DRT limited to Adjudicating Recovery u/s 13(4) of SARFAESI, cannot decide on Property Ownership or Validity of Sale/Mortgage: Supreme Court [Read Judgement]

The Supreme Court of India recently delivered a pivotal judgment affirming that the scope of jurisdiction exercisable by the Debt Recovery Tribunal (DRT) is limited to the adjudication of recovery proceedings under Section 13(4) of The Securitisation and Reconstruction of Financial Assets And Enforcement of Security Interest Act, 2002 (SARFAESI), while clarifying the ineligibility of the DRT to decide on matters of property ownership or its sale or mortgage.

The decision was rendered by the Supreme Court while jointly adjudicating multiple civil appeals all pertaining to the same issues. The leading case was filed by the Central Bank of India & Ors. against Smt. Prabha Jain & Ors. arising from the order passed by the High Court of Madhya Pradesh at Jabalpur which set aside the order passed by the 5th Additional District Judge, Bhopal in a Civil Suit.

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The facts follow a land property claimed by the Respondent to have been passed down by her late father-in-law and inherited in equal shares by her late husband, his elder brother and mother. Following the demise of her husband, 1/3rd of the share was inherited by the Respondent but the land was claimed to have been split into many parts sold illegally by the Respondent’s brother-in-law.

Read More: Secured Creditor cannot Proceed under SARFAESI Act Following Dismissal of Civil Suit for Recovery on Merits: Kerala HC

It was further claimed that one of the buyers of the split up mortgaged land the same with the Central Bank of India for obtaining a loan, which was left defaulted by the buyer. Subsequently the bank initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) against which Prabha Jain contended the entire sale and mortgage of the allegedly illegally apportioned land to be null.

The matter was contested by Prabha Jain before the civil court, asserting the validity of her title and seeking possession. The Respondent bank prayed for rejection of the plaint referring to Order VII Rule 11 of the CPC, claiming the suit was barred by Section 34 of the SARFAESI Act, which excludes civil court jurisdiction over matters determinable by the Debts Recovery Tribunal (DRT).

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The matter was dismissed by the civil court, but later reversed by the Madhya Pradesh High Court against which the present petition was filed.

Senior Advocate Riddhi Sancheti, representing Prabha Jain echoed the observations of the Madhya Pradesh High Court while holding that the Respondent being a non-party to the sale and mortgage transactions was not obligated to seek cancellation of the deeds, but rather seek a declaration of invalidity against the same.

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Read More: Non-Registration of Mortgage, hypothecation of Security Interest created by virtue of DRT Judgment can’t be classified as Unsecured Creditor: NCLAT

Conversely, O.P. Gaggar, appearing for the Central Bank of India argued that the SARFAESI Act provides a comprehensive mechanism for secured creditors to recover dues and that civil court jurisdiction is barred by Section 34 in such cases, maintaining that the Bank had acted in good faith based on the documents provided by the borrower.

A Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan observed that the SARFAESI Act had been formulated to facilitate speedy recovery of secured debts and does not serve as a substitute for civil courts in resolving title disputes or fraud claims.

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While dismissing the Appeal, the Bench laid reference to the Supreme Court decision in Mardia Chemicals Ltd. & Ors. v. Union of India & Ors. reported in (2004) where the Apex Court reiterated the Civil Courts to be an appropriate forum for such matters and not the DRT whose authority under the SARFAESI Act is confined to the tenets of Section 13(4).

To Read the full text of the Judgement CLICK HERE

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