured creditors', within the meaning of the definition given in Section 2(zf) of the said Act as no "security interest", by way of right, title or interest of any kind was created upon property. It was only the personal guarantee of the respondents and hence, the dispute raised by the respondents is not covered under the said Act. Moreover, as they have already ceased to be the Directors of respondent no.3, their personal guarantee has come to an end and, ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:25 ::: CRAJ 43-16.odt 7 therefore, petitioner cannot recover any amount or dues from them. It is submitted that as petitioner is still persisting in taking action of recovery of dues from them, for such relief of declaration and injunction the competent Court is only the Civil Court and hence, the suit filed by the respondents seeking the relief of declaration and injunction is very much maintainable before the Civil Court. The bar under Section 34 of the Act is not at all attracted to the present suit, therefore, the application filed by the respondents needs to be dismissed.
9] On this application, learned trial Court, after hearing learned counsel for both parties, was pleased to accept the submissions advanced on behalf of respondents to hold that as the respondents had executed the personal guarantee, it does not fall within the definition of 'secured interest' and therefore, the dispute being not covered under the SARFAESI Act, but covered under Section 31(a) of the said Act, the Civil Court can entertain such suit and its jurisdiction is not barred. Learned trial Court was further pleased to hold that as the relief claimed in the suit is not susceptible to monetary evaluation, the application for rejection of plaint on the ground that suit is not properly valued was not tenable. Trial Court has accordingly rejected the application in its totality. 10] While challenging this order of the trial Court, in this ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:25 ::: CRAJ 43-16.odt 8 Revision, the submissions of petitioner are two-fold. It is submitted that the learned trial Court has failed to appreciate the provisions of SARFAESI Act and its object and its reason. It is urged that the action taken by the petitioner bank being under Section 13(2) of the SARFAESI Act, the only remedy available to the respondents was to challenge the said notice by preferring an appeal under Section 17 before the Debt Recovery Tribunal, as the jurisdiction of Civil Court in such matters is ousted on account of the specific bar created under Section 34 of the Act. It is submitted that whether the liability of respondents is of a personal guarantee or of a secured interest, that question is also required to be decided by Debt Recovery Tribunal and not by Civil Court. According to learned counsel for petitioner, the trial Court has not properly appreciated the various relevant case-laws cited before it, including the landmark judgment of the Hon'ble Apex Court in the case of "Mardia Chemicals Limited, 2004(2) Mh.L.J.1090" and therefore, the impugned order of the trial Court needs to be interfered.
11] Even as regards the valuation of the suit claim, the learned counsel for the petitioner submits that, if by the instant suit respondents intend to avoid the liability of guarantee to the petitioner to the extent of Rs.4,22,70,742/-, the suit is definitely susceptible to monetary evaluation. Hence, even the bare reading of the plaint also makes it clear that the ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:25 ::: CRAJ 43-16.odt 9 valuation was not made properly. Hence, the trial Court has erred in rejecting the application filed by the appellant on this count also. 12] Per contra, learned counsel for respondent nos. 1 and 2 has supported the impugned order of the trial Court, by adopting the reasons given by the trial Court and further reiterating that as the respondents have ceased to be the Directors and that too, to knowledge of the petitioner, they stand discharged from their liability. Moreover, their security being personal one and not on any property as such, it is not covered under the definition of Section 2(zf) of the SARFAESI Act. Therefore, trial Court has rightly held that the suit is maintainable and the bar under Section 34 of the Act was not attracted. As regards the valuation of the suit claim also, learned counsel for the respondents has relied upon the reasons given by the trial Court and the various Judgments of this Court and the Hon'ble Supreme Court.
13] In the light of these rival submissions advanced by learned counsel for both the parties, the first and foremost issue raised for my consideration in this revision is whether the jurisdiction of the Civil Court to entertain the suit filed by the respondents is expressly barred, in view of Section 34 of the SARFAESI Act?
