Karnataka High Court
B A Varadarajachar vs The Lakshmi Vilas Bank Ltd on 15 February, 2022
Author: Ravi V. Hosmani
Bench: Ravi V. Hosmani
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF FEBRUARY, 2022
BEFORE
THE HON'BLE MR. JUSTICE RAVI V. HOSMANI
R.F.A.NO.421 OF 2020 (DEC/INJ)
BETWEEN:
SRI. B. A. VARADARAJACHAR
S/O ANJANEYACHAR
AGED ABOUT 59 YEARS
R/AT NO.45, BANASWADI MAIN ROAD
KRISHNARAJAPURAM HOBLI
BANGALORE 560 043. ...APPELLANT
[BY SRI. MADHUKAR M. DESHPANDE, ADVOCATE (VC)]
AND:
1. THE LAKSHMI VILAS BANK LTD
A BANKING COMPANY WITHIN THE MEANING OF
BANKING REGULATION ACT, 1949
HAVING ITS REGISTERED OFFICE AT KARURU
TAMIL NADU 639 006 AND HAVING ITS
BRANCH AT KORAMANGALA NO.68
JYOTHI NIVAS COLLEGE ROAD, 5TH BLOCK
KORAMANGALA, BANGALORE 560 095
REPRESENTED BY ITS BRANCH MANAGER.
2. RELIANCE ASSET RECONSTRUCTION COMPANY LTD
A COMAPNY AS PER THE COMPANIES ACT, 2013
REGISTERED AS AN ASSET RECONSTRUCTION
COMPANY UNDER SECTION 3 OF SARFAESI ACT, 2002
HAVING ITS OFFICE AT RELIANCE CENTER
NORHT WING, 6TH FLOOR
OFF WESTERN EXPRESS HIGHWAY
SANTACRUZ (EAST), MUMBAI 400 055.
REPRESENTED BY ITS MANAGING DIRECTOR.
2
3. M/S SUJAN PRECISION COMPONENTS PRIVATE LIMITED
A COMPANY INCORPORATED UNDER THE
PROVISIONS OF THE COMAPNIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT NO.158
6TH CROSS, 5TH MAIN, BOMMASANDRA INDL. AREA
BANGALORE 560 099.
REPRESENTED BY ITS MANAGING DIRECTOR
SRI B.S. PADMANABHACHAR.
4. SRI.B.S. PADMANABHACHAR
S/O SRINIVASACHAR .B
AGED ABOUT 42 YEARS
R/AT NO.2, KALARAVA PARISARA
19TH CROSS, KASHI MUTT ROAD
MALLESHWARAM, BANGALORE 560 055.
5. SMT. BHARATHI PADMANABHACHAR
W/O B.S. PADMANABHACHAR
AGED ABOUT 38 YEARS
R/AT NO.2, KALARAVA PARISARA
19TH CROSS, KASHI MUTT ROAD,
MALLESHWARAM, BANGALORE 560 055.
6. SMT. V. KOUSHALYA
W/O R. SHARAVANA
AGED ABOUT 46 YEARS
NO.251, 1ST FLOOR
DODDABANASAWADI MAIN ROAD,
BENGALURU 560 043. ...RESPONDENTS
[BY SRI. U.S.YOGESH KUMAR, ADVOCATE FOR R1 V/O DATED
08.03.2021; SRI. SURYANARAYAN RAO M.S., ADVOCATE FOR C/R2
(C.P.NO.247/2020), NOTICE TO R3 TO R6 IS DISPENSED WITH]
THIS R.F.A IS FILED UNDER SECTION 96 OF CPC., 1908 AGAINST
THE JUDGMENT AND DECREE DATED 04.01.2020 PASSED ON I.A.NO.4 IN
O.S. NO.688/2019 ON THE FILE OF THE XXXV ADDITIONAL CITY CIVIL
AND SESSIONS JUDGE, BENGALURU, DISMISSING THE SUIT AS NOT
MAINTAINABLE AND DISPOSING THE I.A.NO.4 FILED UNDER ORDER 7
RULE 11 OF CPC.,
3
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 21.09.2021, THIS DAY, THE COURT PRONOUNCED THE
FOLLOWING:
JUDGMENT
Challenging judgment and decree dated 04.01.2020 passed by XXXV Additional City Civil and Sessions Judge, Bengaluru (CCH-
36) in O.S.No.688/2019, this appeal is filed.
2. Appellant was plaintiff; while respondents herein were defendants no.1 to 6 respectively (Hereinafter referred to as per their ranks before trial Court).
3. Brief facts as stated are that, plaintiff filed O.S.No.688/2019 against defendants seeking for a decree to declare documents mentioned in schedule - B as void and illegal and to declare that plaintiff is discharged from guarantee and surety given by him to defendant no.1 - Bank for repayment of loan granted to defendant no.3 and that schedule - 'A' property is not available as security for repayment of loan availed by defendant no.3 from defendant no.1 - Bank and for permanent injunction against defendants no.1 and 2 from taking any coercive action 4 against plaintiff and from alienating suit schedule property etc. In plaint, it was stated that plaintiff is owner of property bearing Sy.No.250, Municipal No.251, Old No.499/7, PID No.88-12-251 measuring 7159 Sq. ft. with building, (referred to as 'schedule property' for short), situated at main road, Banasawadi within jurisdiction of Bruhat Bengaluru Mahanagara Palike ('BBMP' for short). Said property had fallen to share of plaintiff in terms of compromise decree dated 29.01.1999 passed in O.S.No.10331/1995. Thereafter plaintiff was in possession of same.
