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2012 DIGILAW 1824 (PNJ)

State Bank of India v. Hardeep Kaur

2012-12-13

A.N.JINDAL

body2012
JUDGMENT Mr. A.N. Jindal, J. (Oral) - The order dated 17.02.2012 (Annexure P-1) passed by the trial Court dismissing the application for rejecting the plaint is under challenge. 2. The prime question, requires adjudication by this Court is, “whether the jurisdiction of the Civil Court to try a suit for the action taken or to be taken under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for brevity ‘the SRFAESI Act’) as well as the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, is barred and consequently, the plaint could be rejected on that account?” 3. The factual background of the case is that respondent No.5-Satnam Agri Products was a private limited company having its directors namely Harjit Singh, Kamaljit Kaur, Joginder Kaur wife of Nirmal Singh. They took various financial assistance of Term Loans and Working Capital Finance from the petitioner along with M/s Indian Overseas Bank and National Bank for Agriculture and Rural Development (NABARD), in which several properties were mortgaged. Joginder Kaur, one of the directors, also made an equitable mortgage of the land measuring 6 Kanals 4 Marlas on behalf of M/s Nirmal Cold Store. On account of non-payment of the loan amount of Rs.42,82,20,640/- by Satnam Agri Products Ltd., an Original Application No.413 of 2011 was filed by the petitioner bank under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for brevity ‘the RDDBFI Act’) and all the properties, which were secured assets of the petitioner, were proceeded against, including the property of the firm M/s Nirmal Cold Store, which was in the shape of equitable mortgage. M/s Satnam Agri Products Ltd., Shri Mandip Singh son of Nirmal Singh, as Managing Director, Smt. Kamljit Kaur wife of Mandip Singh and M/s Nirmal Cold Store through its partner Mandip Singh, challenged the said proceedings before the Debt Recovery Tribunal at Chandigarh in SA No. 180 of 2011, wherein they tried to get a stay from the Debt Recovery Tribunal against the initiation of the proceedings under the SRFAESI Act. The said SA was listed on 28.03.2011, but no stay was granted. The recovery proceedings are still pending before the Debt Recovery Tribunal, Chandigarh. Having failed to get any stay, an application was filed under Section 17 of the SRFAESI Act. The said SA was listed on 28.03.2011, but no stay was granted. The recovery proceedings are still pending before the Debt Recovery Tribunal, Chandigarh. Having failed to get any stay, an application was filed under Section 17 of the SRFAESI Act. A civil suit was also filed by the plaintiff-respondent No.1 before the Civil Court claiming herself as well as defendant Nos. 6 and 7 to be owner of the land to the extent of ¼th share and the mortgage created by Joginder Kaur in favour of the petitioner is illegal, capricious, unlawful and without any authority and for seeking injunction. The present order has arisen out of the application filed by the petitioner-bank under Order 7 Rule 11 CPC in the said suit. 4. The plea of the petitioner is that since the Civil Court has no jurisdiction to grant injunction or decide the rights of the parties, therefore, plaint was liable to be rejected. It was also contended that the respondents do not deny about the loan having been taken by Satnam Agri Products Ltd. They also do not deny, as to if respondent No.5 was not the borrower. The only grievance of the respondents is that since Hardeep Kaur-respondent No.1 is the wife of Raghbir Singh, one of the partners of the firm M/s Nirmal Cold Store, therefore, by virtue of the registered sale deed dated 15.04.1971, she along with defendant Nos. 6 and 7 (sons of Raghbir Singh) are the owners to the extent of ¼ share of the said land, including the Cold Store, constructed over there and the said property is not liable to be sold for recovery of the debt amount, as Joginder Kaur could not transfer the property of other co-sharers without their consent, therefore, the said property could not be equitably mortgaged. As such, the liability created over the property qua her share is nonest, inoperative, ineffective, against the principles of natural justice and not binding on her rights. Similarly, she being in peaceful possession of the property, could not be dispossessed forcibly by the petitioner-bank while invoking the provisions of the SRFAESI Act. 5. As such, the liability created over the property qua her share is nonest, inoperative, ineffective, against the principles of natural justice and not binding on her rights. Similarly, she being in peaceful possession of the property, could not be dispossessed forcibly by the petitioner-bank while invoking the provisions of the SRFAESI Act. 5. Now the question arises is, as to “whether the objection raised by respondent No.1 being a third party objector could be decided by the Civil Court in the present suit