Bombay High Court
Shashikant Gangar vs Aditya Birla Finance Limited Thr. Its ... on 15 October, 2024
2024:BHC-GOA:1762
2024:BHC-GOA:1762
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vinita
IN THE HIGH COURT OF BOMBAY AT GOA
WRIT PETITION NO.1230 OF 2024-F
WITH
CIVIL APPLICATION NO. 1231 OF 2024-F
Mr. Shashikant Gangar Aged 62 years,
DIN No. 02126659, residing at 196/197,
3-B, Ganjawala Apartments, Ganjawala
Lane, Borivali (West), Mumbai 400092 ..... Petitioner.
Versus
1. Aditya Birla Finance Limited
Through its managing Director a
Company incorporated and
registered under the Companies Act,
1956 having its Registered Office at
Indian Rayon Compound, Veraval,
Gujarat 362 266 and its Corporate
Office at 10" Floor R Tech Park,
Nirlon Complex, Off Western
Express Highway, Near Hub Mall,
Goregaon (East), Mumbai 400 063.
2. Libox Chem (India) Private Limited
Through its Administrator Having
its office at 112, Kundaim Industrial
Estate, Kundaim, Goa -- 403 115
3. Sheshmal Bhatia, Having his
address at 201, Padmanabh 2nd
Floor, Pandurangwadi, Road No.4
Goregaon (E), Mumbai 400 063.
4. Mr. Arvind Manubhai Mehta,
residing at 602/B, Vishal Complex,
Bldg. no. 2, Narsing Lane, Malad
West, Mumbai -- 400 064
5. Aashad Trading Through its
proprietor, Mr Wasim Chaudhary,
Plot No. 17, Honda Industrial
Estate, Honda, Sattari Goa -403530
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and at
H. No. 304, Near Post Officer,
Postwada, Honda, Sattari North
Goa, Goa, 403530
Email: [email protected]
6. Goa Industrial Development
Corporation Through its Managing
Director, Plot No. 13A-2 EDC
Complex Patto Plaza, Panaji, Goa-
403 001.
Email:[email protected] ...... Respondents.
Mr S. S. Kantak, Senior Advocate with Mr S. Gaonkar, Mr S. Kher,
Mr P. Sirvoicar, Ms N. Kholkar and Ms S. Dessai, Advocate for the
petitioner.
Mr S. D. Lotlikar, Senior Advocate with Mr A. Nayak Salatry and
Ms S Kenny, Advocate for respondent no.1.
Mr S. Desai and Mr J. Ramaiya, Advocate for the respondent no.5.
Mr A. D. Bhobe and Ms S. Shaikh, Advocate for respondent no. 6.
Mr Bhupendara Dave, Advocate for the Administrator.
CORAM: BHARAT P. DESHPANDE, J
RESERVED ON : 26th SEPTEMBER 2024
PRONOUNCED ON: 15th OCTOBER 2024.
JUDGMENT:
1. Rule.
2. Rule made returnable forthwith.
3. Heard finally with consent.
4. The present petition is filed thereby challenging the impugned
order passed in Commercial Appeal no.6/2023 on 2.5.2024. By the
said impugned order First Appellate Court dismissed the said appeal
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thereby confirming the order passed by the Commercial Court dated
2.11.2023 in Commercial Suit No. 2/2023.
5. Petitioner is the plaintiff in Commercial Suit No. 2/2023 filed
before the Commercial Court at Ponda. Respondent no.1 being
defendants filed an application under Order 7 Rule 11 of CPC for
rejection of the plaint.
6. Vide order dated 2.11.2023 Commercial Court rejected the
plaint on observing that suit is barred by law i.e Section 34 of
SARFAESI Act. Petitioner/plaintiff filed Commercial Appeal
No.6/2023 which was dismissed by the impugned order upholding
the contentions of the respondents and confirming the findings of the
trial Court, which is challenged in the present proceedings amongst
various grounds as disclosed in the Writ Petition.
7. Heard Mr S. S. Kantak, learned Senior Advocate with Mr S.
Gaonkar, learned Counsel for the Petitioner, Mr S. D. Lotlikar,
learned Senior Counsel with Mr A. Nayak Salatry, learned Counsel
for respondent no.1, Mr S. Desai, learned Counsel along with Mr J.