4. Defendant no.3 was a company incorporated under Companies Act. Defendant no.4 was it's director and defendant no.5 was his wife. Defendant no.6 was a tenant of plaintiff occupying a portion of schedule - 'A' property. Defendant no.1 - a scheduled Bank and defendant no.2 - an Asset Reconstruction Company & assignee of defendant no.1. During 2010, defendant no.3 represented by defendant no.4 approached defendant no.1 for financial assistance for its business. Defendant no.1 provided term loan of Rs.130.00 lakhs to defendant no.3. It also provided Open Cash Credit Limit ('OCCL' for short) of Rs.300.00 lakhs in favour of 5 defendant no.3 against hypothecation of raw-materials, work in progress, finished goods and book debts. OCCL was secured against personal guarantee of defendants no.4 and 5. It was specifically asserted by plaintiff that plaintiff had not executed any letter of guarantee in favour of defendant no.1. He also did not pledge suit schedule property as security to defendant no.1 for loan/credit limit extended to defendant no.3.
5. Even when term loan sanctioned by defendant no.1 to defendant no.3 was increased to Rs.430.00 lakhs, plaintiff did not offer schedule property as security to defendant no. 1 - Bank. He also did not execute any letter of guarantee.
6. During July, 2011, defendant no.1 - bank provided further OCCL of Rs.450.00 lakhs to defendant no.3 i.e., a total OCCL of Rs.750.00 lakhs (Rs.300.00 lakhs + Rs.450.00 lakhs). It was stated that at the instance of defendant no.3 and defendant no.4, plaintiff executed letter of guarantee dated 16.07.2011 and stood as guarantor for repayment of OCCL of Rs.750.00 lakhs. He also executed registered memorandum of deposit of title deeds on 25.07.2011 mortgaging suit schedule property in favour of 6 defendant no.1 for repayment of OCCL of Rs.750.00 lakhs. It was further stated that during August 2012, plaintiff addressed a letter to defendant no.1 for the purposes of Section 18 of Indian Limitation Act.
7. However, it is alleged that defendant no.1 in collusion with defendant no.3 falsely mentioned in the letter that plaintiff had executed guarantee agreement dated 29.09.2010 in favour of defendant no.1. It is alleged that this amounted to material alteration and variation of terms of agreement.
8. Thereafter, it is stated that defendant no.1 sanctioned further additional term loan without knowledge or notice of plaintiff. In order to bind plaintiff to this additional liability several documents were concocted by fabricating signature of plaintiff, by defendant no.3 represented by defendant no.4 in collusion with officers of defendant no.1. Above fraudulent acts came to notice of plaintiff during February 2015, when a news item was published in Kannada Prabha Daily Newspaper that defendant nos. 4 and 5 defrauded several persons. Plaintiff also lodged a complaint with Malleshwaram police station on 20.02.2015 against defendants no.4 7 and 5. After investigation, City Crime Branch filed charge sheet on 23.10.2018 in C.C.No.28420/2018 before IV ACMM, Bengaluru alleging that officers of defendant no.1 granted additional loan facility without knowledge of plaintiff. Plaintiff obtained copy of charge sheet and documents on 05.11.2018. It was further stated in the plaint that defendant no.1 in the interregnum filed O.A.No.173/2015 before Debts Recovery Tribunal ('DRT' for short), Bengaluru against plaintiff, defendants no.3, 4 and 5 etc., seeking for issuance of recovery certificate. It was further stated that based on created, fabricated and concocted documents, defendant no.1 issued demand notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act ('SARFAESI Act' for short) on 14.01.2015 against various persons including plaintiff. Thereafter, on 23.10.2018, defendant no.2 obtained order under Section 14 of SARFAESI Act from ACMM, Bengaluru in Crl.Misc.No.50252/2018, based on the same fabricated and concocted documents. As entire transaction between defendant no.1 and defendants no.3, 4 and 5 were collusive and based on concocted documents and liability was 8 sought to be foisted on to the plaintiff, plaintiff was entitled for decree as sought for.
9. In the plaint, plaintiff made specific allegations of fraud, concoction and fabrication of documents to cause financial liability on plaintiff illegally in collusion with officials of defendant no.1 by defendants no.3, 4 and 5 which stood vindicated in the charge sheet filed by police.
10. Defendant no.1 filed written statement denying allegations made by plaintiff. It was asserted that defendants no.3 and 4 obtained financial assistance from bank by executing all necessary loan documents and plaintiff had also executed documents offering himself as guarantor. It was specifically stated that plaintiff had executed memorandum of deposit of title deed dated 25.07.2011 by creating security interest over schedule property for enhanced loan of Rs.750.00 lakhs. It was further stated that plaintiff had consciously executed letter of guarantee on 16.07.2011 in consonance of the above. Defendant no.1 specifically denied allegations of fraud, collusion and fabrication or concoction of any documents by its officials. It stated that it had already 9 assigned security interest in favour of defendant no.2 and defendant no.2 was proceeding against plaintiff under the provisions of SARFAESI Act. It was further specifically stated that as defendant no.2 had initiated measures under Section 13(4) of SARFAESI Act and also obtained an order under Section 14, as admitted in the plaint, suit was not maintainable and barred under Section 34 of SARFAESI Act.