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CRAJ 43-16.odt 10 14] It need not be stated that provisions of SARFAESI Act have been subject matter of interpretation in various decisions of this Court and also of the Apex Court. Learned counsel for both the parties have also relied upon some of those decisions, the landmark decision on the point being that of Mardia Chemicals Limited Vs. Union of India, 2004(2) Mh.L.J.1090" and then that of "Nahar Industrial Enterprises Limited Vs. Hong Kong Shanghai Banking Corporation, (2009) 8 SCC 646". Learned counsel for the petitioner has also relied upon the latest decision of the Hon'ble Apex Court in the case of "State Bank of Patiala Vs. Mukesh Jain and another (2017) 1 SCC 53 and that of our own High Court in the case of "Punjab National Bank, Ballarpur Vs. Shaikh Mumman Shaikh Guljar,2010(4) Mh.L.J.133".
15] However, in my considered opinion, before adverting to these decisions it would be necessary to consider the provisions of SARFAESI Act itself, along with the objects and reasons for which it was enacted. 16] The statement of the Objects and Reasons of the Act indicate that as our existing legal frame work relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms, the SARFAESI Act was enacted to enable banks and financial institutions to realise long term assets, manage problem of ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 11 liquidity, assets liability, mismatches and improve recovery by exercising power to take possession of securities, sell them and reduce non- performing assets by adopting measures for recovering or reconstructing the assets. Thus, the Act was enacted to provide speedy recovery of securities and financial assets. For that, a separate mechanism is created under the Act and has provided separate remedies to a person aggrieved by only of the measures taken under the Act. The relevant provision in the Act is Section 13 which deals with various measures which the 'secured creditor' is entitled to take for enforcement of security interest. Sub-section (1) of Section 13 provides that;
13...Enforcement of security interest:
(1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act,1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
Provided that-
(i) the requirement of classification of secured debts non-performing asst under this sub-section shall not apply to the borrower who has ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 12 raised funds through issue of debt securities; and
(ii) in the event of default, the debenture trustee shall be entitled to enforce security interest in the same manner as provided under this section with such modifications as may be necessary and in accordance with the terms and conditions of security documents executed in favour of the debentures trustee.
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate [within fifteen days] of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower:
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17-A. (4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:--
(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset:::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 :::
CRAJ 43-16.odt 13 Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security for the debt.
Section 17 of the Act then provides that "17.... Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor then he make application to the Debt Recovery Tribunal having jurisdiction in the matter within forty-five 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.
Thereafter, Section 18 provides a right of Appeal to the person aggrieved by the decision of Debt Recovery Tribunal to the Appellate Tribunal. Section 34 of the Act is relevant which lays down 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 Dues to Banks and Financial Institutions Act, 1993".
17] Looking to the entire purpose and object of the Act, it is evident the Act provides for various remedies to the secured creditor for ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 14 recovery of the dues. An effective remedy of making on application to Debt Recovery Tribunal is also provided to the aggrieved person Section 17(1) of the Act and as per section 34 of the Act, therefore, the jurisdiction of Civil Court is expressly barred in respect of any matter which Debt Recovery Tribunal is empowered to determine. It also specifically provides that no injunction can be granted by any Court in respect of any action taken in pursuance of the Act under the Recovery of Debts Dues to Banks and Financial Institutions Act, 1993. Section 35 of the Act further provides that the provisions of SARFAESI Act shall have overriding effect, on provisions of any other law time being in force. Thus, it can be seen that the SARFAESI Act is a complete self-contained Code in itself, which provides effective measures for the banks and financial institutions to recover their dues without intervention of the Courts and adequate remedies are also provided in the Act itself to the persons aggrieved by those measures.
18] The provisions of Section 13 were considered in detail by the Hon'ble Apex Court in the landmark decision of "Mardia Chemicals Limited" (supra) as the question raised before the Apex Court in that decision was whether bar under Section 34 applies only in respect of the measures taken under Section 13(4) or even for any prior action, like notice under Section 13(2) of the Act? while answering this question in ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 15 affirmative, in paragraph-50 of the said judgment, it was held thus:
"50.... It has also been submitted that an appeal is entertainable before the Debt Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and section 34 bars to entertain any proceeding in respect of a matter which the Debt Recovery Tribunal or the appellate Tribunal is empowered to determine. Thus before any action or measure is taken under sub-section (4) of section 13, it is submitted by Mr. Salve one of the counsel for respondents that there would be no bar to approach the Civil Court. Therefore, it cannot be said 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 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 sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of 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 sub-section (4) of section 13".