Ramaiya, learned Counsel for the respondent no.5, Mr A. D. Bhobe,
learned Counsel Ms S. Shaikh, Advocate for respondent no. 6 and Mr
Bhupendara Dave, learned Counsel for the Administrator.
8. Mr Kantak learned Senior Counsel appearing for the
petitioner/plaintiff would submit that petitioner is one of the
directors and shareholders of the company i.e. respondent no.2.
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Petitioner started trading in potassium permanganate since 1988 by
importing it along with certain other chemicals in his proprietory
concern in the name and style as "Chemiman". Somewhere in the
year 1998, respondent no. 2 M/s Super Electro Manganese Chemicals
was declared as bankrupt but subsequently petitioner decided to take
over the assets of respondent no.2 for the purpose of manufacturing
potassium permanganate and formed a company i.e. respondent no.
2 registered somewhere in November 2000. Respondent nos. 3 and 4
subscribed the shares of respondent no. 2 company. However,
somewhere in the year 2002 Mr Om Prakash sold all his shares in
respondent no.2 except retaining one share and thereafter the share
capital of respondent no. 2 company as held to be to the extent of
33.33.% each by the petitioner, respondent no. 3 and respondent no.
4.
9. Since respondent no.2 was incorporated, some dispute arose
between the petitioner and the respondent nos. 3 and 4 with regard
to credit notes. Subsequently, respondent nos. 3 and 4 took over the
complete control of the day to day affairs of respondent no.2
company and started pressuring the petitioner to sell his share. An
attempt was made by the respondent nos. 3 and 4 to shut down the
company by obtaining an unwarranted loan for the personal benefit
of respondent nos.3 and 4 and they also incorporated a new company
namely Speed International India Pvt. Ltd with an intention to
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siphoning of the funds and diverting customers of respondent no.2
company. Respondent nos.3 and 4 mismanaged the affairs of
respondent no.2 company by recklessly borrowing the funds against
the assets of respondent no. 2. Petitioner filed a company petition
under the provisions of Section 241 and Section 242 before the NCLT
Mumbai wherein detail order is passed however, before filing of such
petition, respondent nos.3 and 4 without following due process of law
and without the knowledge and consent of the petitioner obtained
loan from respondent no.1 bank somewhere in October 2020 to the
tune of Rs. 3.5 crores, under the pretext of expansion of business.
10. Petitioner observed that respondent no.1 bank without
following due process of law and in collusion with respondent nos. 3
and 4 sanctioned the loan and thereafter respondent nos. 3 and 4
deliberately avoided to pay instalment so that respondent no. 2
company could be shut down and taken over by the said respondents.
Respondent no.1 bank sanctioned the loan facilities of three crores
without following due process and without obtaining any NOC from
the concerned department and since defaults were made in
repayment, loan was considered as non performing assets.
Respondent no.1 thereafter issued notice in August 2022 under
Section 13(2) of SARFAESI Act in respect of secured assets for the
dues repayment of outstanding loan along with interest. An attempt
was made by respondent no.1 before NCLT to hand over possession of
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secured assets, however, the Administrator appointed by NCLT
refused to hand over possession of respondent no.2. Another
application was filed by respondent no.1 bank before NCLT Mumbai
however, during the pendency of such application, respondent no.1
approached concerned authority by filing securitisation application
case under the provisions of Section 14 of SARFAESI Act before
Additional Collector South Goa seeking relief of physical possession.
By order dated 26.6.2023 Additional Collector allowed the said
application of respondent no.1 and directed them to take forceful
possession of the secured assets i.e respondent no. 2 company.
11. Petitioner being, aggrieved by such order passed by Additional
Collector, approached DRT Mumbai by filing an application under
section 17(1) of the SARFAESI Act. Vide order dated 18.8.2023 DRT
Mumbai rejected the interim application and consequently disposed
of application under Section 17(1) solely on the ground that,
petitioner is not having locus to file such proceedings since the
petitioner is merely a shareholder.