11. Defendant no.2 - the assignee, filed separate written statement. It contended that suit was not maintainable in law and was barred by Section 34 of SARFAESI Act. It was stated that in relation to the very same transaction, defendant no.1 filed O.A.No.173/2015 before DRT, Bengaluru, against plaintiff and defendants no.3 to 6 which was pending. It was further stated that it had filed Crl.Misc.P.No.50252/2018 under Section 14 of SARFAESI Act which was allowed on 23.10.2018 and physical possession was taken through process of Court on 18.12.2018 and secured asset was liable to be sold through auction for recovery of secured debt. Though plaintiff was aware of the proceedings, instead of approaching DRT, filed the instant suit which was not 10 maintainable and filed only with a view to scuttle, distract and protract legal proceedings.
12. Along with its written statement, defendant no.2 filed application under Order VII Rule 11 of CPC for rejection of plaint on the ground that jurisdiction of the Civil Court was barred from entertaining grievances over which the DRT or the Appellate Tribunal had exclusive jurisdiction under Section 34 of SARFAESI Act. Said application was numbered as I.A.No.4.
13. Plaintiff filed objections to I.A.No.4. It was contended that as plaintiff was seeking for relief of declaration of discharge from guarantee and surety, only Civil Court had jurisdiction. It was further stated that question of fraud was required to be decided only by Civil Court and as plaintiff was not challenging proceedings initiated under Section 13 and 14 of SARFAESI Act, it was not required to avail remedy available under Section 17 of the Act.
14. Based on pleadings, trial Court framed following issues:-
1. Whether suit of the plaintiff is maintainable in view of Section 34 of SARFAESI Act?11
2. Whether plaintiff is entitled for suit reliefs?
3. What order or decree?
15. After hearing learned counsel for plaintiff and defendants no.1 and 2 and also on issue no.1 and I.A.No.4, trial court proceeded to answer issue no.1 in negative and dismissed the suit as not maintainable. Aggrieved by said order, plaintiff is in appeal.
16. At the out set, Sri. Madhukar Deshpande, learned counsel for plaintiff/appellant submitted that following propositions arose for consideration in this appeal:
1) The bar under Section 34 of SARFAESI Act would not apply to cases falling within the exception as indicated by the Hon'ble Supreme Court in Mardia Chemicals Ltd. Vs. Union of India reported in (2004) 4 SCC 311 and Civil Suit would be maintainable even if suit involves questions regarding enforcement of security interest.
2) Debt Recovery Tribunal cannot be equated with Civil Court and no declaratory relief can be granted by Debt Recovery Tribunal.
12
3) Plaint cannot be rejected in respect of one or some of defendants. It either has to be rejected as a whole against all defendants or Order VII Rule 11 of CPC would not apply.
17. Elaborating his submissions, learned counsel submitted that plaintiff in paragraphs no.10 to 24 of plaint provided particulars of manner in which plaintiff was defrauded by defendants no.3 to 5 in collusion with defendant no.1. The pleadings would meet the requirements of Order VI Rule 4 of CPC. Plaintiff had further narrated events that led to discharge of plaintiff from liability in view of Sections 133 and 135 of the Contract Act. Plaintiff had also very clearly stated cause of action for filing the suit. As plaintiff had raised issues of fraud committed by defendants against plaintiff, he sought declaratory relief referable to Sections 34 and 38 of Specific Relief Act. Above facts would clearly fall within the exception stated in Mardia Chemical's case (supra) and suit would be maintainable.
18. On the other hand defendants no.1 and 2 baldly denied plaintiff's assertion regarding fraud and discharge. Though plaintiff produced charge sheet filed by jurisdictional police against defendants for playing fraud on plaintiff and though involvement of 13 officials of defendant no.1 was yet to be investigated, trial Court proceeded to disbelieve plaintiff's assertion merely on the basis of bare denial by defendants no.1 and 2. The question regarding practice of fraud on plaintiff would require evidence to be led. However, without subjecting the cause to trial, trial Court dismissed plaint and thereby committed jurisdictional error. In support of his proposition learned counsel relied upon paragraphs 51, 53 and 80 of Mardia Chemical's case (supra) "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 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 court in the cases of English mortgages. We find such a scope having been recognized in the two decisions of the Madras High Court which have been relied upon heavily by the learned Attorney General as well appearing for the Union of India, namely, V. Narasimhachariar [AIR 1955 Mad 135] , AIR at pp. 141 and 144, a judgment of the learned Single Judge where it is observed as follows in para 22 : (AIR p. 143) "22. The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are twofold in character. The mortgagor can come to the court before sale with an injunction for staying the sale if there are materials to show that the power of sale is being exercised in a fraudulent 14 or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought : Adams v. Scott [(1859) 7 WR 213, 249] . I need not point out that this restraint on the exercise of the power of sale will be exercised by courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely. (See Ghose, Rashbehary : Law of Mortgages, Vol. II, 4th Edn., p. 784.)"
53. We also find it appropriate to mention at this stage that in reply to the submission made by Shri Dholakia on behalf of the guarantors that even though a guarantor may stand discharged as envisaged under Sections 133 and 135 of the Indian Contract Act e.g. where any variance in terms of the contract has been made without his consent, then too guarantor may be proceeded against and he will have no right to raise an objection, before measures have been taken against him under Section 13(4) of the Act nor could he approach the civil court. It is submitted by the respondent that in such cases a civil court may have jurisdiction to entertain the case as character as a guarantor itself is denied.
80. Under the Act in consideration, we find that before taking action a notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section 17 of the Act to approach the Debts Recovery Tribunal. The above noted provisions are for the purpose of giving some reasonable protection to the 15 borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows:
"1. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days' notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under Section 17 of the Act, at that stage.
