Recently, the Allahabad High Court dealt with a high-stakes commercial dispute, where an attempt was made to block loan recovery through a civil suit despite parallel proceedings before the NCLT. Refusing to permit such a course, the Court affirmed the rejection of the plaint under Order VII Rule 11 CPC, holding that disputes falling within the statutory framework of the Reserve Bank of India Act, 1934 (hereinafter referred to as ‘RBI Act’) and Companies Act, 2013 must be addressed by the designated tribunal alone, firmly cautioning that jurisdictional limits cannot be sidestepped through strategic drafting of pleadings.
Brief facts:
The case stemmed from a commercial dispute between two NBFCs, where the plaintiff instituted a civil suit seeking a permanent injunction to restrain the defendant from prematurely recovering a long-term loan, relying on contractual terms restricting repayment before the agreed tenure. However, prior to the suit, the defendant had already initiated proceedings under Section 45QA of the RBI Act, before the NCLT, for recovery of the amount, treating it as a deposit. Challenging the maintainability of the suit, the defendant invoked Order VII Rule 11 of the CPC, contending that the claim was barred under Section 41 of the Specific Relief Act, Section 430 of the Companies Act, 2013, and the special statutory regime under the RBI Act. The trial court accepted this objection and rejected the plaint, which led to the present appeal under Section 96 of the CPC.
Contentions of the Appellant:
The Appellant argued that the trial court acted mechanically and failed to apply settled principles governing Order VII Rule 11 of the CPC. The Counsel submitted that only the averments in the plaint ought to have been considered, whereas the trial court improperly relied on the defendant’s pleadings and documents. The Appellant further contended that the suit was maintainable as it sought to restrain breach of contractual obligations and that no statutory bar applied. The Counsel argued that proceedings under Section 45QA of the RBI Act could only be initiated by the depositor (defendant), leaving the plaintiff with no alternative remedy except approaching the civil court. Additionally, procedural irregularities, such as entertaining successive applications under Order VII Rule 11 CPC, were highlighted to challenge the impugned order.
Contentions of the Respondent:
The Respondent countered that the suit was a deliberate attempt to bypass statutory proceedings already pending before the NCLT. The Counsel argued that the plaintiff had suppressed material facts regarding the pending company petition under Section 45QA of the RBI Act and had invoked civil jurisdiction to obstruct lawful recovery. Emphasising Section 430 of the Companies Act, the Respondent submitted that once jurisdiction is conferred on the NCLT, civil courts are expressly barred from entertaining such disputes or granting injunctions. The Counsel further contended that the RBI Act, being a special law, overrides general civil remedies and that the trial court rightly rejected the plaint as being barred by law and devoid of cause of action.
Observation of the Court:
The Court observed that the statutory scheme under the RBI Act clearly brings loan transactions within the ambit of “deposit,” thereby attracting the jurisdiction of the NCLT. It held that under Section 45-I(bb) of the RBI Act, the term “deposit” expressly includes money received by way of loan, making the appellant’s argument to the contrary untenable. The Bench clarified that once such transactions fall within the definition of deposit, any dispute regarding repayment must necessarily be adjudicated under Section 45QA of the RBI Act. This interpretation was crucial in determining the appropriate forum and rejecting the appellant’s attempt to treat the dispute as a purely contractual issue outside the statutory framework.
The Court held that the National Company Law Tribunal (NCLT) is the exclusive forum to adjudicate disputes relating to repayment of deposits/loans by NBFCs. It emphasised that the statutory mechanism under Section 45QA of the RBI Act provides a complete code for determining whether repayment is due, whether default has occurred, and how the interests of parties are to be safeguarded. The Bench noted that such matters require specialised adjudication, which the NCLT is empowered to undertake. Consequently, any attempt to invoke civil court jurisdiction in such matters would directly conflict with the legislative intent of creating a specialised forum.
The Court emphasised that the jurisdiction of civil courts is expressly barred where the NCLT is empowered to decide the dispute. Referring to Section 430 of the Companies Act, 2013, the Bench held that once a matter falls within the domain of the Tribunal, civil courts cannot entertain any suit or grant injunctions in respect of such matters. It further clarified that this bar is absolute and extends to any action “taken or to be taken” under the statutory framework. The Court thus reaffirmed that jurisdictional limitations cannot be circumvented through creative drafting or by seeking equitable relief like injunctions.
The Court observed that the plaintiff had approached the Court without clean hands by suppressing material facts regarding pending proceedings before the NCLT. It noted that the defendant had already initiated proceedings under Section 45QA of the RBI Act prior to the institution of the suit, a fact deliberately concealed by the plaintiff. The Bench held that such suppression is fatal, particularly when discretionary relief like an injunction is sought. It reiterated the settled principle that litigants must disclose all material facts, and failure to do so disentitles them from any equitable relief.
The Court held that the suit was filed with the intent to pre-empt statutory proceedings and was therefore not maintainable. It found that the plaintiff sought to restrain the defendant from initiating or pursuing recovery proceedings before the NCLT, which is impermissible under Section 41(b) of the Specific Relief Act. The Bench observed that such a suit effectively attempts to obstruct lawful proceedings before a competent forum, which cannot be allowed. It further clarified that the plaintiff had an adequate opportunity to present its case before the NCLT and could not bypass that forum by approaching the civil court.
The decision of the Court:
In view of the statutory bar, suppression of material facts, and absence of cause of action, the Court upheld the trial court’s rejection of the plaint under Order VII Rule 11 CPC and dismissed the appeal with costs.
Case Title: Shivam Traders And Hire Purchase Pvt. Ltd. Vs. Madhusudan Vehicles Pvt. Ltd.
Case No.: First Appeal No. - 253 of 2025
Coram: Hon'ble Mr. Justice Sandeep Jain
Advocate for the Petitioner: Adv. Anil Kumar Pandey
Advocate for the Respondent: Adv. Rahul Agarwal, Adv. Vedant Agarwal
Read Judgment @Latestlaws.com
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