The Calcutta High Court has held that where a bank has instituted a mortgage suit under Order XXXIV CPC within the limitation period prescribed under Article 62 of the Limitation Act, such institution constitutes making a claim in respect of the financial asset for the purposes of Section 36 of the SARFAESI Act, 2002, and the bank is not barred from taking measures under Section 13(4) merely because those measures are initiated later, so long as the mortgage claim remains subsisting.
The Court further laid down that transfer of a mortgage suit to the DRT under Section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 does not alter the nature of the proceeding into a mere money recovery action; the proceeding continues to retain its character as a mortgage suit, and the secured creditor’s substantive mortgage enforcement right remains intact. Applying this principle, the High Court set aside the judgments of the DRT and DRAT, and held that the conveyance deed executed in favour of the auction purchaser was valid, with the consequence that refund of the sale price by the Bank did not arise.
A Single Judge Bench of Dr. Justice Ajoy Kumar Mukherjee framed two principal issues: first, whether institution of a suit for enforcement of mortgage under Order XXXIV CPC stops the clock of limitation; and second, whether institution of such a suit within limitation amounts to lodging a claim in respect of the financial asset so as to entitle the secured creditor to take measures under Section 13(4) of the SARFAESI Act.
The Bench held that when a mortgage suit is transferred from a civil court to the DRT under Section 31 of the 1993 Act, it does not lose its character as a mortgage suit or become a simple money recovery suit. The transfer changes only the forum and not the substantive nature of the claim. Since the claim still involves enforcement of security interest, sale of mortgaged property, and subsistence of the borrower’s equity of redemption, the proceeding retains the character of a mortgage suit even before the DRT.
The Bench interpreted Section 36 of the SARFAESI Act to mean that the secured creditor must have made its claim in respect of the financial asset within the period of limitation. It relied on the fact that the Bank had already instituted a mortgage suit within limitation, and observed that the mortgaged asset falls within the statutory definition of “financial asset” under Section 2(1)(l) of the SARFAESI Act. Therefore, the Bank had lodged its claim in respect of the financial asset within time.
The Bench further observed that a notice under Section 13(2) in such circumstances does not seek a fresh relief based on a new cause of action, but is in the nature of a step for sale and realization of the mortgaged property in aid of an already subsisting claim. On that reasoning, the Bench held that the Limitation Act would not bar such a step where the mortgage suit itself had already been filed within time and remained pending.
Briefly, the petitioner, UCO Bank, challenged the order passed by the Debts Recovery Appellate Tribunal, Calcutta, whereby the DRAT dismissed the Bank’s appeal and affirmed the order of the Debts Recovery Tribunal, Kolkata. The DRT had allowed the borrower’s application under Section 17 of the SARFAESI Act, 2002, filed against the Section 13(2) notice and the possession-cum-sale notice issued by the Bank.
The DRT had held that the Bank failed to establish that its mortgage right/security interest was within limitation under Article 62 of the Limitation Act, 1963, either before filing the mortgage suit or before issuance of the Section 13(2) notice, and therefore the Bank was not entitled to initiate action under the SARFAESI Act by reason of Section 36 read with Article 62. The DRT consequently set aside the possession-cum-sale notice and the sale conducted by the Bank, and directed refund of the sale price with interest to the auction purchaser, subject to cancellation of the conveyance deed.
The Bank’s case before the High Court was that it had instituted a mortgage suit on February 29, 1992 before the Barasat Court under Order XXXIV CPC for enforcement of mortgage, seeking declaration that the scheduled immovable properties remained mortgaged as security and also seeking a decree under Order XXXIV Rule 4 CPC. The plaint relied on the balance sheet, in which the defendant acknowledged the Bank’s claim, and the Bank contended that the suit had been instituted within limitation and therefore Section 36 did not bar SARFAESI measures.
The borrower contended that the dues crystallized and the account became NPA by December 31, 1991, and that the 12-year period under Article 62 expired on December 31, 2003, or at the latest on January 25, 2002 if the balance-sheet acknowledgement was considered. It was further argued that upon transfer of the mortgage suit to the DRT under Section 31 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the proceeding lost its nature as a mortgage suit and became a money recovery proceeding under Section 19, and that pendency of such recovery proceedings did not save limitation under Section 36 of the SARFAESI Act.
Appearances:
Sourya Roy, for Petitioner
Supratic Roy, Shuvajit Roy, for Opposite Party
