Pointing out that a mere plea of fraud, in the present case, has really disguised a defence to the SARFAESI proceedings, to invoke the civil Court’s jurisdiction, the Delhi High Court opined that such a plea is insufficient to take the suit outside the bar of Section 34 of the SARFAESI Act. The Court clarified that the bar under Section 34 applies not only to actions already taken but also to actions ‘to be taken’ under the SARFAESI Act.
Referring to Section 17 of the SARFAESI Act, the Court held that the Debt Recovery Tribunal (DRT) is vested with jurisdiction to entertain applications by any person, including a borrower, aggrieved by any of the measures referred to in Section 13(4) of the SARFAESI Act. Essentially, the Court emphasised that the DRT has exclusive jurisdiction to determine the legality of measures under Section 13(4) and that a mere allegation of fraud, without specific particulars, is insufficient to bypass the statutory bar.
A Single Judge Bench of Justice Prateek Jalan observed that the respondent’s claims were ‘squarely directed against the petitioner’s actions in relation to loan recovery’, including the issuance of notices under the SARFAESI Act. Further, the reference to the insurance policy was found to be a defence to the enforcement action, aimed at seeking ‘exoneration from liability under the loan’.
Crucially, the Bench held that there was no allegation whatsoever that the creation of the security interest in favour of the defendant was fraudulent. The respondent’s plea was that the security interest should not be enforced against her due to the insurance issue, which is a defence that can be raised before the DRT.
The Bench reiterated the settled legal position that the inquiry under Order VII Rule 11 CPC is confined to the averments in the plaint and the documents filed therewith. The provision can be exercised where a suit is manifestly vexatious, frivolous, or an abuse of the process of the court, or where the plaint discloses an illusory cause of action through clever drafting.
Accordingly, the Bench held that the respondent’s suit was insufficient to fall outside the bar of Section 34 of the SARFAESI Act, and that the Trial Court had failed to exercise the jurisdiction vested in it to reject the plaint under Order VII Rule 11 CPC. Consequently, the Bench set aside the order of the Trial Court and granted four weeks of status quo to enable the respondent to seek appropriate remedies before the DRT.
Briefly, the case arises from a revision petition filed by Shri Ram Housing Finance Ltd. (petitioner) under Section 115 of the Code of Civil Procedure, 1908, challenging an order of the Trial Court, which had dismissed the application under Order VII Rule 11 CPC seeking the rejection of a civil suit filed by Roshini Devi (respondent). In this case, a loan of Rs. 64.33 lacs was sanctioned to the respondent’s late husband (as the primary borrower), along with the respondent and her son as co-borrowers. The loan was secured by a mortgage over an immovable property located in Naraina, New Delhi (suit property).
Due to defaults in repayment, the petitioner classified the loan account as a Non-Performing Asset (NPA), and subsequently, a demand notice under Section 13(2) of the SARFAESI Act was issued, followed by a possession notice under Section 13(4). The borrowers contended that the loan was intended to be insured and that the insurance premium had been handed over to the petitioner’s representatives, but no policy was issued.
The respondent filed a civil suit seeking a declaration that the petitioner’s actions, such as declaring the account as NPA and issuing the Section 13(2) notice, were illegal. The suit also sought a declaration that no loan was outstanding, as it should have been covered by insurance and a mandatory injunction directing the petitioner to recover the dues from the insurance company. When the matter reached the Trial Court, it directed the maintenance of the status quo regarding the possession of the suit property.
Appearances:
Advocate Shahrukh Inam, for the Petitioner
Advocates Satish Kumar Paanchal, Babita Paanchal, and Karan Paanchal, for the Respondent