19] This provision of Section 13 of the SARFAESI Act again fell for consideration before the Hon'ble Apex Court in the case of "Jagdish Singh Vs. Heerala and others reported in AIR 2014 SC 371". In this case after referring to its earlier decision in the case of "Mardia Chemicals Limited", it was held by the Hon'ble Apex Court that, if any person is aggrieved on account of measures taken under Section 13(4) of the Act then such ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 16 person has got a statutory right of appeal to the Debt Recovery Tribunal under Section 17. It was specifically held in paragraph-22 of the judgment that:-
"22.... 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, sub-section (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 realizing the secured assets. Any person aggrieved by any of the "measures" referred to in sub-section (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 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 sub-section (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 sub-section (4) of Section 13, the remedy open to him is to approach the DRT or the Appellate Tribunal and not the civil court. Civil Court in such circumstances has no jurisdiction to entertain any suit or proceedings in respect of those matters which fall under sub-section (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".
In paragraph-23 of the Judgment, it was further held that "the Civil Court's jurisdiction is completely barred so far as the "measure" taken by secured creditor under sub-section 4 of Section 13 of the Securitisation ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 17 Act, against which the aggrieved person has right of appeal before the Debt Recovery Tribunal or the Appellant Tribunal to determine as to whether there has been any illegality in the "measures" taken". Accordingly, it was held that 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 sub-section (4) of Section 13 of the SARFAESI Act were legal or not.
20] It may be stated that, in this reported case the auction sale of the property made under Section 13(4) of the Act was challenged on the ground that the mortgaged property was belonging to Hindu undivided Family and therefore, the sale was not legal and proper. The suit was also filed for declaration that the property was belonging to HUF and for partition. High Court held that, whether the property was of HUF or not, can be decided by the Civil Court and the jurisdiction of Civil Court was not barred to entertain the suit. However, Hon'ble Supreme Court, relying on Section 13(4) of the SARFAESI Act held that as whatever measure, namely, the auction sale, was taken under Section 13(4) of the Act, Civil Court has no jurisdiction to decide even as to whether the said measure was legal or not. Only the Debt Recovery Tribunal can decide the same. 21] Now whether the bar under Section 34 would apply even ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 18 before the measures as provided under Section 13(4) are taken was the issue raised before this Court also, in the case of "Punjab National Bank, Ballarpur Vs. Shaikh Jumman Shaikh Guljar" (supra) and then relying on the above said decision in the case of "Mardia Chemicals Limited Vs. Union of India", it was held that the bar of jurisdiction of Civil Court under Section 34 of the Act would operate even before the measures as provided under Section 13(4) are taken. It was held that, as per the settled position, any matter in respect of which, an action may be taken even later on, the Civil Court will have no jurisdiction to entertain any proceedings thereof.
22] Thus, the issue whether the notice issued under Section 13(2) of the Act can be challenged in Civil Court or not is no more res-integra, as it is categorically held in all these authoritative Pronouncements of the Hon'ble Supreme Court and this Court that the jurisdiction of Civil Court is barred even in respect of the challenge raised to the notice under section 13(2) of the Act.
23] In this case of Punjab National Bank Vs. Shaikh Jumman one more interesting question of law which is similar to the one raised in present case, was also considered by this Court as to whether the bar under Section 34 is attracted, only when it is shown that 'security interest' ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 19 is created in favour of the 'secured creditor' and not where the creditor is unsecured. While dealing with this question, it was held by this Court that "whether security interest is legally created or not, whether it is the notice issued by secured creditor or not, can be gone into under Section 17 of the Act by the Debt Recovery Tribunal and hence, the jurisdiction of Civil Court is barred under Section 34 of the Act even to decide the said question".