2. As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debts Recovery Tribunal.
3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition as it may deem fit and proper to impose.
4. In view of the discussion already held in this behalf, we find that the requirement of deposit of 75% of the amount claimed before 16 entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down.
5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court".
19. Learned counsel further relied upon paragraph no.17 of the decision of Hon'ble Supreme Court in the case of Indian Banks Vs. ABS Marines Product Ltd., reported in (2006) 5 SCC 72:
"17. Making a counterclaim in the bank's application before the Tribunal is not the only remedy, but an option available to the defendant borrower. He can also file a separate suit or proceeding before a civil court or other appropriate forum in respect of his claim against the bank and pursue the same. Even the bank, in whose application the counterclaim is made, has the option to apply to the Tribunal to exclude the counterclaim of the defendant while considering its application. When such application is made by the bank, the Tribunal may either refuse to exclude the counterclaim and proceed to consider the bank's application and the counterclaim together; or exclude the counterclaim as prayed, and proceed only with the bank's application, in which event the counterclaim becomes an independent claim against a bank/financial institution. The defendant will then have to approach the civil court in respect of such excluded counterclaim as the Tribunal does not have jurisdiction to try any 17 independent claim against a bank/financial institution. A defendant in an application, having an independent claim against the bank, cannot be compelled to make his claim against the bank only by way of a counterclaim. Nor can his claim by way of independent suit in a court having jurisdiction, be transferred to a tribunal against his wishes".
20. Learned counsel submitted that in the above case, it was held that civil court will have jurisdiction, as DRT would not have jurisdiction to try dispute relating to claim of damages by debtor. Likewise, he relied upon decisions of High Court of Delhi in the case of Ashok Kumar Raizada Vs. Bank of Rajasthan, reported in ILR 2014 Delhi 356 and in the case of Sadanand Properties Pvt., Ltd., Vs. Punjab National Bank reported in 2015 SCC Online Del. 7179; and the High Court of Madras in the case of K. Deendayalan Vs. N. Satishkumar reported in 2015 (1) L.W. Page 229, the High Court of Andhra Pradesh in Rajanala Kumari Vs. State of Telangana reported in 2018 SCC Online Hyd. 33 and lastly the High Court of Bombay in Bank of Baroda Vs. Gopal Sriram Panda reported in 2021 SCC Online Bom.466.
Insofar as scope of Section 9 of CPC, learned counsel relied upon decision of the Hon'ble Supreme Court in Nahar Industrial 18 Enterprises Ltd., Vs. Hongkong and Shanghai Banking Corporation reported in (2009) 8 SCC 646, it has held in paragraphs 85, 86, 117 and 118 as under:
"85. If the Tribunal was to be treated to be a civil court, the debtor or even a third party must have an independent right to approach it without having to wait for the bank or financial institution to approach it first. The continuance of its counterclaim is entirely dependent on the continuance of the applications filed by the bank. Before it no declaratory relief can be sought for by the debtor. It is true that claim for damages would be maintainable but the same have been provided by way of extending the right of counterclaim.
86. The Debts Recovery Tribunal cannot pass a decree. It can issue only recovery certificates. [See Sections 19(2) and 19(22) of the Act.] The power of the Tribunal to grant interim order is attenuated with circumspection. [See Dataware Design Labs (P) Ltd. v. SBI [(2005) 127 Comp Cas 176 (Ker)] , Comp Cas at p. 184.] Concededly in the proceeding before the Debts Recovery Tribunal detailed examination, cross- examinations, provisions of the Evidence Act as also application of other provisions of the Code of Civil Procedure like interrogatories, discoveries of documents and admission need not be gone into. Taking recourse to such proceedings would be an exception. Entire focus of the proceedings before the Debts Recovery Tribunal centres round the legally recoverable dues of the bank.
117. The Act, although, was enacted for a specific purpose but having regard to the exclusion of jurisdiction expressly provided for in Sections 17 and 18 of the Act, it is difficult to hold that a civil court's 19 jurisdiction is completely ousted. Indisputably the banks and the financial institutions for the purpose of enforcement of their claim for a sum below Rs 10 lakhs would have to file civil suits before the civil courts. It is only for the claims of the banks and the financial institutions above the aforementioned sum that they have to approach the Debts Recovery Tribunal. It is also without any cavil that the banks and the financial institutions, keeping in view the provisions of Sections 17 and 18 of the Act, are necessarily required to file their claim petitions before the Tribunal. The converse is not true. Debtors can file their claims of setoff or counterclaims only when a claim application is filed and not otherwise. Even in a given situation the banks and/or the financial institutions can ask the Tribunal to pass an appropriate order for getting the claims of setoff or the counterclaims, determined by a civil court. The Tribunal is not a high-powered tribunal. It is a one- man tribunal. Unlike some special Acts, as for example the Andhra Pradesh Land Grabbing (Prohibition) Act, 1982 it does not contain a deeming provision that the Tribunal would be deemed to be a civil court.
118. The liabilities and rights of the parties have not been created under the Act. Only a new forum has been created. The banks and the financial institutions cannot approach the Tribunal unless the debt has become due. In such a contingency, indisputably a civil suit would lie. There is a possibility that the debtor may file preemptive suits and obtain orders of injunction, but the same alone, in our opinion, by itself cannot be held to be a ground to completely oust the jurisdiction of the civil court in the teeth of Section 9 of the Code. Recourse to the other provisions of the Code will have to be resorted to for redressal of his individual grievances".20
21. Referring to observations made in aforesaid paragraphs, it was submitted that jurisdiction of Civil Court was not completely ousted as DRT cannot pass a decree, it can only issue certificate for recovery. It was further observed that there are no provisions for detailed examination, cross-examination and all the provisions of Evidence Act as also provisions in CPC regarding interrogatories, discovery of documents and admissions etc., would not be attracted to the procedure before DRT.
