Under Securitisation Act, Mortgagor Can Come to the Civil Court before sale with a civil suit

Under Securitisation Act, if the secured creditor is acting in violation of the rights, duties and obligations, the MORTGAGOR CAN COME TO THE CIVIL COURT before sale with a civil suit for injunction for staying the sale.

 In Mardia Chemicals Ltd. Vs U.O.I. & Ors. {A.I.R 2004 SC 2371; (2004) 4 SCC 311; (2004) 59 CLA 380 (SC); Date of Judgment: 08/04/2004} a three judge bench of hon’ble Supreme Court has observed and held as follows {in para 51, 53 and 80(5)}:

“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 their 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.”

 “53. We also find it appropriate to mention at this stage that in reply to 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 CONTRACTS 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 he could approach the civil court.  IT IS SUBMITTED BY THE RESPONDENT IN SUCH CASES CIVIL COURT MAY HAVE JURISDICTION TO ENTERTAIN THE CASE AS CHARACTER AS A GUARANTOR ITSELF IS DENIED.” (capitals supplied)

 “80(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.” (capitals supplied)

In other words, the Supreme Court has held that if the secured creditor is acting in violation of the rights, duties and obligations, the mortgagor (i.e. the PRINCIPAL DEBTOR OR THE GUARANTOR AS THE CASE MAY BE) can come to the Civil Court before sale with a civil suit for injunction for staying the sale. It is important to note here that in para 53 of the judgment Supreme Court has accepted that there are no safeguards in the Act for a guarantor and it can not be denied that even though a guarantor may stand discharged as envisaged under Sections 133 and 135 of the Contracts 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.

By Narendra Sharma, Consultant (Legal)

E-mail: nkdewas@yahoo.co.in