24] Further in the case of "State Bank of Patiala Vs. Mukesh Jain and another, (2017)1 SCC 53", which is relied by learned counsel for petitioner also, it was held that "when section 34 of the Act specifically provides for the bar of jurisdiction of the Civil Court, then any action initiated under Section 13(2) of the Act cannot be challenged before Civil Court. The only remedy available to the aggrieved person is to challenge the same before Debt Recovery Tribunal under Section 17 of the Act". On this very ground in this case the application for rejection of the plaint filed by the defendant was allowed by the Apex Court and the orders of the trial Court and High Court rejecting the same were set aside. 25] If one considers the facts of the present case in the light of these provisions and their interpretation then, in this case, as stated, above respondent nos. 1 and 2 are challenging the notice issued to them by ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 20 petitioner under Section 13(2) of the Act, which was for recovery of the outstanding dues from the respondent and respondents no. 1 and 2, as guarantors for respondent no.3, the principal debtor. Respondent nos. 1 and 2 are not disputing the fact that they had stood as guarantors for the cash credit facility, which was availed for the business of respondent no.3. They are also not disputing that when the cash credit facility was availed, they were the Directors of the said Company. In the plaint itself, they have stated that they had furnished their personal guarantees in addition to hypothecation charge on the entire stock, book debts and other assets of the Company as well as other Collateral Securities. The sanction letter dated 23.11.2013 which is produced on record effect is also sufficient to prove the same.
26] The only contention raised by respondent nos. 1 and 2 is that on account of family dispute, they have ceased to be the Directors of respondent no.3 and respondent no. 4 and 5 took over the post of Directors. According to respondent nos. 1 and 2, they resigned from the post of Director on 31.1.2014 and its intimation was given to the petitioner immediately. The copy of the said intimation is also produced on record. It is further stated that on 31.1.2014 respondent nos.4 and 5 also intimated the petitioner bank that they have become the Directors and also requested release of for personal guarantee of respondent nos. 1 and 2. ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 :::
CRAJ 43-16.odt 21 That letter was also acknowledged by the petitioner bank. Thereafter, several letters are written by respondent nos. 1 and 2 to the petitioner bank requesting for release of their personal guarantee, in view of their resignations from the post of Directors. Similar correspondence was made to the Registrar of the Companies informing them about change in the Directors of the Company.
27] Thus the contentions of respondent nos. 1 and 2 are twofold; first that they are no more the Directors of the Company and hence, no more liable to the outstanding dues recoverable from the Company. Secondly, whatever guarantee they had executed, it was the personal guarantee and not against any security, therefore, as it was not "secured interest", the provisions of SARFAESI Act cannot be made applicable. 28] While dealing with the first contention, even if it is accepted that respondent nos. 1 and 2 had resigned from the post of Directors of the Company and they had also intimated about the same to the petitioner bank and also to the Registrar of the Companies, the fact remains that though the petitioner bank has acknowledged those various letters, the Bank had not released their guarantee. There is not a single document produced on record by the respondents to show that bank has accepted the fact of their resignation from the Company and released them from their ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 22 personal guarantees towards the repayment of financial assistance availed by the Company. Therefore, merely because the bank has received those letters, it cannot be accepted that the bank had released respondent nos. 1 and 2 from their liability as personal guarantors to the loan availed by the Company. It was a unilateral act on the part of respondent no. 1 and 2 to resign from the Company but by such unilateral act, unless it was accepted or acted upon by the bank, respondent nos. 1 and 2 cannot contend that as they have resigned from the post of Directors, they should also be absolved from the liability of dues which were outstanding against the Company. Their act of resignation being unilateral, so far as their liability towards the repayment of dues from the Company is concerned, as their guarantee was never released by the bank, they continue to be liable to the bank for repayment of the amount which was due to the bank. Hence, this contention about their resignation and hence release from bank guarantee cannot be accepted.