22. Learned counsel further submitted that these features distinguished DRT from civil court. The High Court of Bombay in Gopal Sriram Panda's case (supra) had held that as declaratory relief cannot be claimed before DRT, civil suit was maintainable. Learned counsel submitted that as nature of relief claimed by plaintiff referable to Section 34 of Specific Relief Act, suit was maintainable and dismissal of suit was unjustified.
23. In support of his submission that plaint cannot be rejected only in respect of one of the defendants, learned counsel relied upon decisions of Hon'ble Supreme Court in the case of Sejal Glass Ltd., Vs. Navilian Merchants Pvt., Ltd., reported in 21 (2018) 11 SCC 780 and Madhav Prasad Aggarwal Vs. Axis Bank Ltd., reported in (2019) 7 SCC 158. In Sejal Glass Ltd.,'s case (supra) the Hon'ble Supreme Court held that plaint cannot be rejected in part and against some of defendants or in respect of some of the properties, it either has to be rejected as a whole or the provisions of Order VII Rule 11 of CPC would not get attracted.
24. Learned counsel lastly submitted that at the time of passing impugned order, trial Court has made observations on merits of suit also, which was unsustainable and contrary to law. It was submitted that at preliminary stage, trial Court was not justified in dismissing suit without trial.
25. On the other hand, Sri. U.S. Yogeshkumar, learned counsel appearing for defendant no.1 (respondent no.1 herein) submitted that plaintiff and defendants no.3 to 5 availed financial assistance during 2010 viz., a term loan of Rs.130.00 lakhs and OCCL of Rs.300.00 lakhs. During July 2011, defendant no.3 availed further OCCL of Rs.450.00 lakhs i.e., total of Rs.750.00 lakhs. On 25.07.2011, plaintiff executed memorandum of deposit of title deed as security for above loan, which was registered before Sub - 22 Registrar, Banasawadi. During November 2012, defendant no.3 approached defendant no.1 along with plaintiff and others for additional financial assistance and availed it after executing all loan documents. Thereafter, borrowers and guarantors failed to repay loan, defendant no.1 being a secured creditor classified loan as Non
- Performing Asset under Section 2(o) of SARFAESI Act on 24.11.2014. Thereafter it filed Original Application no.173/2015 under Section 19 of Recovery of Debts due to Banks and Financial Institutions Act, 1993 against defendant no.3, plaintiff and others on 01.01.2015, for recovery of debt of Rs.16,30,77,965/-. In the said application, defendant no.1 produced copies of all documents executed by plaintiff and defendants no.3, 4 and 5 for securing financial assistance from it. Despite the same, plaintiff did not contest claim of defendant no.1 in the application.
26. Apart from above, defendant no.1 also issued notice on 14.01.2015, under Section 13(2) of SARFAESI Act demanding payment of Rs.16,15,48,000/- within 60 days from them. Instead of complying with demand made in the notice or contesting claims in the application before DRT, on 20.02.2015, plaintiff filed 23 complaint against respondents no.4, 5 & officials of Andhra Bank and Laxmi Vilas Bank, which was registered as Crime No.58/2015 by Malleshwaram Police Station for offences punishable under Sections 420, 409, 406, 418, 120B read with Section 34 of Indian Penal Code.
27. As borrowers/guarantors failed to pay dues, defendant no.1 issued notice under Section 13(4) of SARFAESI Act on 15.02.2018. Thereafter, it obtained an order on 23.10.2018 under Section 14 of SARFAESI Act for taking physical possession of secured assets.
28. In the meanwhile, on 23.10.2018, police filed charge sheet for offences punishable under Sections 406, 418, 420, 424, 120B read with Section 34 of IPC. However, no charge sheet was filed against any of the bank Officials.
29. Learned counsel submitted that when bank was proceeding to recover the debt by sale of secured assets, plaintiff filed civil suit to stall measures to be taken by defendant no.1 for realization of its debt. Suit was filed four years after filing of 24 complaint and filing of O.A.No.173/2015 by the bank before DRT. It was submitted that as plaintiff had not challenged any of the measures taken by defendant no.1 under the provisions of SARFAESI Act and even if it intended to do so, it ought to have approached DRT and civil suit was not maintainable in view of the bar contained in Section 34 of SARFAESI Act.