and the Civil Court has the jurisdiction to try such suit.” Secondly, “whether Joginder Kaur could equitably mortgage the property of the firm, without the consent of the plaintiff, with the petitioner bank.” 6. Before I proceed further, the detail of the equitable mortgage created by M/s Nirmal Cold Storage is as under:- ----------------------------------------------------------------------------------------------------------------------------------------- a) Date of Mortgage 09/09/05 b) Name of Mortgagor M/s Nirmal Cold Storage, Nakodar Road, Jalandhar. c) Name of Mortgagee State Bank of India, Civil Lines, Jalandhar d) Sum Secured Rs.18.50 Crore e) Rate of Interest 1.50% above the SBI advance rate with monthly rests subject to change from time to time. f) Nature of Mortgage Equitable Mortgage g) Property subject to mortgage Land measuring 6 Kanals 4 Marlas situated at Basti Sheikh comprising of Khewat No.252, khatoni No.496 as per jamabandi for the year 1955-56, Khasra No.3496/1300/1, 1497/1300/2. h) Details of the title deed Registered sale deed dated 15.04.1971 duly registered in the office of joint Sub Registrar, Jalandhar. i) Amount now due Rs.42,82,20,640/-. ---------------------------------------------------------------------------------------------------------------------------------------- 7. Before the Debt Recovery Tribunal, the petitioner had disclosed that the equitable mortgage was made by Mandip Singh, its partner. 8. Now the time has arisen to decide, as to if respondent No.1 had any share in the property and whether Nirmal Cold Storage was authorized to equitably mortgage the same. In this connection, it may be observed that Mandip Singh, did not equitably mortgaged the property in his personal capacity, but it was mortgaged on behalf of the firm. No doubt, the name of Raghbir Singh, figures as partner of firm M/s Nirmal Cold Storage, Nakodar Road, Jalandhar, but it does not describe as to what was the share of Raghbir Singh. It is also not clear, as to what happened with the firm. No doubt, the name of Raghbir Singh, figures as partner of firm M/s Nirmal Cold Storage, Nakodar Road, Jalandhar, but it does not describe as to what was the share of Raghbir Singh. It is also not clear, as to what happened with the firm. In any case, without going deep into the controversy, this Court is of the opinion that this question would be decided by the Court competent to decide the same, yet since I am sitting over to decide the maintainability and jurisdiction of the Civil Court to entertain the suit filed at the instance of one of the partners of the firm, i.e. a person other than the borrower, therefore, the relevant provision need to be discussed. 9. Section 13 of the SRFAESI Act empowers the creditor to move an application for recovery of the debt. Relevant provisions of Section 13 (1) of the Act read as under:- “13(1) Notwithstanding anything contained in Section 69 or Section 69-A 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.” 10. Section 13 (2) of the SRFAESI Act requires issuance of notice to the borrowers, which reads as under:- “13 (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 thesecured creditor within sixty days from the date ofnotice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).” 11. Sub section (4) of Section 13 empowers the secured creditors to proceed against the borrowers for recovery of the debt and certain measures have been provided, which he/it could take against the borrowers. Sub section (4) of Section 13 empowers the secured creditors to proceed against the borrowers for recovery of the debt and certain measures have been provided, which he/it could take against the borrowers. On issuance of such notice, the borrowers or any third person, affected by such notice, could file the objections under Section 17 of the SRFAESI Act, which reads as under:- “17 (1) Anyperson (including borrower), aggrieved by any of the measures referred t in sub-section (4) of Section 13 taken by the secured creditor or his authorised 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:” 12. On filing of the objection, the Debt Recovery Tribunal would consider, whether any of the measures referred in Sub Section 4 or Section 13 of the SRFAESI Act taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the Rules made thereunder. Sub Section 5 also empowers the Debt Recovery Tribunal to decide the application filed by the borrowers or any such person, as expeditiously as possible. Thereafter, the appeal has been provided under Section 18 of the SRFAESI Act, to be filed by a person lodging objections under Section 17 of the Act. A specific bar has been created upon the Civil Court not to intervene in any such matters and grant any injunction by enacting Section 34 of the SRFAESI Act, which reads as under:- “Section 34 – Civil Court not to have jurisdiction – No Civil Court shall have jurisdiction to entertain any suit or proceedings in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any