Recently, the Allahabad High Court held that a civil suit seeking to restrain recovery of a loan by a depositor against a Non-Banking Financial Company (NBFC) is not maintainable when proceedings are already pending before the NCLT under Section 45QA of the RBI Act. The Court emphasised that civil courts cannot be used to pre-empt statutory remedies before specialized tribunals, especially where jurisdiction is expressly barred.
Brief facts:
The case arose from a dispute concerning a long-term loan transaction where a Non-Banking Financial Company (NBFC) availed substantial financial assistance under an agreement stipulating a fixed tenure with repayment scheduled only after completion of the agreed period. Despite such contractual stipulation, the lender allegedly initiated steps for premature recovery within a short span, including approaching regulatory authorities by characterising the transaction as a “deposit,” thereby triggering statutory consequences under the Reserve Bank of India Act, 1934.
Aggrieved by the apprehended coercive recovery, the borrower instituted a civil suit seeking a permanent injunction to restrain such premature action. The lender, however, challenged the maintainability of the suit under Order VII Rule 11 of the CPC, contending that the dispute squarely fell within the statutory framework of Section 45QA of the RBI Act and was exclusively triable by the NCLT, with civil court jurisdiction expressly barred under Section 430 of the Companies Act, 2013. Accepting this objection, the trial court rejected the plaint, leading to the present appeal before the High Court.
Contentions of the Appellant:
The Appellant argued that the trial court erred in rejecting the plaint by relying on the defendant’s pleadings instead of confining itself strictly to the plaint, as mandated under Order VII Rule 11 of the CPC. The Counsel contended that the agreement clearly prohibited premature recovery, thereby giving rise to a valid cause of action for injunction. The Appellant further asserted that proceedings under Section 45QA of the RBI Act were available only to depositors (i.e., the defendant), leaving the plaintiff with no alternative remedy except filing a civil suit. Additionally, procedural irregularities were alleged, including improper consideration of subsequent applications and a lack of opportunity to respond.
Contentions of the Respondent:
The Respondent countered that, both parties being NBFCs, the transaction squarely fell within the regulatory framework of the RBI Act. The Counsel emphasised that proceedings under Section 45QA of the RBI Act had already been initiated before the NCLT prior to the filing of the suit, which the plaintiff deliberately suppressed. The Respondent argued that Section 430 of the Companies Act bars civil court jurisdiction in matters triable by the NCLT, and that the suit was a strategic attempt to circumvent ongoing statutory proceedings.
Observation of the Court:
The Court observed that while adjudicating an application under Order VII Rule 11 of the CPC, the trial court is strictly required to confine itself to the averments made in the plaint and the documents filed along with it. It emphasised that the defence taken by the defendant or any material produced by the defendant cannot be looked into at this preliminary stage. The Bench further clarified that the court is not expected to assess the merits or probable success of the plaintiff’s case at this juncture. It held that if the plaint discloses even a semblance of a triable issue, the suit cannot be rejected summarily.
The Bench held that the expression “deposit” under Section 45-I(bb) of the RBI Act is wide enough to include money advanced by way of loan. It rejected the appellant’s argument that loan transactions fall outside the purview of Section 45QA of the RBI Act. The Bench emphasised that the statutory definition expressly includes “loan” within its ambit, thereby bringing such disputes within the regulatory mechanism of the RBI Act. It concluded that any default in repayment of such loan by an NBFC can be addressed through proceedings before the NCLT.
The Court emphasised that disputes concerning repayment of deposits or loans by NBFCs are exclusively triable by the NCLT under Section 45QA of the RBI Act. It observed that the NCLT is empowered not only to adjudicate whether repayment is due but also to determine the manner, timeline, and conditions of such repayment. The Bench clarified that once such jurisdiction is statutorily conferred upon a specialised tribunal, no parallel adjudication by civil courts is permissible. It underscored that the legislative intent is to ensure expeditious and specialised resolution of such financial disputes.
Further, the Bench held that Section 430 of the Companies Act creates an express bar on the jurisdiction of civil courts in matters which fall within the domain of the NCLT. It emphasised that not only is the jurisdiction barred, but even the grant of an injunction in respect of actions taken or to be taken under such statutory powers is prohibited. The Bench noted that since the dispute in the present case squarely falls within the jurisdiction of the NCLT, the civil court could neither entertain the suit nor grant the relief of injunction sought by the plaintiff.
The Court observed that the plaintiff had deliberately suppressed the fact that proceedings under Section 45QA of the RBI Act were already pending before the NCLT prior to filing of the suit. It emphasised that such suppression strikes at the root of judicial proceedings, particularly when equitable relief like an injunction is sought. The Bench reiterated that a litigant seeking discretionary relief must approach the court with utmost candour and full disclosure of material facts. It held that suppression of such crucial information disentitles the plaintiff from any equitable relief.
The Bench held that the suit was essentially filed to pre-empt and obstruct the statutory remedy available to the defendant before the NCLT. It emphasised that such an attempt is legally impermissible and directly barred under Section 41 of the Specific Relief Act. The Bench clarified that a party cannot seek an injunction to restrain another from initiating or continuing lawful proceedings before a competent forum. It further noted that the plaintiff had an adequate opportunity to present its case before the NCLT and could not bypass that forum through a civil suit.
The decision of the Court:
The Court ultimately dismissed the appeal, affirming the trial court’s rejection of the plaint under Order VII Rule 11 of the CPC. It held that where a specialised statutory mechanism (Section 45QA RBI Act) vests exclusive jurisdiction in the NCLT, civil courts are barred from entertaining suits seeking to restrain such proceedings, particularly in light of Section 430 of the Companies Act.
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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