12. Petitioner filed an appeal before DRAT Mumbai. However, it
was subsequently withdrawn. In the meantime, respondent no.1 took
forceful possession of the secured assets of respondent no.2 on
21.8.2023. Petitioner therefore filed Commercial Suit No. 2/2023
making specific allegations of fraud and collusion between
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respondent no.1, 3 and 4 and the fact that his attempt to approach
DRT Mumbai under Section 17 (1) was unsuccessful.
13. Learned Commercial Court issued notice to the respondent
who appeared and thereafter respondent no.1 bank preferred an
application under Order 7 Rule 11 of CPC claiming that suit is barred
by law. Such application was allowed by the trial Court and then it
was confirmed by the Commercial Appellate Court. Both these orders
are challenged in the present petition.
14. Mr Kantak would further submit that there are specific
allegations of fraud disclosed in the plaint as against respondent
nos.1, 3 and 4 and therefore the case of Mardia chemicals Ltd Vs
Union of India and others1 would squarely apply to the plaint
and accordingly, there is no bar to entertain such suit.
15. Secondly Mr Kantak would submits that the petitioner
approached DRT Mumbai with an application under Section 17(1) of
the Specific Relief Act. However, said authority observed that the
petitioner is not entitled to challenge the action taken by the bank.
He would therefore submit that the petitioner has been left
remediless, which cannot be under any circumstances. He submits
that jurisdiction of the Commercial Court under Section 9 of CPC is
vide enough and that it has been held by DRT that case is not covered
under Section 17, bar under Section 34 of the SARFAESI Act would
not come in the way of the petitioner.
1 (2004) 2 Mh. L. J. 1090
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16. Mr Kantak would further submit that averments in the plaint
would clearly go to show that loan applied by respondent nos. 3 and 4
was sanctioned by respondent no.1 bank without there being any
resolution being passed by Board of Directors. He submits that this
itself clearly demonstrates collusion and fraud to deprive the plaintiff
from his shares and management of the respondent no.2 company.
Mr Kantak submit that when DRT observed that the petitioner
cannot entertain any application under Section 17(1) of the
SARFAESI Act , the only remedy available to the petitioner is to file a
suit and when there are specific allegations of fraud, Civil Court is
only authorize to entertain and decide such suit.
17. In other words Mr Kantak would submit that when the plaintiff
is considered as not aggrieved person under Section 17, there cannot
be any bar under Section 34 of the SARFAESI Act against the
petitioner. He would submit that these aspects are completely being
ignored and not considered by the Courts below and thereby
impugned order suffers from perversity.
18. Mr Kantak placed reliance on the following decisions:-
1 Bank of Boroda, through its BranchManager Vs
Gopal Shriram Panda and another, 2
2 Saleem Bhai and others Vs State of Maharashtra
and others3
2 (2021)4 AIR Bom R 64.
3 (2003) 1 SCC 557.
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19. Mr Lotlikar, appearing for respondent no.1 bank, would submit
that remedy available to the petitioner is only before the DRT under
Section 17(1) of SARFAESI Act. He submits that petitioner initially
challenged the order of DRT by filing an appeal at DRAT Mumbai,
however, in the meantime plaintiff/petitioner filed this suit.
Subsequently withdrawal of the appeal cannot be a ground for the
petitioner to entertain the suit.
20. Mr Lotlikar would submit that the petitioner being a
shareholder cannot be considered as an aggrieved party as he has no
interest in the property of the company. He would submit that
Section 34 of the SARFAESI Act stands attracted. Suit is barred by
such law. He submits that there is no right to the plaintiff to file the
said suit.
21. Mr Lotlikar would further submit that allegations of fraud are
inter se between petitioner and the respondent nos.3 and 4 and not
against the bank. He would further submit that the Director is
entitled to seek loan on the basis of Article of Association and thus
when there is no specific pleadings with regard to fraud, plaint has
been rightly rejected.
22. Mr S. Desai appearing for respondent no.5/purchaser would
strongly submit that bar under Section 34 stands attracted and the
suit is clearly not maintainable. He submits that application under
Section 17 of the SARFAESI Act filed by the petitioner would clearly
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show that it was against the security created by the company and
since the petitioner is only a shareholder, has no locus to challenge
such proceedings either before DRT or before the Civil Court.