Court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993)/:” 13. From bare reading of the aforesaid Section, the Civil Court has been specifically barred to proceed against the remedy filed before it by way of any suit or other proceedings qua the action taken or the action still to be taken by the Debt Recovery Tribunal at the instance of a secured creditor. Even the decree passed by the Civil Court infringing the rights of the secured creditor has been held to be null and void in a case Sasi and another Vs. Housing Development Finance Corporation Ltd. and others, AIR 2011 Kerala 1, wherein it was observed as under:- “8. It has to be noted that the mandate of Section 34 is not with respect to the ‘action taken’ alone, as it also contemplates the ‘action to be taken’. The right of the secured creditor to proceed against the borrower/defaulter can be by way of different means i.e. by approaching the DRT/Civil Court or by resorting to the remedy under the SARFAESI Act. It is the settled law that the amount due cannot be sought to be realized by resorting to the steps under the Revenue Recovery Act or otherwise, unless the same is got quantified by any valid and legally sustainable proceedings, for which a decree may be necessary to be passed by the competent Civil Court/DRT. But, the proceedings under the SARFAESI Act stand entirely on a different footing and the objects and reasons for bringing about such legislation, even after providing a separate machinery by way of RDDBFI Act, was taken note of by the financial sector in India on comparison with the banks and financial institutions in the international segment. The prolonged litigations and increase of non performing assets quite adversely affected the economy of the State. Various committees were constituted by the Central Government as ‘Narasimham Committee I and II’ for the purpose of examining the Banking sector reforms and considered the needs for changes in the legal system and suggested enactment of new legislation for financial institutions to take possession of the securities and sell them “without intervention of the Court”. It was taking note of the said recommendations, that the necessary ordinance was promulgated in June 2002, followed by necessary enactment. It was taking note of the said recommendations, that the necessary ordinance was promulgated in June 2002, followed by necessary enactment. As mentioned already, it has been specifically stipulated under Section 34 that the jurisdiction of the Civil Court will stand ousted in respect of the matters which the DRT/DRAT is empowered under the Act to determine and no injunction shall be granted by any Court or authority in respect of any ‘action taken’ or ‘to be taken’ in pursuance of any power conferred under the SARFAESI Act or under the RDDBFI Act. It is separately provided under Section 35 of the SARFAESI Act, that the provisions of the Act shall have 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. This being the position, there is no power or jurisdiction for any Civil Court to have granted any injunction in respect of the matters coming within the purview of DRT/DRAT and for this reason itself Ext.P1 judgment/decree passed by the Civil Court granting prohibitory injunction cannot be held sustainable in the eye of law.” 14. The trial Court appears to have not properly examined either Section 18 of the RDDBFI Act or Section 34 of the SRFAESI Act while dismissing the application for rejecting the plaint. The trial Court appears to have been moved by the right created by a party other than the borrower and then upheld the jurisdiction of the Civil Court to decide the matter. Actually, when the question of recovery of loan by invoking the provisions of the aforesaid two Acts is entertained by the DRT/DRAT then any party claiming right could raise objection before the Debt Recovery Tribunal and it was he, who was competent to decide the same and not the Civil Court and in such matter, the jurisdiction of the Civil Court to entertain such suit is completely barred. Similar observation was made by this Court in case Jammu and Kashmir Bank Vs. Jai Lakshmi Dravid, 2006 (2) PLR 671 , wherein it was held as under:- “5. As per the plaintiffs, defendant No.1 is the Karta of HUF who has got the said estate by virtue of the Will by the father of the said defendant and husband of plaintiff No.1. Jai Lakshmi Dravid, 2006 (2) PLR 671 , wherein it was held as under:- “5. As per the plaintiffs, defendant No.1 is the Karta of HUF who has got the said estate by virtue of the Will by the father of the said defendant and husband of plaintiff No.1. Without going into the question, whether the property in the hands of defendant No.1 is Hindu Undivided family property or not or whether it is exclusive property of the said defendant, I find the Civil Court has no jurisdiction to go into the question raised in the present suit in terms of the bar created under Section 34 of the Act. The argument that the question of title cannot be examined by the Debt Recovery Tribunal in the proceedings under Section 17 of the Act is not tenable in as much as all objections which are available to a person against the proceedings initiated by the Bank are to be raised before the Tribunal. The allegations levelled are not such which disclose any fraud at the instance of the Bank, it is pointed out by Mr. A.P. Jagga, Advocate, that in fact the plaintiffs have already invoked the jurisdiction of the Tribunal under Section 17 of the Act. In view thereof, I am of the opinion that the order passed by the learned Trial Court refusing to reject the plaint is suffering from patent illegality and cannot be permitted to stand.” 