29] Second contention raised by the respondents is that they had not created any "secured interest" in favour of the bank and hence, their guarantee being of a personal nature, it is not covered within the definition of "security interest" as given under Section 2(zf) of the Act. To advance this submission reliance is placed on the definition of "security ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 23 interest", as given in Section 2(zf) of the Act, which reads as follows:-
"2(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 license 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 license of intangible asset;
30] As this definition refers to section 31 of the Act, which creates on exception to bar under Section 34 of the Act by excluding right, interest of any kind specified in Section 31, from jurisdiction of Debt Recovery Tribunal, it is necessary to reproduce Section 31 also and it states as under:-
"31... Provisions of this Act not to apply in certain cases.- The provisions of this Act shall not apply to-
(a) a lien on any goods, money or security given by or under the Indian Contract Act, 1872 (9 of 1872) or the Sale of Goods Act, 1930 (3 of 1930) or any other law for the time being in force;
(b) a pledge of movables within the meaning of section 172 of the India Contract Act, 1872 (9 of 1872);
(c) creation of any security in any aircraft as defined in clause (1) of section 2 of the Airrcraft Act, 1934 (24 of 1934);
(d) creation of security interest in any vessel as defined in ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 24 clause (55) of section 3 of the Merchant Shipping Act, 1958 (44 of 1958);
(f) any rights of unpaid seller under section 47 of the Sale of Goods Act, 1930 (3 of 1930);
(g) [any properties not liable to attachment (excluding the properties specifically charged with the debt recoverable under this Act)] or sale under the first proviso to sub-section (1) of section 60 of the Code of Civil Procedure, 1908 (5) of 1908);
(h) any security interest for securing repayment of any financial asset not exceeding one lakh rupees;
(i) any security interest created in agricultural land;
(j) any case in which the amount due is less than twenty per cent of the principal amount and interest thereon".
31] Even the bare perusal of section 31 is thus sufficient to hold that the personal guarantee, which is executed by respondent nos. 1 and 2 for repayment of dues availed by respondent no.3 cannot fall in any those clauses. Therefore, on the face of it, it is clear that the present case cannot be covered under any of the exceptions provided in Section 31 of the Act. Even the averments made in the plaint show that respondent nos. 1 and 2 had not only furnished their personal guarantee but also in addition thereto, hyphenation charge on the entire stock, book debts and other assets of the Company as well as other collateral securities, in their capacity as Directors. Therefore, respondents cannot contend that the guarantee executed by them was merely personal guarantee and hence, it does not fall under the "security interest".
32] Moreover, as held in the above said authority of our own High ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 25 Court in the case of "Punjab National Bank, Ballarpur Vs. Shaikh Mumman Shaikh Guljar" whether their guarantee was personal or whether it has created a security interest, this question is to be decided by the Debt Recovery Tribunal and not by Civil Court. In this judgment, it was clearly held that though the provisions of Section 13 of enforcement of security interest and of Section 17 regarding right to appeal are attracted, only when it is shown that the "security interest" is created in favour of a "secured creditor" and not where the creditor is unsecured, the question whether security interest is legally created or not, or whether it is the notice issued by secured creditor or not, can be gone into under Section 17 by Debt Recovery Tribunal only. Hence, for all these reasons, the jurisdiction of Civil Court is barred under Section 34 of the Act. 33] In this reported judgment, the averments in the plaint were to the effect that, neither the plaintiff nor his father has kept the land mentioned as security and therefore, defendant bank is "unsecured creditor". However, this contention was not accepted so as to confer jurisdiction on the Civil Court, by holding that whether such security interest is created or not, is to be decided under Section 17 by Debt Recovery Tribunal and not by Civil Court.
34] In the instant case therefore whether respondent no. 1 and 2 ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 26 have created merely personal guarantee or they had also created security interest on behalf of the Company by mortgaging the stock and hypothecation charge on the entire stock, book debts and other assets of the Company as well as other Collateral Securities, is to be decided by the Debt Recovery Tribunal under Section 17 of the Act and not by the Civil Court. The said issue clearly comes within the purview of the provisions of SARFAESI Act and the jurisdiction of Civil Court is hence expressly barred in respect of the matters which are covered under the said Act. 35] Moreover, the reading of Section 34 of the Act reveals that it is in two parts. The first part is, no Civil Court shall have jurisdiction to entertain the 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, whereas the second part of the provision prohibits the Court from granting injunction 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 the Banks and Financial Institution Act, 1993. In the present suit filed by respondent nos. 1 and 2, they are not only claiming the declaration that they are discharged from their liability as guarantors of the Company but they are also seeking the relief of injunction restraining the petitioner from taking any action in pursuance of the notice issued under Section 13(2) of the Act.
