Case Note & Summary
The appellant, Smt. Nanjamma, filed a civil suit (O.S.No.3780/2017) before the XXII Additional City Civil and Sessions Judge, Bengaluru, seeking a declaration that she is the absolute owner of the suit property and that the mortgage created by her son (defendant no.1) in favor of Union Bank of India (defendant no.4) is not binding on her. She also sought a permanent injunction restraining the bank from taking possession or selling the property. The bank filed an application under Order VII Rule 11(b) and (d) of the Code of Civil Procedure, 1908 (CPC) for rejection of the plaint on the ground that the suit was barred by Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The trial court allowed the application and rejected the plaint, holding that the civil court had no jurisdiction in view of the bar under Section 34 of the SARFAESI Act. Aggrieved, the plaintiff filed the present Regular First Appeal (RFA No.1397/2019) before the High Court of Karnataka. The High Court framed the issue whether the civil suit was maintainable in light of Section 34 of the SARFAESI Act. The appellant argued that the suit was not for recovery of debt but for declaration of title and challenging the validity of the mortgage, which is not within the jurisdiction of the Debt Recovery Tribunal (DRT). The respondent bank contended that the suit was an indirect challenge to the bank's action under the SARFAESI Act and thus barred. The High Court, after considering the plaint averments and the law, held that the bar under Section 34 applies only to matters which the DRT or Appellate Tribunal is empowered to determine. Since the suit challenged the very validity of the mortgage and sought a declaration of title, which are not within the DRT's jurisdiction, the suit was not barred. The court also noted that the trial court had erroneously considered the bank's defence while deciding the application under Order VII Rule 11 CPC, which is impermissible. The High Court set aside the impugned order and restored the suit to the trial court for disposal in accordance with law, directing the trial court to decide the suit on its merits without being influenced by any observations made in the order.
Headnote
A) Civil Procedure Code - Order VII Rule 11 - Rejection of Plaint - The court must consider only the plaint averments and documents filed by the plaintiff; the defence of the defendant cannot be looked into at this stage. (Para 7) B) SARFAESI Act - Section 34 - Bar of Jurisdiction - The bar under Section 34 applies only to matters which the Debt Recovery Tribunal or Appellate Tribunal is empowered to determine under the Act; a civil suit challenging the very validity of the mortgage and alleging fraud by the bank is not barred. (Paras 8-10) C) SARFAESI Act - Section 34 - Scope - The bar under Section 34 does not apply to a suit where the plaintiff seeks declaration of title and challenges the mortgage as not binding on her, as such issues are not within the purview of the DRT. (Para 10) D) Limitation Act - Article 58 - Suit for Declaration - The suit for declaration of title is governed by Article 58 of the Limitation Act, 1963, and the limitation period of three years runs from the date when the right to sue first accrues. (Para 11)
Issue of Consideration
Whether a civil suit challenging the validity of a mortgage and seeking declaration of title is barred under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) when the secured creditor has initiated proceedings under the Act.
Final Decision
The High Court allowed the appeal, set aside the impugned order dated 23.04.2019 passed by the trial court, and restored O.S.No.3780/2017 to the file of the trial court for disposal in accordance with law. The trial court was directed to decide the suit on its merits without being influenced by any observations made in the order.
Law Points
- Order VII Rule 11 CPC
- Section 34 SARFAESI Act
- maintainability of civil suit
- bar of jurisdiction
- mortgage validity
- fraud
- limitation
