Case Note & Summary
The litigation arose from a batch of five civil suits filed by several plaintiffs against M/s. Orbit Corporation Ltd. and Axis Bank Limited, concerning a residential project named 'Orbit Heaven' at Nepean Sea Road, Mumbai. The plaintiffs claimed to be allottees of flats in the project, having paid substantial amounts to Orbit, but held only allotment letters or memoranda of understanding, without registered sale agreements. They sought specific performance of the alleged agreements and a declaration that the mortgage created by Orbit in favor of Axis Bank was illegal and not binding on them. The bank had extended loan facilities of Rs. 150 Crores to Orbit, secured by registered mortgage over the project. After Orbit defaulted in 2016, the bank recalled the loans, issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, took symbolic possession, obtained an order under Section 14 for forcible possession, and filed recovery proceedings before the Debt Recovery Tribunal. The plaintiffs initiated the suits between December 2016 and June 2017, impleading the bank. The bank then moved notices of motion under Order VII Rule 11(d) of the Code of Civil Procedure, 1908, asserting that the suits were barred by Section 34 of the Securitisation Act, which ousts civil court jurisdiction over matters that the DRT or Appellate Tribunal is empowered to determine. The bank argued that the project constituted a 'secured asset' and the plaintiffs’ attempt to question the security enforcement measures indirectly violated the statutory bar, and that the plaintiffs had an alternate remedy under Section 17 before the DRT. The plaintiffs resisted, contending that their rights over the flats were prior to the bank’s mortgage, that the bank failed to conduct due diligence, and that there was collusion between the bank and Orbit, rendering the mortgage invalid and not binding on them. They emphasized the large payments made and sought recognition of their charge and specific performance. The learned Single Judge of the High Court, by a common order, rejected the bank’s notices of motion, prompting the bank to file these appeals before the Division Bench. The key legal issue was whether Order VII Rule 11(d) read with Section 34 of the Securitisation Act mandated rejection of the plaints qua the bank. The court’s analysis and final decision are not detailed in the provided extracts.
Headnote
A) Civil Procedure - Rejection of Plaint - Suit Barred by Law - Code of Civil Procedure, 1908, Order VII Rule 11(d); Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, Sections 34, 13(4), 17, 35 - The dispute concerned suits filed by flat allottees against the developer and the bank, which had taken measures under the SARFAESI Act to enforce its security interest over the project property. The bank moved applications under Order VII Rule 11(d) seeking rejection of the plaints on the ground that Section 34 barred the civil court's jurisdiction, and the DRT was the appropriate forum. The plaintiffs contended that their prior rights over the flats, created by substantial payments, preceded the bank's mortgage, alleging collusion and fraud between the bank and the developer. The case raised the question of whether the statutory bar applied to the suits, considering the nature of the plaintiffs' claims and the remedies available under the Securitisation Act. (Paras 1-12)
Issue of Consideration
Whether the plaints against the appellant/defendant Axis Bank Limited are required to be rejected under the provisions of Order 7 Rule 11(d) of the Code of Civil Procedure, in view of the bar created by section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Law Points
- Section 34 of Securitisation Act bars civil court jurisdiction for matters DRT or Appellate Tribunal can determine
- Section 35 provides overriding effect
- Order VII Rule 11(d) CPC allows rejection of plaint if barred by law
- measures under Section 13(4) include taking possession of secured assets
- Section 17 provides remedy to aggrieved persons to approach DRT.