23. Mr Desai would submit that while appeal was pending before
the DRAT the petitioner approached the Civil Court with most
unclean hand and with conflicting pleadings. He submits that best
recourse for the petitioner was to challenge the order of DRT and to
argue the appeal to its logical conclusion.
24. Mr Desai would submit that allowing the plaint to retain would
be an abuse of process of law. He submits that clever drafting by
using words fraud and collusion cannot be allowed to retain since
there is clear bar of the jurisdiction of the Civil Court under Section
34 of the SARFAESI Act to entertain such plaint. Mr Desai placed
reliance on the following decisions:
1. Garment Carft Vs Prakash Chand Goel4
2. Punjab and Sind Bank Vs Frontline
Corporation Ltd. 5
3. Crosscraft Private Ltd Vs Authorized
Officer, Madgaum Urban Co-op Bank
Ltd and others.6
25. Rival contentions fall for determination.
26. The basic contention on behalf of Mr Kantak is that the suit is
filed for declaration and permanent injunction under the Specific
4 (2022)4 SCC 181
5 2023 SCC Online SC 470
6 (2019) 2 AIR Bom R 458
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Relief Act and the prayer therein are to declare loan facilities
agreement dated 29.11.2020 and creation of mortgage is a fraud and
thus illegal and void. He submits that such relief claimed by the
petitioner/plaintiff is based on the specific averments in the plaint
regarding collusion and fraud played on the plaintiff by the
defendants including the bank. He submits that loan was sanctioned
without due authorisation and resolution passed by the Board of
Directors. In this respect he would submit that there are specific
averments made in the plaint that the defendants played a fraud on
the plaintiff by obtaining loan and that too without any resolution to
that effect.
27. Mr Kantak would then submit that loan was sanctioned on
30.11.2020 whereas the agenda of the meeting was somewhere in the
month of December 2020. He specifically relied upon paragraphs 12,
13 and 14 wherein specific allegations have been made regarding
fraud and collusion between the defendants including the bank. He
would therefore submit that such an aspect is not covered under the
SARFAESI Act and Civil Court is the only authority to entertain such
a suit under the Specific Relief Act. Power and jurisdiction of the Civil
Court under Section 9 is therefore not ousted as far as the present
plaint is concerned.
28. Perusal of the plaint would clearly go to show that there are
specific pleadings with regard to collusion and fraud played on the
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plaintiff by the defendants including the secured creditors/bank.
Paragraph no. 11 of the plaint gives details as to the collusion between
the secured creditors/bank and defendant nos.2 to 4 in connection
with execution of the document of loan. It is contention of the
plaintiff that relevant documents were executed by defendant nos. 2
to 4 in favour of defendant no.1/bank on 29.11.2020, 30.11.2020 and
thereafter defendant no.1 sanctioned and disbursed part of the loan
amount prior to receipt of NOC from Goa Industrial Development
Corporation. Secondly, it is claimed that defendant no.1/bank
sanctioned and disbursed the loan without there being any authority
and lawful resolution passed by defendant nos.2 to 4 for availing such
loan. It is claimed in paragraph 13 that notice of 1.12.2020 issued by
defendant no.3 calling for a board meeting scheduled on 8.12.2020
for passing of resolution as on the agenda mentioned therein and one
Agenda was to consider and discuss availing financial facilities from
the bank/financial institution. However, the loan was sanctioned on
30.11.2020 itself. Paragraph 14 of the plaint discloses that in such
manner defendants played a fraud upon the plaintiff and entire
mortgage agreement is therefore fraudulent.,
29. Plaintiff/petitioner herein has clearly disclosed in the plaint
that he is one of the directors having 33.33.% of shares of respondent
no.2 company whereas defendant nos.3 to 5 are other directors/share
holders.