30. Learned counsel submitted that relying upon its earlier decision in the case of United Bank of India v. Satyavathi Tandon, (2010) 8 SCC 110 = 2010 AIR SCW 5267, the Hon'ble Supreme Court in Agarwal Tracom Pvt., Ltd., V. Punjab National Bank and Ors., (2018) 1 SCC 626 had explained meaning of expression "any person" used in Section 17(1) and "any of the measures" referred to in Section 13(4) of SARFAESI Act and held that proper forum for challenging action of secured creditor for realization of security interest would only be under the provisions of SARFAESI Act before DRT and invocation of other remedies was barred. In Authorised Officer, State Bank of Travancore and Anr. V. Mathew K.C., (2018) 2 SCC 85 also, referring to Satyavathi Tandon's case (supra) held that provisions of 25 SARFAESI Act had provided for sufficient measures for redressal of grievances against action for recovery of dues initiated by banks and invocation of remedy under Article 226 was barred. In ICICI Bank Ltd., v. Umakanta Mohapatra, (2019) 13 SCC 497 the Hon'ble Supreme Court reiterated its observations in Dwarikesh Sugar Industries Ltd., Vs. Prem Heavy Engineering Works (P) Ltd., reported in (1997) 6 SCC 450 to the following effect:
"32. When a position, in law, is well settled as a result of judicial pronouncement of this Court, it would amount to judicial impropriety to say the least, for the sub-ordinate Courts including the High Courts to ignore the settled decisions and then to pass a judicial order which is clearly contrary to the settled legal position. Such judicial adventurism cannot be permitted and we strongly deprecate the tendency of sub-ordinate courts in not applying the settled principles and in passing whimsical orders which necessarily has the effect of granting wrongful and unwarranted relief to one of the parties. It is time that this tendency stops."
31. In Jagadish Singh v. Heeralal and Ors., (2014) 1 SCC 479, the Hon'ble Supreme Court held that the expression "any person" was of wide import and takes within its fold not only borrower, but also guarantor or any other person, who may be 26 affected by measures taken under Section 13(4) and would include plaintiffs who had filed a civil suit challenging sale of secured property on the ground that same was Hindu Undivided Family property, irrespective of maintainability of civil suit, remedy laid under Section 17 of SARFAESI Act and High Court erred in holding that civil court had jurisdiction.
32. Learned counsel further submitted that the High Court of Delhi in Golf Technologies Pvt. Ltd. And Ors. V. Axis Bank Ltd. And Ors., reported in AIR 2015 Del. 143 had an occasion to consider the scope of exceptions carved out in Mardia Chemicals Ltd., (supra) and held that civil suit was not maintainable even where plaintiff's allegation was that they had signed on some blank papers which were subsequently filled in by bank contrary to understanding between parties. Attention was drawn to para 19 -23 wherein the Court examined legal position availing from precedents and held that exception carved out in Mardia Chemical's (supra) has to be construed strictly. The averments in the plaint has to be considered as a whole and mere allegation of fraud cannot lead to maintainability of the suit and Court is duty bound to see if 27 allegations of fraud are made only for purposes of maintaining suit. Sufficiency of recourse under Section 17 of the Act would bar a suit.
Similar view was expressed by Division Bench of the High Court Bombay in State Bank of India v. Jigishaben B. Sanghavi and Ors., reported in (2010) SCC Online Bom. 1868.
33. Sri. M. S. Suryanarayana Rao, learned counsel appearing for defendant no.2 (respondent no.2 herein) submitted that appeal was not tenable either on law or on facts. It was submitted that O.A.No.173/2015 was filed against plaintiff and other defendants on 30.01.2015. Plaintiff arrayed as defendant no.9 therein had entered appearance and was contesting the same. In the said application, evidence of applicant was recorded on 18.03.2021 and as many as 145 documents were marked as exhibits. Instead of seeking permission to cross-examine AW-1 and for leading his evidence, plaintiff herein filed O.S.No.688/2019 seeking for certain declaratory reliefs, which was not maintainable in view of bar under Section 34 of SARFAESI Act. In support of his submissions, learned counsel relied upon decision of Hon'ble Supreme Court in Mathew K.C. (supra).
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34. Heard learned counsel, perused impugned order and copies of plaint, written statements of defendants no.1 and 2 and documents annexed to plaint, made available by learned counsel for plaintiff.
35. From the above submission, the point that arises for consideration in this appeal is:
"Whether the Civil Court was justified in dismissing plaintiff's suit as not maintainable in view of bar of jurisdiction contained in Section 34 of SARFAESI Act?"
36. Before proceeding to decide the above, a careful perusal of impugned order is considered necessary in peculiar facts of this case. Before trial Court, after service of suit summons on defendants no.1 and 2 and pending service of summons on defendants no.3 to 6, defendant no.2 filed I.A.No.4 under Order VII Rule 11 for rejection of suit as barred under Section 34 of SARFAESI Act.
37. Thereafter, trial court framed issues and heard the plaintiff, defendants no.1 and 2 on issue no.1 and after answering 29 issue no.1 in negative, dismissed the suit as not maintainable. I.A.No.4 was disposed of accordingly.
38. It is significant to note that impugned order is dismissal of suit as not maintainable. It is not an order of rejection of plaint. Hon'ble Supreme Court in Kuldeep Singh Pathania Vs. Bikram Singh Jaryal reported in (2017) 5 SCC 345 and Madiraju Venkata Ramanaraju Vs. Peddireddigari Ramachandra Reddy reported in (2018) 14 SCC 1 held that there is a difference between rejection of plaint under Order VII Rule 11 and dismissal of suit as not maintainable on a preliminary issue which would fall within purview of Order XIV Rule 2 CPC.
39. The law regarding scope of Order VII Rule 11 is well settled. The Hon'ble Supreme Court in Ram Prakash Gupta vs. Raghav Kumar Gupta reported in (2007) 10 SCC 59 referring to its earlier decision in T Arivandandam Vs. T. V. Satyapal reported in (1977) 4 SCC 467 has held that if on a 'meaningful' and not 'formal' reading of the plaint cause of action or a clear right to sue is manifest, the power under Order VII Rule 11 cannot be exercised. It also held that clever drafting creating illusion of a 30 cause of action has to be nipped in the bud. Though, provision of Order VII Rule 11(d) permits rejection of plaint, if it is barred by any law, dismissal of suit as not maintainable would fall within purview of Order XIV Rule 2 (2)(b) of CPC. Under Order XIV Rule 1, Civil Courts are required to give finding on all issues framed. But Order XIV Rule 2 can be invoked as an exception to mandate under Order XIV Rule 1 under specific circumstances.