15. Similarly, in case State Bank of India Vs. Karanvir and others, 2007 (2) PLR 349 , this Court has observed as under:- “4. The rights of the plaintiffs are derived through a consent decree dated 12.01.1995. Admittedly, it is Kalawanti who has executed equitable mortgage in favour of the bank after the decree dated 12.01.1995 was suffered by Kalawanti in favour of the plaintiffs. Smt. Kalawanti has not disclosed the said judgment and decree to the bank. The said judgment and decree could be said to have confer right in favour of the plaintiffs, who are the grandsons of Smt. Kalawanti on the basis of decree, which as not been registered and not binding on third person. The remedy of the plaintiffs, if any, against the proceedings under the Act was by filing objections under Section 13 (3) (a) of the Act or filing an application under Section 17 of the Act. The remedy of the plaintiffs, if any, against the proceedings under the Act was by filing objections under Section 13 (3) (a) of the Act or filing an application under Section 17 of the Act. Having failed to do so, the jurisdiction of the Civil Court cannot be invoked as the same is expressly barred under Section 34 of the Act. 5. Learned counsel for the respondents states that the objections filed by the plaintiff-respondents were not considered. The learned counsel for the petitioner has stated that such objections were filed after possession was taken over under Section 13 (4) of the Act. Even if their objections were not considered, the remedy of the plaintiffs is to seek recourse under the provisions of the Act and not by way of filing a civil suit. Even otherwise, the plaintiffs are deriving their title through Smt. Kalawanti and therefore, the remedy of the plaintiffs is only under the Act and not by virtue of civil suit.” 16. While relying upon the basic judgment delivered by the Hon’ble Apex Court in case Mardia Chemicals Ltd. & others Vs. Union of India & others, 2004 (4) SCC 311 , the Hon’ble Delhi High Court took a similar view in case Sushma Suri & another Vs. Mahamedha Urban Co-operative Bank Ltd. & others, 2011 (178) DLR 111. 17. The Hon’ble Chhattisgarh High Court in case Smt. Anjana Nagadia Vs. Branch Manager, Dena Bank and another, AIR 2011 Chhattisgarh 61, while sitting over an application under Order 7 Rule 11 CPC moved by the Bank for rejecting the plaint, observed as under:- “6. In the matter of Mardia Chemicals Ltd. Vs. Union of India, reported in (2004) 4 SCC 311 : ( AIR 2004 SC 2371 ), the Hon’ble Supreme Court has held that the prohibition contains in Section 34 of the Act, 2002 covers even matters which can be taken cognizance by the Debts Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. The bar of Civil Court thus applies to all such matters which may be taken cognizance of by the Debts Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of Section 13. 7. In the instant case, since the property was pledged to the respondent bank and for non-payment of the loan amount the property was attached for the purposes of sale, provisions of the Act, 2002 will be applicable in the instant case which bars such suits and grant of injunction. Therefore, we are of the opinion that the learned Court below has rightly rejected the plaint for want of jurisdiction.” 18. The Hon’ble Bombay High Court in case The Saraswat Co-operative Bank Limited (Formerly Maratha Mandir Cooperative Bank Limited) A Co-operative Bank Limited registered under the Provisions of Multi-State Co-operative Societies Act, 2002 Vs. Madan S. Jha and another, 2010 (4) Bombay CR 1, had also dealt with the matter with regard to the jurisdiction of the Civil Court in cases, where the property was transferred by the borrowers to the other person. The person claiming right filed the Civil Suit. In these facts, the Court had observed that in the face of the clear provision of Section 34 of the Act, jurisdiction of the Civil Court is ousted and therefore, Civil Court could not have entertained the suit. It was also observed by the Hon’ble Bombay High Court (Nagpur Bench) in case Punjab National Bank through its Branch Manager Vs. Shaikh Jumman Shaikh Guljar, Civil Revision Application No.6 of 2007 (decided on 29.04.2010), observed as under:- “Bare perusal of the aforesaid provision reveals that it is in two parts to be read disjunctively. The first part states that no Civil Court shall have jurisdiction to entertain the suit or proceeding in respect of any matter which a Debt Recovery Tribunal or the appellate Tribunal is empowered by or under this Act to determine. The first part states that no Civil Court shall have jurisdiction to entertain the suit or proceeding in respect of any matter which a Debt Recovery Tribunal or the appellate Tribunal is empowered by or under this Act to determine. 