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30. In the case of Mardia Chemicals Ltd, the Apex Court while
dealing Section 34 of the SARFAESI Act observed in paragraph 51
that to a very limited extent jurisdiction of the Civil Court can also be
invoked, where for example, the action of the secured creditor is
alleged to be fraudulent or their claim may be so absurd and
untenable which may not require any probe, whatsoever or to say
precisely to the extent the scope is permissible to bring an action in
the civil Court in the cases of English mortgages.
31. It is well settled proposition of law that while considering an
application under Order VII Rule 11 of CPC, the Court is required to
look into the averments in the plaint and documents relied and
referred in the plaint. It is also equally well settled that Court cannot
look into contents of the written statement/reply or documents relied
therein. By a meaningful reading of the contents of the plaint, Court
has to assess whether a suit filed therein is barred under any law or
is not having any cause of action to institute such a claim. At this
stage, only the contents in the plaint are required to be considered as
germane and not written statements or other documents relied upon
by the respondents.
32. In the case of Saleem Bhai (supra), the Apex Court observed
that germane facts for deciding an application under Order VII Rule
11(a) and (d) of CPC and the averment in the plaint and not the pleas
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taken in the written statement. The Court has to consider only the
pleading in the plaint and documents referred therein. Similarly, the
duty of the Court is to read such pleadings in a meaningful manner so
as to observe whether the suit as framed therein is having cause of
action, barred by limitation or otherwise.
33. Learned Commercial Court vide its order dated 2.11.2023,
allowed the application filed by defendant no.1 under Order VII Rule
11 of CPC and thereby rejected the plaint. Observation of the learned
trial Court are found from paragraph 8 onwards which discloses
relevant facts as pleaded in the plaint. As far as pleadings of fraud are
concerned, the learned Commercial Court in the paragraph 13
observed that plaint paragraph no. 11 discloses the pleadings of fraud
as well as collusion which also continued in paragraph 13. However,
in one line in paragraph 15, learned Commercial Court observed that
except using words fraud, collusion and fraudulent, there are no
specific particulars in respect of fraud pleaded by the plaintiff and
thus mere use of such orders cannot come out of the bar under
Section 34 of the SARFAESI Act.
34. The learned Commercial Court further observed in paragraph
16, by relying on the decision of the Punjab and Sind Bank
(supra) decided by the Apex Court that to a very limited extent
jurisdiction of the Civil Court can be invoked when action of the
secured creditor is alleged to be fraudulent. However, in paragraph
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17, the learned Court further observed that since there is no specific
pleading with regard to fraud, it cannot be said that the action of
defendant no.1 who is a secured creditor is fraudulent. Thus, Section
34 comes into operation.
35. This order was challenged by the petitioner before the First
Appellate Court in Commercial Appeal No.6/2023. Vide impugned
judgment dated 2.5.2024, appeal came to be rejected. The learned
First Appellate Court framed two points regarding bar of Section 34
of the SARFAESI Act, and whether the trial Court committed an
error. As far as point no.1 is concerned, the First Appellate Court
considered the provision of Section 17(1) and Section 34 of the
SARFAESI Act. It also considered and quoted observations of this
Court in the case of Bank of Boroda, through its Branch
Manager (supra), as found mentioned in paragraph 14. The First
Appellate Court then considered paragraph 11 of the plaint and
quoted it and then discussed the pleadings of fraud in paragraph 16.
However, in paragraph 17, the First Appellate Court observed that
undisputedly, the dispute falls within four corners of SARFAESI Act
thus there is expressed bar under Section 34 of the said SARFAESI
Act.
36. Such finding in paragraph 17 is clearly perverse to the record as
suit is filed under the Specific Relief Act and plaint clearly discloses
that reliefs claimed therein are not covered under the SARFAESI Act.
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Thus, such finding of the learned First Appellate Court cannot be
accepted.
37. Further learned First Commercial Appellate Court quoted the
provisions of Section 34 of the SARFAESI Act and then observed in
paragraph 19 about the contents of paragraph 11 of the plaint. It
further observed that contention of the plaintiff that defendant
no.1/bank sanctioned and disbursed the loan without authorisation
and lawful resolution being passed by defendant nos. 2 to 4 is
incorrect. It then went to discuss the bar under Section 34 of the
SARFAESI Act in paragraph 20 of the said order and observed that
such bar can be dispensed with only when the plaintiff succeeds in
bringing his case within the exception when there is necessarily a
fraud or collusion being committed between financial institution and
the other person to defraud person. However in the same breath the
First Appellate Court observed that there is no pleadings against
defendant no.1 as to in what manner defendant no.1 was responsible
to defraud the plaintiff in collusion with the defendant nos. 3 and 4.