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CRAJ 43-16.odt 27 36] The second part of Section 34 of the Act expressly prohibits the Civil Court from granting injunction in respect of any action taken or to be taken by or under the Act. The issuance of the notice is an action taken by the petitioner under Section 13(2) of the Act. Hence, as the Civil Court is prohibited from granting any injunction in respect of the notice or future action to be taken under the Act. Hence, on this count also the jurisdiction of Civil Court is barred. Further it is an action taken by the bank in pursuance of "measures" under Section 13(2) of the Act, therefore granting any injunction or declaration restraining the bank from taking measures against respondents is also barred under Section 34 of the said Act. Therefore, on this very count itself, the plaint was liable to be rejected under Order-VII Rule-11(d) of the Code of Civil Procedure. 37] As regards the authorities relied upon the learned counsel for respondents, the first one is of "Mardia Chemicals Ltd." (supra) especially para-51 of this Judgment. However, in my considered opinion reliance placed on para-51 is misplaced because as per para-51 of the said judgment, the jurisdiction of Civil Court can be invoked only to some limited extent when the action of secured creditor is alleged to be fraudulent or their claim may be so absurd and untenable which may not require any probe whatsoever. Here, there is no allegation of fraud or the ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 28 claim being absurd even for the sake of it. Therefore, the respondents cannot bring their suit within the limited exception, provided in para-51 of this authority also.
38] Though much reliance is placed by learned counsel for respondents on the judgment of Supreme Court in the case of Nahar Industrial Enterprises Limited Vs. Hong Kong Shanghai Banking Corporation, (2009) 8 SCC 646, it can be seen that the only question raised for consideration in the he said judgment was "whether High Court or the Hon'ble Supreme Court has power to transfer a suit pending in a Civil Court situated in one place to a Debt Recovery Tribunal, situated in another State"? In the very introductory paragraph-2 this question was posed for consideration and for deciding the said question, various provisions of the Code of Civil Procedure were considered and it was held that the Civil Courts are created under different Acts under different hierarchy and as the Civil Court indisputably has the pecuniary jurisdiction to try the suit, the application before the Debt Recovery Tribunal would lie only at the instance of the bank or the financial institution for the recovery of its debt. It was held that "if the liabilities and rights of the parties are not created under the SARFAESI Act, it is difficult to hold that civil Court's jurisdiction is completely ousted". Here, in the case rights and liabilities of the parties are created very much under the SARFAESI Act in view of cash ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 29 credit facility availed by the respondents as Directors of respondent no.3- Company and executed guarantee deeds. Recovery of dues against them is also under the Recovery of Debt Due to the Banks and Financial Institutions Act, 1993 and SARFAESI Act. This authority therefore cannot be made applicable to the facts of the case in hand.
39] As a result, it has to be held that the trial Court should have allowed the application filed by the petitioner for rejection of the plaint under Order-VII Rule-11(d) of the Code of Civil Procedure, on the count that suit is expressly barred in view of Section 34 of the SARFAESI Act. 40] The second issue raised for consideration in this Revision pertains to valuation of the suit claim. This issue is to be decided in the light of averments made in the plaint. Moreover, the plaint cannot be straightway rejected also on this count but if it is found that court fee is not properly paid, then opportunity needs to be given to the plaintiff to pay correct deficit court fee. However, as this issue is specifically raised in the application filed by petitioner before the trial Court and in this Court also, it has become necessary to consider the same in this revision. 41] Learned counsel for the respondents-plaintiffs has also relied upon the judgment of this Court in the case of "Bina Alhad Naik Vs. Deu ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 30 Keshav Naik and others 2008(6) Mh.L.J. 815" has to submit that the averments made in the plaint have to be read as a whole for deciding whether the claim is valued properly or not. It is submitted that rejection of plaint is not permissible by picking and choosing some avements in the plaint and reading them out of context. Here, in this case it is urged that the relief which the respondents are claiming is only of declaration and injunction and as the said relief is not susceptible to monetary evaluation, respondent have valued the claim under Section 6(iv)(j) of the Maharashtra Court Fees Act, 1959..
