BANWARILAL AGARWAL & ORS vs PANKAJ LOHARIWAL & ORS.

The Court : The plaintiff anticipating that the dye is cast and bolt impending, filed this suit to stave off an imminent threat of initiating a proceeding under the SARFAESI Act.

The plaintiff filed the suit in which the bank has been made party. A cobweb of cause of action has been spun to give an impression that the issues are inextricably connected and the presence of the bank would be necessary at the time of trial of this suit. When the suit was filed both the RDB and the SARFAESI Act have come into force and initiation of proceeding under the SARFAESI Act was imminent. The applicant has taken step under the SARFAESI Act. The notice under section 13(2) of the said Act dated 4th March, 2014 followed by measures apparently are not under challenge. This suit was instituted in October 2013 prior to the issuance of the notice under SARFAESI Act.

The question arises as to the fate of this suit concerning the secure assets forming the part of the security agreement whether could be independently dealt with in a civil proceeding not withstanding the clear bar under section 34 of the SARFAESI Act. This issue was addressed by me in Mangalam Fiscal Services Pvt. Ltd. vs. State Bank of India being GA No.914 of 2014 decided on 3rd December, 2014 in the manner following: "In Standard Chartered Bank (supra), the Hon''ble Supreme Court in paragraph 37 referred to three modes of taking possession of the Secured Assets by the Secured Creditors which are as follows:-

i) The first method would be where the secured creditor gives the requisite notice under rule 8(1) and where he does not meet with any resistance. In that case, the authorized officer will proceed to take steps as stipulated under rule 8(2) onwards to take possession and thereafter for sale of the secured assets to realize the amounts that are claimed by the secured creditor.

ii) The second situation will arise where the secured creditor meets with resistance from the borrower after the notice under rule 8(1) is given. In that case he will take recourse to the mechanism provided under section 14 of the Act viz. making application to the Magistrate. The Magistrate will scrutinize the application as provided in section 14 and then if satisfied, appoint an officer subordinate to him as provided under Section 14(1)(A) to take possession of the assets and documents. For that purpose the Magistrate may authorize the officer concerned to use such force as may be necessary. After the possession is taken the assets and documents will be forwarded to the secured creditor.

iii) The third situation will be one where the secured creditor approaches the Magistrate concerned directly under section 14 of Act. The Magistrate will thereafter scrutinize the application as provided in section 14 and then if satisfied, authorize a subordinate officer to take possession of the assets and documents and forwards them to the secured creditor as under clause (ii) above.

The Hon''ble Supreme Court thereafter noticed Mardia Chemicals (supra) and held in paragraph 37:- ''In this connection, it is material to refer to the judgment in Mardia Chemicals wherein the Court was concerned with the legality and validity of the SARFAESI Act. The court held the Act to be valid except Section 17(2) thereof as it then stood. In paragraphs 59, 62 and 76 of the Judgment the Court in terms held that in remedy under Section 17 of the Act was essentially like filing a suit in a Civil Court though it was called an Appeal. It is also relevant to note that in the ultimate conclusions in paragraph 80 of the judgment this Court held below:-

''As already discussed earlier, on measures having been taken under sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debts Recovery Tribunal.''

The grievance of the respondent that it will be left with no remedy is, therefore, misplaced. As held by a bench of three Judges in Mardia Chemicals, it would be open to the borrower to file an appeal under Section 17 any time after the measures are taken under Section 13(4) and before the date of sale/auction of the property. The same would apply if the secured creditor resorts to Section 14 and takes possession of the property with the help of the officer appointed by the Magistrate.

The scope of Section 34 came up for consideration in the said Mardia Chemicals (supra) In paragraph 50 of the said judgment the Hon''ble Court held: ''It has also been submitted that an appeal is entertainable before the Debts Recovery Tribunal only after such measures as provided in sub-section (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debts Recovery Tribunal or the Appellate Tribunal is empowered to determine. Thus before any action or measure is taken under Sub-Section (4) of Section 13, it is submitted by Mr. Salve, one of the counsel for the Respondents that there would be no bar to approach the Civil Court. Therefore, it cannot be said that no remedy is available to the borrowers. We, however, find that this contention as advanced by Sri Salve is not correct. A full reading of Section 34 shows that the jurisdiction of the Civil Court is barred in respect of matters which a Debts Recovery Tribunal or an Appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act''. That is to say, the prohibition covers even matters which can be taken cognizance of by the Debts Recovery Tribunal though no measures in that direction has so far been taken under Sub-Section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the Civil Court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil courts thus applies to all such matters which may be taken cognizance of by the Debts Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of the Section 13."

Elaborating on these aspects, the Hon''ble Supreme Court in Jagdish Singh (supra) in paragraphs 22 and 23 held:- ''Statutory interest is being created in favour of the secured creditor on the secured assets and when the secured creditor proposes to proceed against the secured assets, sub-section (4) of Section 13 envisages various measures to secure the borrower''s debt. One of the measures provided by the statute is to take possession of secured assets of the borrowers, including the right to transfer by way of lease, assignment or realizing the secured assets. Any person arrived by any of the "measures" referred to in subsection (4) of Section 13 has got a statutory right of appeal to the DRT under Section 17. The opening portion of Section 34 clearly states that no Civil Court shall have jurisdiction to entertain any suit or proceeding ''in respect of any matter'' which a DRT or an Appellate Tribunal is empowered by or under the Securitisation act to determine. The expression in respect of any matter referred to in Section 34 would take in the "measures" provided under sub-section (4) of Section 13 of the Securitisation Act. Consequently, if any aggrieved person has got any grievance against any "measures" taken by the borrower under Sub-section (4) of Section 13, the remedy open to him is to approach the DRT or the Appellate Tribunal and not the Civil Court. Civil Court in such circumstances has no jurisdiction to entertain any suit or proceedings in respect of those matters which fall under sub-section (4) of Section 13 of the Securitisation Act because those matters fell within the jurisdiction of the DRT and the Appellate Tribunal. Further, Section 35 says, the Securitisation Act overrides other laws, if they are inconsistent with the provisions of that Act, which takes in Section 9, Code of Civil Procedure as well.

We are of the view that the Civil Court jurisdiction is completely barred, so far as the "measures" taken by a secured creditor under Sub-Section (4) of Section 13 of the Securitisation Act, against which an aggrieved person has a right of appeal before the DRT or the Appellate Tribunal to determine as to whether there has been any illegality in the "measures" taken.''

A perusal of the plaintiff shows that in the suit the plaintiff is seeking to challenge measures that had already been taken by the bank. The plaintiff is not remediless."

In view thereof, the suit as against the defendant no.13 bank is clearly barred by law and stands dismissed. The name of the bank shall be deleted. It is made clear that the merit of the matter has not been gone into.