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Madhya Pradesh High Court · body

2007 DIGILAW 1099 (MP)

MANOJ KUMAR JAIN v. CORPORATION BANK

2007-10-09

ARUN MISHRA, S.A.NAQVI

body2007
Judgment ( 1. ) THE appeal has been preferred by the plaintiffs aggrieved by order passed by District Judge, Jabalpur in C. S. No. 8-A/06 rejecting the plaint under Order 7, Rule 11 of Civil Procedure Code on the ground that civil suit is barred under section 34 of Securitisation and reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as Act of 2002 ). ( 2. ) THE plaintiffs are the purchaser from borrower Jitendra Kumar Jasnani, they have purchased the house by registered sale deed dated 8-12-2003 for a sum of Rs. 8,27,000/ -. Before filing of the suit the appellants came to know that the first floor portion purchased by them was under mortgage with the Corporation bank. Paper publication revealed that the Bank had taken the action under the act of 2002, therefore, the plaintiffs filed the suit for declaration that they are the absolute owners in possession of house numbers 1267 to 1270 comprised of first floor having an area of 1287 sq. ft. of land situated at Gol Bazar, Wright Town, jabalpur. The Bank filed an application under Order 7 Rule 11 of Civil Procedure code contending that suit is not maintainable because the Act of 2002 bars the jurisdiction of the Civil Court to entertain any suit or proceeding in respect of any matter or proceeding under the Act of 2002, steps have been taken by the Bank under the aforesaid Act. Remedy of the plaintiff lies before Debt Recovery tribunal under section 17 of the Act of 2002. ( 3. ) THE learned District Judge, Jabalpur has held that in view of provisions of the Act of 2002 the Civil Suit is not maintainable. Objection raised by the bank has been upheld. Aggrieved by the dismissal of the suit on the ground of maintainability, the plaintiffs have preferred the instant appeal in this Court. ( 4. ) SHRI A. K. Jain, learned counsel appearing on behalf of appellants has submitted that section 34 of the Act of 2002 has to be read with section 17 of recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter to be referred to as the Act of 1993 ). He has also submitted that the application is not barred by virtue of section 37 of the Act of 2002. He has also submitted that the application is not barred by virtue of section 37 of the Act of 2002. Provisions of the Act of 2002 are in addition to and not in derogation of the Act of 1993. The borrower had taken the loan below Rs. Ten Lakhs as per section 1 (4), the Act of 1993 is not applicable where debt is less than Rs. Ten Lakhs. He has also submitted that the debt has the same meaning under the Act of 2002 as defined in section 2 (g) of the Act of 1993, thus the debt has to be the one which is above Rs. Ten Lakhs, thus the civil suit is maintainable. In case any steps are not taken by the Bank under section 13 of the Act of 2002 appeal/application does not lie before the debt Recovery Tribunal, consequently the decision rendered by the Court below be set aside. ( 5. ) SHRI Rajesh Singh Chauhan, learned counsel appearing for respondent bank has submitted that the Act of 2002 is an independent Act and the pecuniary jurisdiction provided in the Act of 1993 does not govern the steps to be taken by the Bank under the Act of 2002. Section 34 is clearly attracted to bar the civil suit, suit has been rightly dismissed as not maintainable by the Court below. He has relied upon the decision of Apex Court in Mardia Chemicals Ltd. vs. Union of India and others, 2004 (2) MPLJ (SC) 408 = AIR 2004 SC 2371 and M/s transcore vs. Union of India and another, AIR 2007 SC 712 . ( 6. ) THE question arise for consideration whether provisions of the Act of 2002 are regulated by the Act of 1993, in the matter of pecuniary limits of jurisdiction with regard to steps taken against the borrower etc. by the creditor. ( 7. ) IT is necessary to consider the provisions of the Act of 2002. The aim and object of the Act of 2002 reflects that there was absence of legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further the banks and financial institutions in India did not have power to take possession of securities and sell them. The aim and object of the Act of 2002 reflects that there was absence of legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further the banks and financial institutions in India did not have power to take possession of securities and sell them. There was failure to keep pace with the changing commercial practices and financial sector reforms, that resulted in slow pace of recovery of defaulting loans and mounting levels of non performing assets of banks and financial institutions. Narasimham Committee and Andhyarujina Committee were constituted by the Central Government for the purpose of examining banking sector reforms, suggestion was made to enact a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Acting on these suggestions, an ordinance was enacted, thereafter, bill was introduced, ultimately that has taken the shape of Act No. 54 of 2002, enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest or for matter connected therewith or incidental thereto. Section 2 contains the definition of borrower to mean any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created by mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any right or interest of any bank or financial institution in relation to such financial assistance there is no fetter of pecuniary limit contained in the definition. Section 2 (f) defining the borrower is quoted below :-2 (f) "borrower" means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created by mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any right or interest of any bank or financial institution in relation to such financial assistance; debt has been defined in section 2 (ha) of the Act of 2002 which shall have the meaning assigned to it in clause (g) of section 2 of the Act of 1993. Section 2 (ha) is quoted below :-2 (ha) "debt" shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993); section 2 (g) of the Act of 1993 is quoted below :- 2 (g) "debt" means any liability (inclusive of interest) which is alleged as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or whether payable under a decree or order of any Civil Court or otherwise and subsisting on, and legally recoverable on, the date of the application; thus, meaning of debt is clear. The debt as defined in the Act of 1993 has no correlation with financial limit, but that is otherwise provided for the Debt recovery Tribunal under the Act of 1993 under section 1 (4) of the said Act. The debt Recovery Tribunal under the Act of 2002 means the Tribunal established under sub-section (1) of section 3 of the Act of 1993. Default has been dealt with in section 2 (j) of the Act of 2002 to mean non-payment of any principal debt or interest thereon or "any other" amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor. Word any debt or amount payable makes the intendment of the Act of 2002 clear that its operation is not confined to amount of more than Rs. Ten Lakhs as in the case of act of 1993. Word any debt or amount payable makes the intendment of the Act of 2002 clear that its operation is not confined to amount of more than Rs. Ten Lakhs as in the case of act of 1993. Non-performing asset has been defined in section 2 (o) thus:-2 (o) "non-performing asset" means an asset or account of a borrower, which has been classified by a bank or financial institution as substandard, doubtful or loss asset,- (a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guideline relating to assets classifications issued by such authority or body; (b) in any other case, in accordance with the direction or guidelines relating to assets classifications issued by the Reserve Bank. Secured creditor has been defined in section 2 (zd) thus :-2 (zd) "secured creditor" means any bank or financial institution or any consortium or group of banks or financial institutions and includes - (i) debenture trustee appointed by any bank or financial institution; or (ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or (iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance; Secured debt has been defined in section 2 (ze) to mean a debt which is secured by any security interest. Security interest has been defined in section 2 (zf) it also has no correlation with amount of Rs. Ten Lakhs or more, provision provides thus :-2 (zf) "security interest" means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31; section 5 of the Act of 2002 deals with acquisition of rights or interest in financial assets. Section 9 provides for measures for assets reconstruction. Section 10 deals with the other functions of securitisation company or reconstruction company. Section 11 of the Act of 2002 deals with the resolution of disputes, it covers in ambit any dispute not dispute of valuation of Rs. 10 lakhs or above. Section 9 provides for measures for assets reconstruction. Section 10 deals with the other functions of securitisation company or reconstruction company. Section 11 of the Act of 2002 deals with the resolution of disputes, it covers in ambit any dispute not dispute of valuation of Rs. 10 lakhs or above. Section 11 is quoted below :- 11. Resolution of disputes.- Where any dispute relating to securitisation or reconstruction or non-payment of any amount due including interest arises amongst any of the parties, namely, the bank, or financial institution, or securitisation company or reconstruction company or qualified institutional buyer, such dispute shall be settled by conciliation or arbitration as provided in the Arbitration and Conciliation Act, 1996 (26 of 1996), as if the parties to the dispute have consented in writing for determination of such dispute by conciliation or arbitration and the provisions of that Act shall apply accordingly. Enforcement of security interest is provided in section 13 of the Act of 2002, in case any borrower makes any default in repayment of secured debt or any instalment thereof, it is open after taking the steps prescribed in sub-section (2) of section 13 and after consideration of the representation made, to take the steps, as provided in sub-section (4) of section 13 of the Act of 2002 to take possession of the secured assets of the borrower; to take over the management of the business of the borrower; appoint any person to manage the secured assets, the possession of which has been taken over by the secured creditor and require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money. Section 13 (4)of the Act of 2002 is quoted below :-13 (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: 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 or the debt; (c) appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor; (d) require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt. On the steps being taken under sub-section (4) of section 13 of Act of 2002 any person aggrieved by any of the measures referred in section 13 (4) taken by the secured creditor, may make application to the DRT having jurisdiction of the matter within 45 days from the date, on which such measure had been taken. It is open to the secured creditor to take steps with respect to the borrower and borrower as defined in section 2 (f) and the debt as defined in section 2 (ha) of the act of 2002 is not regulated by any financial constraint. In other words section 13 (4) is not applicable only to the cases where amount of debt due is more than rs. Ten Lakhs. In other words section 13 (4) is not applicable only to the cases where amount of debt due is more than rs. Ten Lakhs. There is no room to confine the application of the Act of 2002 to the debt of more than Rs. Ten Lakhs, that interpretation would defeat the very object of the Act for which Act of 2002 has been enacted. Section 17 of the Act of 2002 provides the remedy in such a case, section 17 is quoted below :- 17. Right to appeal.- (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, may make an application along with such fee, as may be prescribed to the debts 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. (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder. (3) If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4) of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the secured assets to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in-sub-section (4) of section 13 taken by the secured assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the secured assets to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4)of section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt. (5) Any application made under sub-section (1) shall be dealt with by the debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application: provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section (1 ). (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any party to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery tribunal for expeditious disposal of the application pending before the debts Recovery Tribunal and the Appellate Tribunal may, on such application, make an order for expeditious disposal of the pending application by the Debts Recovery Tribunal. (7) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of application in accordance with the provisions of the Recovery of Debts Due to Banks and Financial institutions Act, 1993 (51 of 1993) and the rules made thereunder. Aforesaid section 17 also cause no fetter on the power of Debts Recovery tribunal to entertain the application in those cases only where debt is above Rs. Ten Lakhs. Section 18 of the Act of 2002 provides appeal to the Appellate tribunal. Section 34 of the Act of 2002 provides that no Civil Court shall have the jurisdiction to entertain any suit or proceedings in respect of any matter which Debt Recovery Tribunal or Appellate Tribunal is empowered to deal with by or under the Act. Section 34 of the Act of 2002 is quoted below :-34. Section 34 of the Act of 2002 provides that no Civil Court shall have the jurisdiction to entertain any suit or proceedings in respect of any matter which Debt Recovery Tribunal or Appellate Tribunal is empowered to deal with by or under the Act. Section 34 of the Act of 2002 is quoted below :-34. Civil Court not to have jurisdiction.-No civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions act, 1993 (5 of 1993 ). The Debt Recovery Tribunal is empowered to deal with the matter under section 17 and as per scheme of the Act the secured creditor is empowered to take the steps provided in the Act against borrower and even against the person who has acquired any of the secured assets from the borrower. Bank has the right to realize the amount from borrower or such purchaser under the provision of the act of 2002 for which the Bank had initiated the steps in instant case by taking steps under the said Act and Bank has claimed that it has taken symbolical possession of the property also under the provisions of the Act. The provision of section 35 of Act of 2002 contains non obstante clause to the effect that the provision of the Act shall have the effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law. Section 37 of the Act of 2002 specifically provides that provision of the Act shall be in addition to, and not in derogation of the acts mentioned therein, including Act of 1993 or any other law for the time being in force. Section 37 of the Act of 2002 is quoted below :-37. Section 37 of the Act of 2002 specifically provides that provision of the Act shall be in addition to, and not in derogation of the acts mentioned therein, including Act of 1993 or any other law for the time being in force. Section 37 of the Act of 2002 is quoted below :-37. Application of other laws not barred.