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 the said Act or under the Recovery of Debts Due to the Banks and Financial Institutions Act, 1993. As pointed out earlier, the suit filed by plaintiff being simpliciter for injunction, the same is, therefore, covered by the second part of Section 34, which prohibits the Court or other authority from granting injunction in respect of any action taken or to be taken in pursuance of the power conferred by or under the Act. The issuance of notice is the exercise of power conferred upon the defendant/Bank under Section 13 (2) of the said Act and hence the jurisdiction of the Civil Court is barred. Further, it is the action to be taken by the defendant Bank in pursuance of power conferred upon the secured creditor under Section 13 (4) of the said Act and hence, the jurisdiction of Civil Court, to grant injunction sought for, restraining the defendant Bank from taking measures against the plaintiff, is barred under Section 34 of the said Act. Anyway the suit as framed is barred by law as contemplated under Order VII Rule 11 (d) of the Code of Civil Procedure and hence the plaint is liable to be rejected. The trial Court was right in its view.” 19. The Hon’ble Madras High Court in case Sumathi Vs. Sengottaiyan and others, C.R.P. (PD) No.1591 of 2009 and M.P. No.1 of 2009 (decided on 05.02.2010), also took similar view while observing as under:- “11. True that the plaintiff may institute a suit for partition before the competent Civil Court, but she cannot lawfully challenge the proceedings initiated by the secured creditor under the SRFAESI Act, before the Civil Court as there is a clear bar under Section 34 of the SRFAESI Act. Section 34 of the SRFAESI Act imposes a bar on the Civil Court to grant any relief of injunction with respect to any action taken in pursuance of the power conferred under the SRFAESI Act. Section 34 of the SRFAESI Act imposes a bar on the Civil Court to grant any relief of injunction with respect to any action taken in pursuance of the power conferred under the SRFAESI Act. Therefore, the trial Court has no authority to entertain the prayer for injunction sought for by the plaintiff as against the secured creditors who had already initiated proceedings under the SRFAESI Act.” 20. The other argument raised by learned counsel for the respondents is that since the term ‘debt’ has the same meaning in the SRFAESI Act, as in the Recovery of Debts Due to the Banks and Financial Institution Act, 1993, therefore, the SRFAESI Act would not be applicable. 21. Having deliberated over the contention, it may be observed that the definition of the ‘debt’ under the SRFAESI Act, 2002 as also under the Debt Recovery Act, do not refer to any monetary sealing of Rs.10 Lacs. Again what has to be emerged from the Recovery of Debts Due to the Banks and Financial Institution Act, is only the definition of the ‘debt’ and not all the provisions of recovery of 1993 Act. 22. Learned counsel for the respondents has placed reliance on two judgments delivered in case Bina Murlidhar Hemdev and other Vs. Kanhaiyalal Lokram Hemdev, AIR 1999 Supreme Court 2171 and Sagarmal Vs. Gujarati Beedi Company & others, 2012 (1) Civil Court Cases 452, in order to contend that one of the partners could not transfer the property of the firm without the consent of other partners in view of Section 19 (2) (g) of the Partnership Act, 1932. 23. In this regard, I do not want to go deep into the controversy, except the comments as made by me in the preceding paras, yet it would be left open to the respondents to raise this issue before the Debt Recovery Tribunal, if they so desire. 24. Thus, from the aforesaid discussion and the circumstances of the case, it appears that in view of the bar created by Section 18 of the Debt Recovery Tribunal Act, 1993 and Section 34 of the SRFAESI Act, 2002, the Civil Court has no jurisdiction to entertain the suit. The trial Court appears to have not taken into consideration the aforesaid provisions of the law of land. As such, the impugned order has been rendered as perverse, warranting interference by this Court. 25. The trial Court appears to have not taken into consideration the aforesaid provisions of the law of land. As such, the impugned order has been rendered as perverse, warranting interference by this Court. 25. Resultantly, the present petition is accepted; the impugned order is set aside and the application under Order 7 Rule 11 CPC for rejecting the plaint is allowed.