Case Note & Summary
The case involves a civil revision application filed by Bank of Baroda (applicant/original defendant) challenging an order dated 26/04/2018 passed by the 2nd Joint Civil Judge, Junior Division, Nagpur, which rejected the bank's application under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) for rejection of the plaint filed by Paramount Conductors Ltd. (respondent/original plaintiff). The respondent had filed Regular Civil Suit No.379 of 2018 seeking declaration and injunction, contending that the bank had violated mandatory circulars and guidelines of the Reserve Bank of India (RBI) while rejecting the restructuring proposal of the loan taken by the respondent, and that the bank had fraudulently taken recourse to action under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The bank had issued a notice under Section 13(2) of the SARFAESI Act on 23/10/2017, declaring the loan account as a non-performing asset (NPA) and demanding Rs. 1176.92 lakhs. The respondent sent a reply on 21/12/2017, but the bank proceeded with possession notice under Section 13(4) on 26/02/2018. The respondent then filed the civil suit. The bank moved an application under Order VII Rule 11 CPC for rejection of plaint, arguing that the civil court had no jurisdiction in view of Section 34 of the SARFAESI Act, and that the suit was barred by law. The trial court rejected the application, holding that the plaint disclosed a cause of action and that the bar under Section 34 was not attracted as the suit alleged fraud and violation of RBI guidelines. The High Court, in its analysis, examined the scope of Order VII Rule 11 CPC and the jurisdiction of civil courts under the SARFAESI Act. It noted that the plaint specifically alleged that the bank had violated RBI guidelines and acted fraudulently, which are matters that cannot be adjudicated by the Debts Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act. The court relied on the principle that the bar under Section 34 is not absolute and does not apply when the action is challenged on grounds of fraud or violation of statutory guidelines. The court also observed that the plaint disclosed a cause of action and that the trial court had correctly exercised its discretion in rejecting the bank's application. The High Court dismissed the revision application, upholding the trial court's order and directing the trial court to proceed with the suit in accordance with law.
Headnote
A) Civil Procedure - Rejection of Plaint - Order VII Rule 11 CPC - Jurisdiction of Civil Court - The court considered whether a plaint alleging violation of RBI guidelines and fraud by a bank in taking recourse to SARFAESI Act could be rejected under Order VII Rule 11 CPC. Held that the plaint disclosed a cause of action and the civil court had jurisdiction to entertain the suit, as the allegations of fraud and violation of statutory guidelines take the case out of the purview of Section 34 of the SARFAESI Act. (Paras 3-28) B) Banking Law - SARFAESI Act - Jurisdiction of Civil Court - Section 34 SARFAESI Act - The court examined the bar under Section 34 of the SARFAESI Act on civil court jurisdiction. Held that the bar is not absolute and does not apply when the action of the bank is challenged on the ground of fraud or violation of statutory guidelines, as such issues cannot be adjudicated by the Debts Recovery Tribunal under Section 17 of the SARFAESI Act. (Paras 15-28) C) Banking Law - RBI Guidelines - Mandatory Circulars - The court considered the effect of RBI guidelines on the actions of a bank. Held that RBI guidelines are statutory in nature and their violation can be a ground for civil suit, as the bank is bound to follow such guidelines while classifying an account as NPA and taking recovery measures. (Paras 4-14)
Issue of Consideration
Whether the civil court has jurisdiction to entertain a suit challenging the actions of a bank under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, when the plaint alleges violation of RBI guidelines and fraud, and whether the plaint is liable to be rejected under Order VII Rule 11 of the Code of Civil Procedure, 1908.
Final Decision
The High Court dismissed the civil revision application, upholding the order of the trial court dated 26/04/2018 rejecting the bank's application under Order VII Rule 11 CPC. The trial court was directed to proceed with the suit in accordance with law.
Law Points
- Order VII Rule 11 CPC
- Rejection of Plaint
- Jurisdiction of Civil Court
- SARFAESI Act
- Section 34 SARFAESI Act
- Section 17 SARFAESI Act
- RBI Guidelines
- Fraud
- Plaint Disclosing Cause of Action