38. With these observations of the learned trial Court and that of
the First Appellate Court, pleadings in the plaint are required to be
once again considered.
39. As earlier observed, the suit is filed for declaration and
permanent injunction claiming the main relief of grant of a
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declaration that loan facility agreement dated 29.11.2020 and
creation of Mortgage is a fraud and therefore illegal and void.
40. To substantiate such prayer plaintiff has disclosed that he is
one of the directors having 33% shares in respondent no. 2 company
and now respondent nos. 3 to 5 were inducted. The main contention
starts from paragraph no. 6 of the plaint wherein it is claimed that
defendant nos. 3 and 4 conspired against plaintiff and took over
complete control and management of defendant no.2 company
thereby excluding the plaintiff in order to pressurise him to sell his
share. It is then pleaded in paragraph 6 that defendant nos. 3 and 4
made efforts to shut down the company by taking unwanted loan for
their personal benefits and incorporated a new company in the name
of Speed International India Pvt. Ltd along with their other family
members in order to conduct the same business which defendant no.
2 company is doing so as to siphoning of funds and diverting
customers of defendant no.2 to a new company. These specific
allegations are made against defendant nos.3 and 4. However,
plaintiff further pleaded in paragraph 6 that on getting knowledge of
another company floated by defendant nos. 3 and 4 and siphoning of
funds as well as diverting customers to the new company, he filed
company petition under Sections 241 and 242 of the Companies Act
before NCLT, Mumbai against defendant nos.3 and 4 for
misappropriation and mismanagement of defendant no.2 company.
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41. It is further pleaded in paragraph no.7 of the plaint that NCLT
Mumbai vide order dated 24.2.2022 prima facie concluded that the
operation of defendant no.2 company were shut down as a result of
wrongful acts committed by defendant nos.3 and 4 which
demonstrated the acts of operation and mismanagement resulting
from the wrongful acts by defendants nos. 3 and 4. The NCLT,
Mumbai appointed Administrator to take over the control and
management of affairs of the defendant no.2 company.
42. Further in paragraph 8 of the plaint, it is specifically pleaded by
the plaintiff that before filing of the company petition before the
NCLT, defendant no. 2 availed loan facility from defendant no.1 by
making an application dated 7.10.2020 for the purpose of business
expansion and in that application defendant nos. 3 and 4 were shown
as co-borrowers thereby signing such application. Defendant nos. 3
and 4 in the said application for grant of finance/loan shown plot no.
112 having admeasuring area of 1360 sq. mts at Kundaim Industrial
Estate, Kundaim as a secured assets.
43. Plaintiff then in paragraph 10 disclose that defendant
no.1/bank sanctioned loan facility of Rs.3 crores in favour of
defendant no. 2 vide sanctioned letter dated 30.11.2020.
44. Paragraphs nos. 11 to 14 of the plaint further show as to how
fraud and collusion exists between defendant nos.1, 3 and 4 with
respect to such loan transaction. Plaintiff has clearly disclosed the
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aspect of fraud and collusion between the bank and defendant nos. 3
and 4 by disclosing that loan was sanctioned even without any
resolution passed by Board of Directors to avail such loan for and on
behalf of the defendant no.2 company. Paragraph 13 of the plaint
would go to show that notice dated 1.12.2020 calling for the board
meeting scheduled on 8.12.2020 shows the Agenda including the one
to discuss availing financial facility from the bank/financial
institution/body corporate etc. Thus it is contention of the plaintiff
that the loan was sanctioned on 30.11.2020 whereas the meeting of
the Board of Directors was called on 8.12.2020.
