Case Note & Summary
The Supreme Court considered appeals against a common judgment of the Bombay High Court which had allowed notices of motion filed by Axis Bank Ltd. (respondent No.1) and rejected the plaints filed by the appellants (flat purchasers) under Order 7 Rule 11(d) of the Code of Civil Procedure, 1908 (CPC), on the ground that the suits were barred by Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The appellants had filed suits seeking various reliefs, including a declaration that the mortgage created by the builder (Orbit Corporation Ltd.) in favor of the bank was not valid, and for specific performance of the agreement to purchase flats in the project 'Orbit Heaven'. The appellants had paid substantial amounts to the builder between 2009 and 2013, but no registered agreement was executed. The bank granted a loan of Rs. 150 crores to the builder in 2013 and a mortgage deed was executed. The appellants claimed they were unaware of the mortgage until a public notice in 2016. The learned Single Judge of the High Court had initially dismissed the bank's notice of motion, holding that the suit was not barred. However, the Division Bench reversed this decision and rejected the plaints. The Supreme Court held that the bar under Section 34 of the SARFAESI Act applies only to matters which the Debt Recovery Tribunal (DRT) is empowered to determine under the Act. Since the reliefs sought by the appellants, including declaration of invalidity of mortgage and specific performance, are not within the jurisdiction of the DRT, the civil suit is maintainable. The court set aside the High Court's judgment and restored the suits, allowing the appeals.
Headnote
A) Civil Procedure - Rejection of Plaint - Order 7 Rule 11(d) CPC - Bar under Section 34 of SARFAESI Act - The court considered whether a suit by flat purchasers against a bank for declaration that the mortgage is not valid and for other reliefs is barred under Section 34 of SARFAESI Act. The court held that the suit is not barred as the reliefs sought are outside the scope of matters to be determined by the DRT under the SARFAESI Act, and the plaint cannot be rejected under Order 7 Rule 11(d) CPC. (Paras 7-9) B) Securitisation - Jurisdiction of DRT - Section 34 of SARFAESI Act - The court examined the scope of Section 34 of SARFAESI Act and held that the bar under Section 34 applies only to matters which the DRT or the Appellate Tribunal is empowered to determine under the Act. Since the reliefs claimed by the flat purchasers, including declaration of invalidity of mortgage and specific performance of agreement, are not within the jurisdiction of DRT, the civil suit is maintainable. (Paras 7-9) C) Property Law - Mortgage - Rights of Flat Purchasers - The court noted that the flat purchasers had paid substantial amounts to the builder and had allotment letters, but no registered agreement. The mortgage was created later by the builder in favor of the bank. The court held that the rights of the flat purchasers under the Maharashtra Ownership Flats Act, 1963, including the right to seek execution of agreement and possession, are not extinguished by the mortgage, and the suit for declaration that the mortgage is not valid is maintainable. (Paras 3-5)
Issue of Consideration
Whether a civil suit filed by flat purchasers against a bank for declaration that the mortgage created by the builder in favor of the bank is not valid and for other reliefs is barred under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), warranting rejection of plaint under Order 7 Rule 11(d) of the Code of Civil Procedure, 1908.
Final Decision
The Supreme Court allowed the appeals, set aside the impugned judgment of the High Court, and restored the suits to the file of the High Court for further proceedings in accordance with law. The court held that the plaints cannot be rejected under Order 7 Rule 11(d) CPC on the ground of bar under Section 34 of the SARFAESI Act.
Law Points
- Order 7 Rule 11 CPC
- Section 34 of SARFAESI Act
- 2002
- Section 17 of SARFAESI Act
- Maharashtra Ownership Flats Act
- 1963
- Section 4 of MOFA