40. After framing issues, if Civil Court comes to a conclusion that any of the issues would go to the root of subject matter of suit and said issues are pure questions of law, which can be answered without recording of evidence, then Order XIV Rule 2 would empower it to decide such preliminary issue forthwith.
41. It has however to be kept in mind that though provisions of Order XIV Rule 2 of CPC permit dismissal of suit on maintainability, said provision cannot be invoked where preliminary issue would be a mixed question of law and fact.
42. In the instant case, trial Court has held that objection raised by defendant no.2 regarding maintainability of the suit would 31 go to the root of the matter, accordingly proceeded to decide issue no.1. Therefore, impugned order cannot be viewed as being passed under Order VII Rule 11 of CPC. The power exercised by trial court is relatable to provisions of Order XIV Rule 2 of CPC. The legality of same requires to be tested accordingly.
43. At the time of passing impugned order, summons were yet to be served on defendants no.3 to 6. Trial court observed that as no relief was claimed against defendants no.3 to 6 and as defendants no.1 and 2 raised objection regarding maintainability of suit in view of statutory bar contained in Section 34 of SARFAESI Act, it proceeded to frame issues and took up issue no.1 for consideration along with IA no.4 filed by defendant no.2.
44. Several reasons have been assigned by trial court for arriving at conclusion on issue no.1. It has referred to plaint averments and contents of documents produced along with plaint. It stated that suit filed by plaintiff is on allegations of fraud against defendants no.1, 3 and 4 for fraudulently creating twelve documents enumerated in schedule - B. One of the basis for making assertion of fraud was filing of charge sheet against defendants in 32 C.C.No.28420/2018 on a complaint filed by plaintiff for offences punishable under Sections 120-B, 418, 406, 409 and 420 r/w Section 34 of IPC. Referring to contents of charge sheet, trial court observed that there was no charge sheet filed against officials of bank and investigation was still underway.
45. Based on same, trial court proceeded to observe that there was no allegation of fraud, cheating etc., against defendant no.1. As charge sheet was silent regarding role of defendant no.1 in fraud, trial Court held that merely on the basis of charge sheet produced by plaintiff, it cannot jump a conclusion that defendant no.1 played fraud colluding with defendants no.3 and 4. Therefore, plaintiff's case would not fall within the exceptions carved out in Mardia Chemical's, case (supra). Trial court observed that plaintiff did not produce any material to show that defendant no.1 had played fraud on him. Thereafter referring to decision of High Court of Bombay in Jigishaben B. Sanghavi's case (supra), wherein, it was held that provisions of SARFAESI Act bar challenge to any measure at an anterior stage to Section 13(4) and bars challenge thereafter before any forum other than DRT under Section 17 of the 33 Act, trial court held that even allegation of illegal creation of mortgage would fall within the purview of the DRT and civil suit was barred.
46. Trial court distinguished the decision in K. Deenadayalan's case (supra) on the ground that auction sale in the said case was completed which was questioned, unlike in the present suit where sale activity was pending, therefore bar under Section 34 of the Act would be attracted. It also distinguished decision in Ashok Kumar Raizad's case (supra) on the ground that there was dispute regarding relationship of creditor and borrower in the said case unlike in the instant suit, where plaintiff was not disputing relationship of creditor and borrower.
47. Thereafter, trial court referred to decisions of the Hon'ble Supreme Court in K.C. Mathew, O.C. Krishnan, Dwarikesh Sugar Industries Ltd., and in Jagadish Singh cases for the proposition that when sufficient resolution mechanism is provided under the aegis of the Act, invocation of other remedies would be barred.
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48. Trial Court further held that plaintiff failed to produce any document to show that his signatures were forged by defendant no.1 and had failed to produce handwriting expert's opinion. On such conclusion, it held that there was no forgery by defendant no.1. On the said reasoning, plaintiff was non-suited.
49. Firstly, observation of trial court that there was no allegation of fraud against defendant no.1 would be contrary to record. As observed by trial court in impugned order itself, plaintiff had made specific allegation of fraud, concoction and creation of documents enumerated in schedule - B against defendant no.1 in collusion with defendants no. 3 to 5. Therefore, observation of trial court would be perverse.
50. Trial court further held that charge sheet was silent regarding fraud or forgery committed by defendant no.1, which would also be contrary to record. The very extractions from charge sheet, made by trial court indicated that investigation was in vogue insofar as involvement of defendant no.1 in commission of offences. Trial court also lost sight of the fact that defendant no.1 was not discharged and liberty to file additional charge sheet was reserved. 35 Even the reason assigned that plaintiff failed to produce any document to substantiate forgery as also its observation that no report of handwriting expert was produced by plaintiff to substantiate forgery would be uncharitable, especially, as the matter was not yet set for trial. At the stage of deciding maintainability of suit or at the stage of consideration of application under Order VII Rule 11 of CPC, trial court is only required to verify whether there are sufficient pleadings to support allegation of fraud and scrutiny or procrastination about evidence that might be led, would not be called for nor justified. As the matter was not yet set for trial, it would always be available for plaintiff to substantiate his case by appropriate evidence later.
