Jurisdiction of DRT under SARFAESI Act - An overview

Jurisdiction of civil court is barred from entertaining any suit or granting any injunction against action taken under the Act as the statue confers jurisdiction over the subject matter to DRT only.

But civil court’s jurisdiction is not barred in respect of subject matters which are out of purview of jurisdiction of DRT. Supreme Court at para 51 of the judgment in Mardia Chemicals case held that 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, misrepresentation. Supreme Court in Sangam Singh Gaekwad Vs. Shantadevi Gaekwad (2005) II SCC 314 held that in terms of Or. VI R. 3 C.P.C. the plaintiff is bound to give particulars of the case where fraud, misrepresentation and breach of trust are alleged. At para 210 0f the judgment the Supreme Court observed as follows:   

“In A.C. Ananta swamy Vs. Boraiah this court held that the level of proof required for proving fraud is extremely high”

Supreme Court in Nahar Industrial Enterprises Ltd. Vs. H.S.B.C. : 2009 (4) CTC 74  = (2009) 8 S.C.C. 646) held that,

a) CPC and Evidence Act have no application to the proceedings before the tribunal;

b) That the tribunal is not civil court nor is subordinate to High Court;

c) That it cannot grant any relief under sec. 34 of Specific Relief Act 1963 and that the tribunal can issue only recovery certificate and cannot pass a decree;

In case of fraud, misrepresentation, breach of trust etc. application of CPC and Evidence Act in the proceedings before the tribunal are required as per the judgement in Gaekwad’s case (supra) but CPC and Evidence Act have no application to the proceedings before the tribunal according to the judgment in Nahar Industrial Enterprises Ltd.’s case.  Therefore it cannot be said that civil court’s jurisdiction is totally barred.

Writ Jurisdiction of High Courts and Supreme Court is not barred if there is no alternative remedy. But it is settled law that writ jurisdiction is not appropriate remedy when alternative remedy is available. Some High Courts have held that it is not a bar but self imposed restriction. Supreme Court in United Bank of India Vs. Satyavati Tondon & Ors.: III (2010) Banking Cases 495(SC) observed as under:

“it is a matter of serious concern that despite repeated pronouncement of this Court, the High Courts continue to ignore the availability of statutory remedies under the DRT Act and SARFAESI Act and exercise jurisdiction under Article 226 for passing orders which have serious adverse impact on the right of banks and other financial institutions to recover their dues. We hope and trust that in future the High Courts will exercise their discretion in such matters with greater caution, care and circumspection”

When 3/4^th of the secured creditors have taken a decision to initiate action under SARFAESI Act, it amounts to measure taken to recover their dues as mentioned under Section 13(4) of the SARFAESI Act. The aggrieved party may approach the DRT and not the High Court. Very often something which is not mentioned can be implied by necessary implication United Bank of India Vs. Satyavati Tondon & Ors.: III (2010) Banking Cases 495(SC);V.Sriramulu Vs Karur Vyasya Bank Ltd & ors 2006(1)DRTC 774 (A.P);Y.L.K.Prasad Vs Central Bank of India:2008(3)ALD 127;Punjab National Bank Vs Imperial Gift House : 2009 (TLS 49112) (Supreme Court); Bharat Lal Vs.Punjab National Bank Housing Finance Ltd.:2010(3)ADJ 307(Allahabad); Eppanapally Ravi Vs Canara Bank:2010 (3)ALD 307(AP); Sri Kodandaram Alloys Pvt. Limited rep by its Managing Director Bs. SBI : 2010 (3)ALT 31(AP).

Circumstances under which the Writ jurisdiction is not barred is clarified by A.P.High Court  in Sarvan Dall Mill (P) Ltd. vs. Central Bank of India : 2010 (1) ALT 321 (D.B.) wherein it has been held that, judicial review under Art.226 is the only remedy available in certain circumstances such as wrong classification of accounts contrary to RBI Guidelines for which no remedy is  available and the borrower has to face unsavory action until his right to invoke Sec.17 arises. In Stan Commodities Pvt. Ltd. vs. Punjab and Sind Bank : AIR 2009 Jharkand 14 the bank failed to communicate reply u/sec. 13(3A) to the objections raised particularly on classification of accounts wherein it was seriously contended that the classification of borrower’s account was contrary to RBI Guidelines. Sec.13 (3A) was inserted in the Act by amendment dated 11.11.2004 after the land mark judgment of Supreme Court in Mardia Chemicals case and action was being taken by the bank defeating the said provision of the Act. In such cases borrower can invoke writ jurisdiction as jurisdiction Recovery Tribunal is not available.

The Labour Court will have no jurisdiction to prohibit the secured creditor from exercising the powers. The power, if any, can be to the extent that in a given case the amount that is realized by sale of secured assets of a company by a secured creditor may be called upon to give the facts of appropriation and seek for payment proportionately for payment to the workmen dues (Union Bank of India Vs General Workers Union AIR 2010 Madras 115)

Sec 10 of the Provincial Insolvency Act, 1920 exempts corporations or companies from being proceeded against. Therefore, the question of invoking provisions of Provincial Insolvency Act against the Bank does not arise nor is valid. As the Bank had already initiated the process under SARFAESI Act, the proceedings need not be stopped in view of the Insolvency Petition : Indian Overseas Bank Vs P. Veeraiah ( 2009(4)ALT 365).