42] Further, learned counsel for respondents has also relied upon the judgment of this court in the case of "Om Plastic Industries, Dhule and others Vs. Maharashtra State Finance Corporation, Mumbai and others 2001(1) Mh.L.J. 560", to submit that question of court fees must be considered in the light of the allegations made in the plaint and its decision cannot be influenced, either by the pleas taken in the written statement or by the final decision of the case on merit. 43] Learned counsel for respondent has then relied on the judgment of the Hon'ble Apex Court in the case of "Tara Devi Vs. Sri Thakur Radha Krishna Maharaj, through Sebaits Chandeshwar Prasad and Meshwar Prasad and another, (1987) 4 SCC 69" to urge that, ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 31 valuation of the claim made by the plaintiff, according to his own estimation of the relief, has to be accepted by the Court, unless it is arbitrary, unreasonable and deliberately under estimated. 44] Lastly, learned counsel for respondent has placed reliance on "Eagle Soraj Townships Pvt.Ltd. and others Vs. Eagle Agro-Farm Pvt.Ltd., 2013(1) Mh.L.J. 439" to submit that when the suit is for injunction simplicitor, restraining defendant from interfering with the property, relief claimed is not susceptible of monetary evaluation. Hence payment of court fees under Section 6(iv)(j) of the Maharashtra Court Fees Act cannot be faulted with.
45] In my considered opinion, there cannot be any two opinions as to the legal propositions laid down in all these authorities. However, the fact remains that, even if the averments made in the plaint are taken and accepted as they are, the question has to be decided on the basis of the particular facts and circumstances of each case, having regard to the relief claimed in the plaint.
46] Herein paragraph 28 of the plaint, it is averred by respondents that relief cannot be counted in terms of money and looking to the hardship that may arise in the matter, hence, the present dispute comes under the provision of Section 6(iv)(j) of the Maharashtra Court Fees Act, ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 32 1959 and, therefore, suit is valued at Rs.1,000/- and the court fee of Rs.200/- is paid.
47] However, as rightly submitted by learned counsel for petitioner, even a cursory perusal to the reliefs which respondents have claimed in the suit is sufficient to disclose that by filing such suit, the respondents want to avoid their alleged liability of paying the dues of the petitioner as guarantors/sureties of respondent no.3. It is pertinent to note that the respondent are seeking the relief of declaration that they are discharged from the said liability which has arisen under the guarantee- deed dated 23.9.2009. Further, they are claiming injunction for restraining the petitioner and other respondents from taking any coercive action for recovery of those dues, which were claimed from them under the notice issued Section 13(2) of SARFAESI Act on 2.3.2016. The said notice pertains to the recovery of amount of Rs.4,22,70,742/-. By filing this suit, the respondents want to get rid of the payment of that amount. 48] Now the question for consideration is whether such delectation, which respondents are claiming in the suit for discharging them from the liability of paying the dues, can be called as "not susceptible to monetary evaluation"? so that it can be covered under Section 6(4)(j) of the Maharashtra Court Fees Act? As per said provision, according to which ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 33 plaintiff-respondents have valued the suit, only when the declaration sought in the suit is not susceptible of monetary evaluation, that advolerm fees is payable as if the amount or value of the subject matter was Rs.1,000/-. Here, in the case the relief which is claimed by respondents is definitely susceptible to monetary evaluation as they want declaration of their discharge from the liability of paying the amount of Rs.4,22,70,742/-. Therefore, this amount is when susceptible to monetary evaluation, then in my considered opinion, it stands covered under Section 6(1) of the Maharashtra Court Fees Act, 1959 and under Article-7 of Schedule-I which lays down that; 'in case of the plaint, application or petition (including memorandum of appeal), to obtain substantive relief capable of being valued in terms of monetary gain or prevention of monetary loss, including cases wherein application or petition is either treated as a plaint or is described as the mode of obtaining the relief', the court fee on the amount of the monetary gain, or loss to be prevented, according to the scale prescribed under Article-1 is to be paid 49] Therefore, as per this Article, when any petition is filed to obtain substantive relief, capable of being valued in terms of monetary gain or prevention of monetary loss, including cases wherein application or petition is either treated as a plaint or is