51. In the case on hand, plaintiff has stated that except executing letter of guarantee dated 16.07.2011 and execution of deed of memorandum of deposit of title deeds dated 25.07.2011, plaintiff had not executed any of the documents regarding offer of guarantee to the transactions before 25.07.2011 or subsequent thereto. Plaintiff has very clearly alleged that documents enumerated in schedule - B were forged, concocted or created by 36 defendant no.1 in collusion with defendants no. 3 to 5. Plaintiff produced copy of complaint and FIR making allegations of fraud against defendants. Even charge sheet is also produced. Admittedly, police after investigation found sufficient material to substantiate charge of conspiracy, fraud and cheating etc., against defendants no.3 and 4. Investigating Officer very clearly mentioned in articles of charge that allegation of involvement of defendant no.1 in commission of offences was still under investigation. Therefore, there was no justification for trial court to virtually exonerate defendant no.1 of forgery. Said conclusion arrived at before recording of evidence and its consideration cannot be sustained.
52. The reliefs sought for in the suit would also be of significance. Admittedly, the plaintiff has sought relief of declaration in respect of suit schedule 'B' documents and for declaration that plaintiff is discharged as surety etc. As observed by Hon'ble Supreme Court in Nahar Industrial Enterprises Ltd., (supra), DRT cannot pass a decree of declaration. The procedure would not include detailed examination, cross-examination of witnesses and 37 provisions of Evidence Act as also provisions of CPC regarding interrogatories, discoveries of documents and admissions would not apply. Therefore, remedy provided under provisions of SARFAESI Act for adjudication of fraud, forgery, manipulation etc., would not be adequate.
53. The Hon'ble Supreme Court in Mardia Chemical has carved out exceptions to the bar contained in Section 34 of SARFAESI Act. Hence, plaintiff made specific allegations of fraud and forgery against defendant no.1 and also against defendants no.3 to 5. He has also produced material in the form of complaint and charge sheet wherein police after investigation had invoked criminal prosecution against defendants. Investigation against defendant no.1 about its involvement being incomplete and liberty being reserved to file charge sheet after completion of investigation, same cannot be equated with discharge of defendant no.1. Regardless of criminal prosecution, it would always be available for plaintiff to substantiate his case by leading independent evidence.
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54. Even insofar as bar of jurisdiction of Civil Court under Section 34 of SARFAESI Act is concerned, Hon'ble Supreme Court in Mardia Chemical's case (supra) has culled out certain exceptions, upon satisfaction of which Civil suit would be maintainable. Recently a division Bench of this Court in the case of Raghavan S. Vs. N.B. Rajeev & Ors. in RFA No.1947/2016 disposed of on 22.01.2020 has also held that civil suit would be maintainable for seeking declaratory relief. Similar view is expressed by a learned Single Judge in the case of Smt. Nanjamma Vs. N. Narasimhamurthy & Ors. in RFA No.1397/2019 disposed of on 16.07.2021. It is entirely possible for plaintiff to camouflage cause of action with allegation of fraud to bypass statutory bar. But if it appears to the Civil Court that it were a frivolous suit, it would do well to forthwith call upon plaintiff to lead evidence on preliminary issue and thereafter decide the same. This would enable Civil Court to weed out frivolous suits. My view is fortified by observation of the High Court of Calcutta in the case of Sha-San Infrastructures Pvt. Ltd. v. Thakur Corner Byabsayee Kalyan Samity, reported in 2010 SCC OnLine Cal 1784 : (2011) 2 ICC 604 as follows: 39
"Re: Maintainability of the suit on the bar of law
18. The Learned Trial Judge held that the objection regarding the maintainability of the suit on the bar of Section 34 of the Specific Relief Act cannot be considered at this stage without trial of evidence. This Court agrees with such findings of the learned Trial Judge. As such this Court does not find any illegality on this part of the findings of the learned Trial Judge."
55. A division bench of this Court in the case of R. Gopalakrishna Vs. Karnataka State Financial Corporation and Another reported in ILR 2008 Kar. 2034. In the instant case, the civil court proceeded to dismiss the suit as not maintainable on coming to a conclusion that no documents were produced by the plaintiff to substantiate its allegations against defendant no.1. It also erroneously held that there were no allegations of fraud made against officials of defendant no.1 - Bank and no charge sheet was filed against them. These findings could only be given after trial. When there is no embargo on civil court to record evidence on preliminary issue, dismissal of suit on concluding that plaintiff did not produce material in support of his allegation would be wholly unsustainable. At the same time, calling upon plaintiff to lead 40 evidence to substantiate allegations of fraud would go a long way in weeding out frivolous cases and save banking institutions from lengthy trial. Such a measure would further interest of justice by balancing interests of both parties.
56. In view of the above, point for consideration is answered in the negative. I.A. No.4 shall be deemed to have been rejected on merits. Hence, I pass the following:
ORDER
1. Appeal is allowed.
2. Impugned order dated 04.01.2020 passed by the XXXV Additional City Civil and Sessions Judge, Bengaluru in O.S.No.688/2019, is set-aside. O.S.No.688/2019 is restored to file.
3. Since plaintiff and defendants no.1 and 2 are represented before this Court, they shall appear before trial court without awaiting fresh summons, on 28.03.2022 and take further orders.41
4. Trial court shall issue fresh suit summons and notices to defendants no.3 to 6 and thereafter to dispose of suit in accordance with law after recording evidence, as directed above.
5. Parties to bear their respective costs.
Sd/-
JUDGE BVK/Psg*