Borrower tried to set Criminal Law into motion against officers of the Bank. Police officers have not taken action against Bank Officers. Borrower filed writ petition. The Act of the Bank and its Officers can be tested in appropriate Court of competent Jurisdiction. By no stretch of Imagination the action of the Bank be termed as being criminal in nature Ashoka Books (P) Ltd. Vs. State of HP (SBI case) :2007(1) DRTC 490(H.P).

Sale proceedings initiated by the secured creditor under SARFAESI Act cannot be challenged under Companies Act. BPPV Classic Tea Factory Pvt Ltd Vs Corporation Bank [2008] 142 Comp. Cas. 793.

DRT can not decide title of third party purchaser. In Dr. Pranjivan Puroshottam Zaveri and another Vs Dena Bank:2010(2) DRTC 419 DRAT (All) a bona fide purchaser for valuable consideration without notice challenged the action of the bank and disputed the mortgage created in favour of the bank. The High Court held that appellant cannot raise such disputes before he may redress their grievance by filing civil suit.

SARFAESI Act does not confer power to DRT or DRAT to pass a decree for partition and separate possession and suit in civil court is not barred State Bank of India Vs. Sagar & Ors. 2011 (2) D.R.T.C. 369 (Bom.). This is because Debts Recovery Tribunal/DRAT cannot grant reliefs which are within the jurisdiction of civil court Nahar Industrial Enterprises Ltd. Vs. HSBC 2009 (4) CTC 74=(2009) 8 S.C.C. 646 held that DRT cannot grant declaratory decree or specific relief.

A suit by borrower against bank or financial institution in civil court is not barred although suit against the borrower by the bank or financial institution is barred in civil court if the valuation exceeds Rs.10 lacs. VCK Share & Stock Broking Services Ltd. Vs. Bank of Rajasthan 2011 (2) D.R.T.C. 389 (Cal.).  

SARFAESI Act has not specified its territorial jurisdiction for trying applications filed under Sec 17 of SARFAESI Act. According to Sec.13(7) of SARFAESI Act the Tribunal has to follow the provisions of RDDB & FI Act 1993 and the Rules framed thereunder to decide the applications filed under Sec.17 of SARFAESI Act. In RDDB & FI Act or SARFAESI Act ‘Situs’ of property is not basis for conferring territorial jurisdiction. DRAT Mumbai in Sridhar Constructions Pvt. Ltd. Vs. Shetrunjay Co-operative Housing Society: I (2009) BC 89 (DRAT)  held that, the concept of Jurisdiction based on ‘situs’ of property (situs=situation or location of the property) is not provided either in RDDB & FI Act or SARFAESI Act except under Sec.14 SARFAESI Act for the limited purpose of exercising jurisdiction by the Chief Metropolitan Magistrate or Dist. Magistrate. DRAT Delhi in Punjab & Sind Bank Vs. Tripurari Prasad Kesari & Ors.: I (2009) BC 49(DRAT) Del. held that, Sec 17 application can be filed by aggrieved party before Debts Recovery Tribunal having jurisdiction over place where loaning branch was located. Location of mortgaged property has nothing to do with jurisdictional aspect. It would be the Debts Recovery Tribunal having jurisdiction to entertain and try application under Sec. 19 of RDDB & FI Act, where alone the application under Sec. 17 can be filed by aggrieved person. Delhi High Court in Indira Devi & Anr. Vs. Debt Recovery Appellate Tribunal & Ors.: III (2010) BC 710 (DB) held that it is not only the Debts Recovery Tribunal where immovable property is situated would have exclusive jurisdiction to try application under Sec.17(1) of the Act but all other DRTs in terms of Sec 19(1) of RDDB & FI Act r/w Rule 6 of Debts Recovery Tribunal (Procedure) Rules 1993.

“[19. Application to the Tribunal.—(1) Where a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction—

(a) the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or

(b) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or

(c) the cause of action, wholly or in party, arises.

Rule6.Place of filing applications. The application shall be filed by the applicant with the Registrar within whose jurisdiction the applicant is functioning as a bank or financial institution, as the case may be, for the time being.

“Place of filing applications. –

The application shall be filed by the applicant with the Registrar within whose jurisdiction-

(a) the applicant is functioning as a bank or financial institution, as the case may be, for the time being”.

(b) the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or

(c) any of the defendants, where there are more than one, at the time of making the application, actually and voluntarily resides or carries on business or personally works for gain; or

(d) the cause of action, wholly or in partly, arises.

Cause of action arises on taking possession of secured asset. Taking possession (whether symbolic or actual) of secured asset at a place (where the DRT is situated ) under Sec.13(4) r/w Rule 8(1) & (2) of S.I.(E) Rules or physical possession under Sec.14 of the Act which gives rise cause of action and the DRT in whose jurisdiction cause of action for entertaining application under Sec. 17 of the SARFAESI Act  arose and all other DRTs in whose territorial jurisdiction   the cause of action wholly or partly arises as laid down in sub Rule (a) to (d) of Rule 6 of Debts Recovery Tribunal (Procedure) Rules 1993 can assume jurisdiction under Sec.17 of the Act.

The Tribunal has unlimited pecuniary jurisdiction (unlike the original applications filed under Sec.19 of RDDB & FI Act). It can try all the applications under Sec. 17 of SARFAESI Act involving even below Rs.10.00 Lakhs. This is because no power is conferred to the tribunal to adjudicate the quantum of the debt.