Case Note & Summary
The appellants, plaintiffs in the original suit, filed a Regular First Appeal under Section 96 of the Code of Civil Procedure, 1908 (CPC) challenging the order dated 17.03.2021 passed by the XL Additional City Civil and Sessions Judge, Bengaluru, in O.S.No.5207/2019. The trial court had allowed I.A.No.II filed by the respondent-bank under Order 7 Rule 11(d) CPC read with Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and rejected the plaint. The appellants, S. Nanjappa and Smt. Hanumamma, had instituted the suit seeking a declaration that the sale notice dated 18.06.2019 and the consequent e-auction sale dated 17.07.2019 were illegal, null and void. The first appellant was the principal borrower and the second appellant was the surety for a loan of Rs.20,00,000/- obtained from the State Bank of India, the respondent. The appellants alleged that the bank had imposed exorbitant interest, making it impossible to repay, and that the bank had declared the loan account as Non-Performing Asset (NPA) and issued a sale notice without proper notice. The respondent-bank filed an application under Order 7 Rule 11(d) CPC contending that the suit was barred by Section 34 of the SARFAESI Act, which ousts the jurisdiction of civil courts in matters where the Debt Recovery Tribunal (DRT) has jurisdiction. The trial court accepted this contention and rejected the plaint. The High Court, after hearing both sides, framed the issue of whether the civil court had jurisdiction to entertain the suit. The court noted that the bar under Section 34 of the SARFAESI Act is not absolute and does not apply where the action of the bank is challenged on grounds of fraud or irregularity. The court held that the plaint disclosed a cause of action and raised triable issues, and the trial court had erred in rejecting the plaint without considering the specific allegations of fraud and exorbitant interest. The High Court allowed the appeal, set aside the trial court's order, and directed that the suit be restored and proceeded with in accordance with law.
Headnote
A) Civil Procedure - Rejection of Plaint - Order 7 Rule 11(d) CPC - Jurisdictional Bar - The court examined whether the plaint seeking declaration of sale notice and e-auction as illegal was barred by Section 34 of SARFAESI Act. Held that the bar under Section 34 does not apply where the action of the bank is challenged on grounds of fraud or irregularity, and the civil court has jurisdiction to examine such issues. The trial court erred in rejecting the plaint without considering the specific allegations of fraud and exorbitant interest. (Paras 2-10) B) SARFAESI Act - Jurisdiction of Civil Court - Section 34 - Bar of Jurisdiction - The court considered the scope of Section 34 of the SARFAESI Act, which bars civil court jurisdiction in matters where the Debt Recovery Tribunal has jurisdiction. Held that the bar is not absolute and does not oust the jurisdiction of civil court where the challenge is to the sale notice and auction on grounds of fraud or violation of statutory provisions. The plaintiffs' allegations of exorbitant interest and illegal sale notice require adjudication by civil court. (Paras 5-9) C) Civil Procedure - Order 7 Rule 11(d) CPC - Maintainability of Suit - The court analyzed the principles for rejection of plaint under Order 7 Rule 11(d) CPC. Held that the plaint cannot be rejected if it discloses a cause of action and raises triable issues. The trial court's order rejecting the plaint was set aside as the plaint disclosed a cause of action and the bar under Section 34 of SARFAESI Act was not applicable on the facts alleged. (Paras 6-10)
Issue of Consideration
Whether the civil court has jurisdiction to entertain a suit challenging a sale notice and e-auction conducted under the SARFAESI Act, given the bar under Section 34 of the SARFAESI Act, and whether the plaint is liable to be rejected under Order 7 Rule 11(d) CPC.
Final Decision
Appeal allowed. The order dated 17.03.2021 passed by the XL Additional City Civil and Sessions Judge, Bengaluru, in O.S.No.5207/2019 allowing I.A.No.II and rejecting the plaint is set aside. The suit is restored to file and the trial court is directed to proceed with the suit in accordance with law.
Law Points
- Order 7 Rule 11(d) CPC
- Section 34 SARFAESI Act
- jurisdiction of civil court
- bar of jurisdiction
- fraud exception
- maintainability of suit