- The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contract (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act 1992 (15 of 1992), the Recovery of Debts Due to Banks and financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. Merely by the provision made in section 37 of the Act of 2002 that provisions of Act are in addition to, cannot be meant to interpret that the provisions of the Act of 2002 to be regulated by section 1 of the Act of 1993 relating to recovery of debt of over 10 Lakhs. section 1 (4) of the Act of 1993 is quoted below :-1 (4): The provisions of this Act shall not apply where the amount of debt due to any bank or financial institution or to a consortium of banks or financial institutions is less than ten lakh rupees or such other amount, being not less than one lakh rupees, as the Central Government may, by notification, specify. The aforesaid provision of the section 1 (4) of the Act of 1993 is with respect to the applicability of the Act of 1993 and cannot govern the applicability of the Act of 2002 within the pecuniary limits as provided in sub-section (4) of section 1 of the Act of 1993. Section 17 of the Act of 1993-deals with the jurisdiction, power and authority of the Tribunal, no doubt about it that under the act of 1993 the jurisdiction, power and authority of the Tribunal has to be governed by the provision of the Act of 1993 inclusive of section 1 (4) of the Act of 1993. Section 17 of the Act of 1993-deals with the jurisdiction, power and authority of the Tribunal, no doubt about it that under the act of 1993 the jurisdiction, power and authority of the Tribunal has to be governed by the provision of the Act of 1993 inclusive of section 1 (4) of the Act of 1993. Section 17 of the Act of 1993 cannot be made applicable to the provision of section 17 of Act of 2002 which provide independent remedy under the said Act nor section 34 of Act of 2002 can be interpreted in the manner as suggested by Shri A. K. Jain, learned counsel appearing for appellant that bar is created under section 34 of Act of 2002 only with respect to the debt of Rs. 10 lakhs or above. We find no room to entertain the aforesaid submission based on section 1 (4) of the Act of 1993. It cannot be attracted to section 34 or to section 17 of the 2002 Act. The Act of 1993 cannot control provision of section 17 of the act of 2002. Accepting the submission of Shri Jain would mean that Tribunal would have jurisdiction only to deal with the matter as prescribed under the Act of 1993. In view of the aforesaid provisions, it is clear that operation of section 17 of the Act of 2002 is unfettered by the amount of loan, that has been taken and there is remedy of appeal/application provided under section 17 of the Act of 2002. Consequently the action initiated by the Bank under the provisions of the act of 2002 cannot be the subject-matter of the Civil Court with respect to the matters to be dealt with under the Act of 2002. Section 34 bars the jurisdiction of the Civil Court as such Court below has rightly held the civil suit to be not maintainable before it. ( 8. ) THE Apex Court in Mardia Chemicals Ltd. vs. Union of India and others (supra) has laid down 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. 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 a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. The bar of Civil Court thus applies to all such matters which may be taken cognizance of by the debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of section 13. The Apex Court has clearly laid down that prohibition under section 34 covers even the matter which can be taken cognizance by the Debt Recovery tribunal, though no measures in that direction has so far been taken under sub-section (4) of section 13. Therefore, any matter in respect of which an action may be taken even later on under Act of 2002, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. Therefore, any matter in respect of which an action may be taken even later on under Act of 2002, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. Essence was the liability of plaintiff, the matter is to be dealt with by the DRT under the provisions of the act of 2002 as provided in section 13 (4 ). The Apex Court in M/s Transcore vs. Union of India and another (supra) has also considered the provisions of State financial Corporation Act and has held that remedy under the Act of 2002 is an additional remedy and is different from the integrated scheme of the Act of 2002. ( 9. ) RESULTANTLY, we find appeal has no merit, it is liable to be dismissed, same is hereby dismissed. However, we leave the parties to bear their own costs as incurred of this Appeal dismissed.