The Bombay High Court on April 23, 2021, in the case of Maharashtra Gramin Bank (“Applicant”) v. Anwar s/o. Haji Ajij Kachchi (“Respondent”), in a civil revisional application, decided whether non-compliance by a lender with certain provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("SARFAESI Act") would confer jurisdiction upon the civil courts, to deal with the grievances of the borrower in that regard. 

Brief Facts:

The Applicant had accorded a cash credit facility to the Respondent, which was inter-alia secured by certain immovable property of the Respondent. Upon default by the Respondent in making repayment of the instalments against such cash credit facility, the Applicant proceeded to issue a notice of sale of the mortgaged property and such notice was published in the local newspapers. 

The Respondent proceeded to file a suit before the concerned District Court, challenging the actions taken by the Applicant. It was averred that that the Applicant had acted in a very highhanded manner without considering the one-time settlement offer given by the Respondent, and also, there was no compliance by the Applicant with the requirement of issuance of notice as contained in Section 13(2) of the SARFAESI Act, such requirement being peremptory in nature. The Applicant filed an application under Order VII Rule 11 of the Code of Civil Procedure, 1908 ("CPC") for rejection of the plaint filed by the Applicant, in view of the express bar (at Section 34 of the SARFAESI Act) upon the civil courts assuming jurisdiction for disputes where the Debts Recovery Tribunal ("DRT") or Debts Recovery Appellate Tribunal ("DRAT") has jurisdiction, under the provisions of the SARFAESI Act.

The Ld. Civil Judge rejected the application preferred by the Applicant under Order VII Rule 11 of the CPC on the ground that the mandatory requirements under the SARFAESI Act have not been complied with by the Applicant and thereafter the jurisdiction of the civil courts are not ousted in this case. The Applicant preferred a civil revisional application before the Bombay High Court from this order of the Ld. Civil Judge.    

Applicant’s submissions/ contentions: 

The Applicant contended that the learned Civil Judge committed a grave error in assuming the jurisdiction over the subject matter of the suit, which is clearly within the province of the DRT under the SARFAESI Act. In view of the provisions contained at Section 17 of the SARFAESI Act, the question as to whether the measures referred to in sub-section (4) of Section 13 of the SARFAESI Act has been taken by the secured creditor are in accordance with the provisions of the SARFAESI Act and the Rules made thereunder and squarely falls within the province of the authority of the DRT. Thus, the Ld. Civil Judge could not have assumed the jurisdiction on the said count.

Reliance was also placed by the Applicant upon the judgments of the Supreme Court in the case of Jagdish Singh v. Hiralal, (2014) 1 SCC 479, Authorized Officer, State Bank of India v. Allwyn Alloys Private Limited, (2018) 8 SCC 120 and of the  Bombay High Court in the case of Bank of Baroda v. Paramount Conductors Limited., 2020(2) BCR 76. 

Respondent’s submissions/ contentions:

The Respondent contended that there was no infirmity with the impugned judgment as recourse to the provisions of Section 13(4) of the SARFAESI Act, without complying with the mandatory requirement of issue of notice to the borrower, is wholly impermissible. Thus, the Ld. Civil Court would be within its right in entertaining the suit where a clear case of non-compliance is made out. Reliance was placed on the judgment of the  Supreme Court in M/s. Hindon Forge Private Limited v. State of Uttar Pradesh, (2019) 2 SCC 198.

Findings of the Court:

The Bombay High Court allowed the civil revisional application of the Applicant and set aside the impugned order passed by the Ld. Civil Judge, on the following grounds:

1. The exclusion of the jurisdiction of the civil courts under Section 34 of the SARFAESI Act is to be construed in the context of the statutory remedy by way of application under Section 17 of the SARFAESI Act. Section 17 of the SARFAESI Act envisages that a person aggrieved by any of the measures referred to in Section 13(4) of the SARFAESI Act, initiated by the secured creditor, may approach the DRT, assailing the legality, propriety and correctness thereof. The Legislature has designately used the expression ‘any person’ and taken care to further clarify that it includes a borrower. Thus, not only the borrower but the guarantor or any other person aggrieved by the action of the secured creditor may invoke the provisions of Section 17 of the SARFAESI Act.
2. The ambit of the bar envisaged by Section 34 of the SARFAESI Act is no longer res integra, and the Supreme Court, in its judgment in Mardia Chemicals v. Union of India, 2004 (2) Mh.L.J. 1090, has held that such a bar upon the civil courts assuming jurisdiction for disputes under the SARFAESI Act is absolute, except for very limited circumstances such as where "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". In this case, since it had not been asserted that the tribunal empowered under the SARFAESI Act has not acted in conformity with the fundamental principles of judicial procedure, there was no occasion for assumption of jurisdiction by the Ld. Civil Judge. 
3. If it is held that bar under Section 34 of the SARFAESI Act would not operate once there is an averment in the plaint to the effect that there is non-compliance with the provisions under Section 13(2) of the SARFAESI Act, there is a danger of the provisions of the SARFAESI Act being rendered otiose. The question as to whether action of the secured creditor is in conformity with the provisions of the SARFAESI Act is essentially a matter which the DRT is empowered to determine under the provisions of the SARFAESI Act.  

Please find attached a copy of the judgment.

This update has been contributed by Soorjya Ganguli (Equity Partner) and Somdutta Bhattacharyya (Principal Associate).

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