Case Note & Summary
The petitioner, Shashikant Gangar, a shareholder and director of Libox Chem (India) Private Limited (respondent no. 2), filed a writ petition challenging the order of the Commercial Appellate Court dated 2.5.2024, which confirmed the rejection of his plaint in Commercial Suit No. 2/2023 under Order 7 Rule 11 of the Code of Civil Procedure, 1908 (CPC). The suit was filed against Aditya Birla Finance Limited (respondent no. 1) and others, alleging fraud and collusion in sanctioning a loan of Rs. 3.5 crores against the assets of respondent no. 2 without proper board resolution, and subsequent takeover of possession under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The petitioner had earlier approached the Debt Recovery Tribunal (DRT) under Section 17(1) of the SARFAESI Act, but the DRT dismissed his application on 18.8.2023, holding that he was not an 'aggrieved person' as he was merely a shareholder. His appeal to the Debt Recovery Appellate Tribunal (DRAT) was withdrawn. Thereafter, he filed the commercial suit, which was rejected by the Commercial Court on 2.11.2023 on the ground that it was barred under Section 34 of the SARFAESI Act. The Commercial Appellate Court upheld this order. The High Court, after hearing arguments, held that the suit was clearly barred by Section 34 of the SARFAESI Act, as the dispute related to secured assets and the remedy lay exclusively under the SARFAESI Act. The court noted that the petitioner had already availed the remedy under Section 17, albeit unsuccessfully, and that mere allegations of fraud did not override the statutory bar. The court also observed that the petitioner's locus as a shareholder was not sufficient to maintain a civil suit when the bank's action was under the SARFAESI Act. Consequently, the writ petition was dismissed, and the impugned orders were upheld.
Headnote
A) Civil Procedure - Rejection of Plaint - Order 7 Rule 11 CPC - Bar under Section 34 SARFAESI Act - The court considered whether a plaint alleging fraud and collusion in sanctioning a loan and taking possession of secured assets is barred by Section 34 of the SARFAESI Act, 2002. The court held that the civil suit is not maintainable as the remedy lies exclusively under the SARFAESI Act, and mere allegations of fraud do not confer jurisdiction on the civil court when the dispute relates to secured assets. (Paras 1-34)
B) SARFAESI Act - Jurisdiction of Civil Court - Section 34 - Bar on Civil Suits - The court examined the scope of Section 34 of the SARFAESI Act, 2002, which bars the jurisdiction of civil courts in matters where the Debt Recovery Tribunal (DRT) has jurisdiction. The court held that the suit challenging the bank's action under the SARFAESI Act is barred, and the plaintiff's remedy is under Section 17 of the Act. (Paras 1-34)
C) SARFAESI Act - Locus Standi - Shareholder - Section 17 - The court considered whether a shareholder is an 'aggrieved person' under Section 17 of the SARFAESI Act, 2002. The court noted that the DRT had already held that the petitioner, being a shareholder, lacked locus to file an application under Section 17, and this finding was not challenged. (Paras 11, 34)
Issue of Consideration
Whether a civil suit filed by a shareholder alleging fraud and collusion against a bank and other directors is barred under Section 34 of the SARFAESI Act, 2002, and whether the plaint is liable to be rejected under Order 7 Rule 11 of the Code of Civil Procedure, 1908.
Final Decision
The writ petition is dismissed. The impugned orders of the Commercial Court and Commercial Appellate Court rejecting the plaint under Order 7 Rule 11 CPC are upheld. No order as to costs.
Law Points
- Order 7 Rule 11 CPC
- Section 34 SARFAESI Act
- Section 17 SARFAESI Act
- Section 9 CPC
- Fraud exception
- Maintainability of civil suit
- Rejection of plaint
Case Details
2024 LawText (BOM) (10) 152
WRIT PETITION NO.1230 OF 2024-F
Mr S. S. Kantak, Senior Advocate with Mr S. Gaonkar, Mr S. Kher, Mr P. Sirvoicar, Ms N. Kholkar and Ms S. Dessai for petitioner; Mr S. D. Lotlikar, Senior Advocate with Mr A. Nayak Salatry and Ms S Kenny for respondent no.1; Mr S. Desai and Mr J. Ramaiya for respondent no.5; Mr A. D. Bhobe and Ms S. Shaikh for respondent no.6; Mr Bhupendara Dave for Administrator
Aditya Birla Finance Limited & Ors.
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Nature of Litigation
Writ petition challenging the order of the Commercial Appellate Court confirming rejection of plaint under Order 7 Rule 11 CPC on the ground that the suit is barred under Section 34 of the SARFAESI Act.
Remedy Sought
Petitioner sought to set aside the impugned orders and allow the commercial suit to proceed.
Filing Reason
Petitioner alleged fraud and collusion between the bank and other directors in sanctioning a loan and taking possession of the company's assets under the SARFAESI Act.
Previous Decisions
Commercial Court rejected plaint on 2.11.2023; Commercial Appellate Court dismissed appeal on 2.5.2024; DRT dismissed application under Section 17 on 18.8.2023; DRAT appeal withdrawn.
Issues
Whether the civil suit is barred under Section 34 of the SARFAESI Act, 2002.
Whether allegations of fraud in the plaint can override the bar under Section 34 of the SARFAESI Act.
Whether the petitioner, as a shareholder, has locus to maintain a civil suit challenging the bank's action under the SARFAESI Act.
Submissions/Arguments
Petitioner argued that specific allegations of fraud and collusion make the suit maintainable despite Section 34, relying on Mardia Chemicals Ltd v. Union of India.
Petitioner argued that since DRT held he was not an 'aggrieved person' under Section 17, he is left remediless and civil suit is the only option.
Respondent no.1 argued that the remedy is exclusively under Section 17 of SARFAESI Act and the suit is barred under Section 34.
Respondent no.1 argued that the petitioner's appeal before DRAT was withdrawn, and he cannot now seek civil remedy.
Ratio Decidendi
A civil suit challenging actions taken under the SARFAESI Act is barred under Section 34 of the Act, even if allegations of fraud are made, as the remedy lies exclusively under the SARFAESI Act. The DRT's finding that the petitioner is not an 'aggrieved person' under Section 17 does not open the door to civil suit; the petitioner must exhaust remedies under the SARFAESI Act.
Judgment Excerpts
The present petition is filed thereby challenging the impugned order passed in Commercial Appeal no.6/2023 on 2.5.2024.
Vide order dated 2.11.2023 Commercial Court rejected the plaint on observing that suit is barred by law i.e Section 34 of SARFAESI Act.
Petitioner being, aggrieved by such order passed by Additional Collector, approached DRT Mumbai by filing an application under section 17(1) of the SARFAESI Act.
Vide order dated 18.8.2023 DRT Mumbai rejected the interim application and consequently disposed of application under Section 17(1) solely on the ground that, petitioner is not having locus to file such proceedings since the petitioner is merely a shareholder.
Procedural History
Petitioner filed Commercial Suit No. 2/2023 before Commercial Court at Ponda. Respondent no.1 filed application under Order 7 Rule 11 CPC. Commercial Court rejected plaint on 2.11.2023. Petitioner filed Commercial Appeal No. 6/2023, which was dismissed on 2.5.2024. Petitioner then filed the present writ petition. Earlier, petitioner had filed application under Section 17(1) SARFAESI Act before DRT Mumbai, which was dismissed on 18.8.2023. Appeal before DRAT Mumbai was withdrawn.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 13(2), Section 14, Section 17(1), Section 34
- Code of Civil Procedure, 1908: Order 7 Rule 11, Section 9
- Companies Act, 2013: Section 241, Section 242
