Case Note & Summary
The Plaintiff, Rentworks India Pvt. Ltd., provided equipment on lease to Subhiksha Trading Services Pvt. Ltd. under a Master Rental Agreement (MRA). During the subsistence of the MRA, the Plaintiff and the Defendant, Small Industries Development Bank of India, entered into a Sale of Receivables Agreement (SRA) under which the receivables from Subhiksha were assigned to the Defendant at a discounted price. Along with the SRA, the Plaintiff executed a Deed of Hypothecation, a Deed of Indemnity, a Tax Undertaking, and a Power of Attorney in favour of the Defendant. Subhiksha defaulted in payment of lease rentals. The Defendant sent notices to Subhiksha and the Plaintiff demanding payment and filed an Original Application (O.A. No. 101 of 2011) in the Debts Recovery Tribunal (DRT) against both for recovery of unpaid lease rentals amounting to approximately Rs.8,49,09,848/- together with interest. The OA was filed in December 2010, but summons was served on the Plaintiff in June 2011. In February 2011, the Plaintiff filed the present Suit in the Bombay High Court praying for cancellation of the Deed of Indemnity, Deed of Hypothecation, and Tax Undertaking. The Plaintiff took out a Notice of Motion seeking a temporary injunction to restrain the Defendant from relying on those documents and from prosecuting the OA against the Plaintiff. The learned Single Judge refused ad-interim relief, and the Division Bench in appeal directed the Plaintiff to seek appropriate reliefs from the Single Judge. The court considered whether the Plaintiff had made out a prima facie case for injunction. The court held that the Plaintiff failed to establish a prima facie case because the suit for cancellation of documents was not maintainable in civil court given the exclusive jurisdiction of the DRT under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The court noted that the Defendant is a financial institution and the dispute arose out of the assignment of receivables and ancillary documents, which fell within the purview of the DRT. The court also found that the balance of convenience was in favour of the Defendant and that no irreparable injury would be caused to the Plaintiff if the injunction was refused. Consequently, the court dismissed the Notice of Motion.
Headnote
A) Civil Procedure - Temporary Injunction - Prima Facie Case - Plaintiff sought to restrain Defendant from prosecuting DRT proceedings and from relying on indemnity and hypothecation deeds - Court held that Plaintiff failed to make out a prima facie case for injunction as the suit for cancellation of documents was not maintainable in civil court given the exclusive jurisdiction of DRT under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Held that the balance of convenience was in favour of Defendant and no irreparable injury would be caused to Plaintiff (Paras 1-10). B) Banking Law - Assignment of Receivables - Deed of Indemnity and Hypothecation - Plaintiff assigned receivables to Defendant under Sale of Receivables Agreement and executed indemnity and hypothecation deeds - Upon default by lessee, Defendant filed OA in DRT - Plaintiff sought cancellation of deeds in civil suit - Court held that the deeds were ancillary to the assignment and the dispute fell within DRT's jurisdiction - Held that civil court had no jurisdiction to entertain the suit (Paras 2-8). C) Recovery of Debts - Jurisdiction of DRT - Section 17 of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 - Defendant, a financial institution, filed OA for recovery of unpaid lease rentals - Plaintiff's suit for cancellation of documents was an attempt to circumvent DRT proceedings - Court held that the DRT had exclusive jurisdiction to adjudicate the matter - Held that temporary injunction could not be granted (Paras 5-10).
Issue of Consideration
Whether, having regard to the Plaintiff's case in the suit, the Defendant should be restrained by a temporary injunction from prosecuting its Original Application pending in the DRT and from taking any step under or relying upon the Deed of Indemnity and Deed of Hypothecation.
Final Decision
Notice of Motion dismissed. The court refused to grant temporary injunction restraining the Defendant from prosecuting the OA in DRT or from relying on the Deed of Indemnity and Deed of Hypothecation.
Law Points
- Civil suit cannot restrain DRT proceedings
- Assignment of receivables
- Deed of indemnity
- Deed of hypothecation
- Prima facie case
- Balance of convenience
- Irreparable injury
- Jurisdiction of DRT
- Section 17 of Recovery of Debts Due to Banks and Financial Institutions Act
- 1993
