Case Note & Summary
The case involves a civil revision application filed by Allahabad Bank against an order of the Joint Civil Judge, Junior Division, Nagpur, rejecting the bank's application under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) for rejection of the plaint in Regular Civil Suit No. 449/2016. The respondents, Hemantkumar Malpani and Kiran Malpani, had filed the suit seeking a declaration that they were not liable as guarantors for a cash credit facility availed by M/s Salasar Whiteley Pvt. Ltd., and for a permanent injunction restraining the bank from taking coercive action against them under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The respondents had resigned as directors of the company in January 2014 and had requested the bank to release their personal guarantees, but the bank issued a notice under Section 13(2) of the SARFAESI Act in March 2016 demanding payment. The bank contended that the suit was barred under Section 34 of the SARFAESI Act, which ousts the jurisdiction of civil courts in matters that the Debt Recovery Tribunal (DRT) is empowered to determine. The trial court rejected the bank's application, holding that the suit was maintainable. The High Court upheld the trial court's order, reasoning that the bar under Section 34 applies only to matters falling within the jurisdiction of the DRT or the Appellate Tribunal. Since the suit sought a declaration that the respondents were not liable as guarantors and an injunction against coercive action, which does not relate to the enforcement of security interest under the SARFAESI Act, the civil court had jurisdiction. The court also noted that the maintainability of a suit is to be decided based on the plaint averments, not the defence. The revision was dismissed with no order as to costs.
Headnote
A) Civil Procedure - Rejection of Plaint - Order VII Rule 11 CPC - Maintainability of Suit - The court held that the question of maintainability of suit is to be decided on the basis of the averments in the plaint and not on the defence of the defendant. The trial court had rightly rejected the application for rejection of plaint as the plaint disclosed a cause of action. (Paras 5-6) B) SARFAESI Act - Bar of Jurisdiction - Section 34 - The bar under Section 34 of the SARFAESI Act applies only to matters which the Debt Recovery Tribunal or the Appellate Tribunal is empowered to determine. Since the suit was for declaration that the respondents were not liable as guarantors and for injunction against coercive action, which does not fall within the jurisdiction of the DRT, the civil suit is maintainable. (Paras 7-9) C) SARFAESI Act - Notice under Section 13(2) - Guarantor's Liability - The respondents had resigned as directors and sought release from personal guarantees before the notice under Section 13(2) was issued. The suit challenging the notice on the ground that the respondents were not liable as guarantors is not barred by Section 34. (Paras 3-4, 8)
Issue of Consideration
Whether the civil suit filed by the respondents is barred under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and whether the trial court was correct in rejecting the bank's application under Order VII Rule 11 of CPC for rejection of plaint.
Final Decision
The High Court dismissed the civil revision application, upholding the trial court's order rejecting the bank's application under Order VII Rule 11 CPC. The court held that the suit is maintainable and not barred under Section 34 of the SARFAESI Act.
Law Points
- Section 34 of SARFAESI Act does not bar civil suit where the subject matter does not relate to enforcement of security interest
- Civil court jurisdiction is not ousted when the action of the bank is challenged on grounds not covered by the SARFAESI Act
- Maintainability of suit is to be decided on the basis of plaint averments and not on the defence