described as the mode of obtaining the relief as aforesaid, then the court fees on the amount of ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 34 monetary gain or loss to be prevented, is required to be paid according to the scale prescribed under Article. Respondents are claiming the relief to prevent the monetary loss, which they are likely to suffer, if the action in pursuance the notice issued under Section 13(2) is taken against them. Therefore, such relief is susceptible to monetary evaluation and hence, the proper court fees stamp is required to be paid by law under Article-7 of Schedule-I. 50] If at all any authority is required to confirm this view, then one can safely place reliance on the judgment of this Court in the case of Gilda Finance & Investment Ltd. Vs. Natenco WindPower Pvt.Ltd., reported in 2009(2) Bom.C.R.129. In the said case also, the relief which plaintiff has sought, was for the injunction, restraining defendant nos.1 and 2 from enforcing bank guarantee till the rights of plaintiff were settled in connection with the Memorandum of Understanding. The similar argument was advanced to the effect that as the relief of inunction is not susceptible to monetary evaluation, the valuation of the suit claim was made as per section 6(iv)(j) of the Maharashtra Court Fees Act. However, this submission was rejected and it was held that as the plaintiff wants to restrain the defendant from encashing two guarantees of Rs.47,00,000/-, it means the plaintiff wants to prevent loss of Rs.47,00,000/-. Therefore, the suit was capable of being valued in terms of money and hence, falls under ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 35 Article-7 and not under Section 6(4)(j) of the Bombay Court Fees Act. 51] It was held in paragraph-5 of the judgment that as the relief claimed was ultimately surrounding two bank guarantees of Rs.47,00,000/-, by seeking the order of injunction, the plaintiff was ultimately preventing the loss of Rs.47,00,000/- and in the result gaining the same. Hence, merely because the suit is termed as simplicitor for injunction, that itself cannot be the reason to allow the plaintiff to file the same by paying the court fees of Rs.200/- as per the Bombay Court Fees Act. It was held that, the Court needs to see the sum and substance and substantial reliefs claimed in the suit.
52] In paragraph-6 of the judgment, it was further held that as the substantive reliefs claimed in the suit were capable of being valued in terms of money and fall under the ambit of Schedule-I of Article-7 it was not a suit which can fall under Section 6(iv)(j) of the Bombay Court Fees Act. It was further held that once the suit is capable of being valued in terms of money, then there was no reason to over look the provision contained in Article-7 of Schedule-I and allow such plaint to be entertained without proper court fee. In paragraph-7 again it was again held that the Bombay Court Fees Act may not be interpreted and /or extended of collect the court fee if the provisions are vague but when the provision is clear ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 ::: CRAJ 43-16.odt 36 and there is no ambiguity, the plaintiff has to pay the requisite fee and cannot attempt to evade the same.
53] The facts of the present case are also identical. In this case also, respondents-plaintiffs are seeking relief of declaration and injunction for restraining the petitioner from recovering the amount of Rs.4,22,70,742/- from them. The suit claim is, therefore, definitely susceptible to monetary evaluation and as it falls under the ambit of Schedule-1 Article-7, the valuation made by the respondents under Section 6(iv)(j) of the Maharashtra Court Fees Act cannot be proper and legal. The impugned finding given by the learned trial Court, therefore, on this aspect also needs to be reversed.
54] It may be true that on this ground, the suit cannot be dismissed, without giving an opportunity to the respondents to correct the valuation and, therefore, on this ground petitioner's application for rejection of the plaint straightway may not be tenable. Moreover, now this question has become purely of academic importance in this case, as I have already held that Civil Court has no jurisdiction to entertain the suit filed by the respondents in view of the bar created under section 34 of the SARFAESI Act.
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CRAJ 43-16.odt 37 55] The net result of the discussion is that, this revision needs to be allowed and accordingly stands allowed.
The impugned order passed by the trial Court stands quashed and set aside.
In consequence, the plaint of the suit filed by the respondent nos. 1 and 2 before the trial court stands rejected under Order-VII Rule- 11(d) C.P.C. being barred by law under Section 34 of the SARFAESI Act.
The Revision stands disposed of in the above said terms.
JUDGE RGIngole ::: Uploaded on - 20/07/2017 ::: Downloaded on - 22/07/2017 00:23:26 :::