45. It is the case of the plaintiff that defendant nos.3 and 4
deliberately failed to comply with the conditions of the loan and
allowed the said loan account to become non performing account so
that defendant no.2 company could be shut down and then the entire
business could be taken over by defendant no.3 and 4 who has
already floated separate company having some business with these
pleadings regarding fraud and collusion, it cannot be accepted that
there are no proper or sufficient pleadings alleging collusion between
the bank and defendant nos. 3 and 4. Specific instance is given in the
plaint demonstrating that the loan was sanctioned without having
resolution to that effect.
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46. Mr Kantak, while arguing, would submit that when there are
specific pleadings regarding collusion and fraud, observations of both
the Courts below are clearly perverse.
47. I am in full agreement with the submissions advanced by
learned Senior Counsel Mr Kantak on this aspect. A meaningful
reading of the plaint would clearly go to show that there are specific
and sufficient averments with regard to fraud played by bank along
with defendant nos. 3 and 4 against the petitioner/plaintiff and the
purpose of it. It is difficult to accept such finding of the Courts below
about absence of pleadings. Plaint does not contain mere words such
as fraud/fraudulent etc but it specifically discloses the instances by
which plaintiff is trying to demonstrate as to how such fraud and
collusion exists.
48. The contention of the learned counsel for the respondent that
pleadings regarding fraud are inter se only between plaintiff and
defendant nos.3 and 4, cannot be accepted for simple reason that
there are specific instances and allegations of collusion and fraud
even played by bank/defendant no.1 while sanctioning the loan and
that too without any proper resolution passed by the Board of
Directors of the company. Therefore, averments in the plaint are
supported by document i.e order passed by NCLT would clearly go to
show that prima facie there was mismanagement of the affairs of the
defendant no.2 and also obtaining of a loan thereby securing assets
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in favour of the bank, without following due process of law. With
these averments in the plaint, contentions raised by the respondents
needs to be rejected outright. Similarly observations of both the
Courts on the aspect of absence of specific pleadings regarding fraud
and collusion, are clearly perverse. Record speaks otherwise and
more specifically the pleadings as discussed above. Thus it is clear
from the record and more specifically the prayer, the suit is clearly
maintainable as far as relief is concerned and that too when there are
specific pleadings with regard to fraud and collusion between the
bank and defendant nos. 3 and 4.
49. Besides, the order passed by NCLT dated 24.2.2022 would
show that the application was filed by the present petitioner/plaintiff
claiming to be the director of the company against defendant nos.3, 4
and 5 praying for stay of the board resolution dated 8.11.2022 and
seeking an injunction restraining said defendants from either
disposing of or encumbering in any manner the assets of the said
company. A specific allegation was made that there is collusion
between the respondents/directors who constituted another company
by name Speed International India Pvt. Ltd having the same business
and misappropriated large sums of money of defendant no.2
company. Finally NCLT observed in paragraphs 25, 26 and 27 as
under:-
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"25 The only issue which arises for consideration
is whether it is necessary to restrain
Respondent No. 2 and Respondent No. 3 from
disposing of or encumbering the assets of
Respondent No. 1 company and pass stay of
resolution passed in the Board meeting held
on 08.11.2020.
26 In the given backdrop of events described in
the aforesaid paras, it is established beyond
doubt and the fact that the operations of the
Company has been closed from December
2020, and there are existing disputes pending
between the parties with regard to payment
of commission to the Petitioner and that the
Respondent N 2 and 3 were in negotiation for
sale of their stake in the Company to the
Petitioner and lastly, with regard to the
resolution passed at the Board meeting on
08.11.2021, wherein it was decided to dispose
the assets of the Company, in the absence of
the Petitioner herein, this Bench concludes
that these events demonstrates the acts of
oppression & mismanagement of the
Respondent No.1 Company and the Petitioner
has made out a prima facie case, balance of
convenience in his favor and this court holds
that the Board Resolution dated 8.11.2021, is
prejudicial to the interest of the Company per
se.
27 The Court orders as follows:
a) The Board Resolution dated 08.11.2021 is
stayed.
are restrained from dealing with the assets of
the Respondent Company pending final
disposal of the Company Petition.
c) Mr Ram Ratan Kanoongo, having IBBI No.
IBBI/IPA-001 /IP00070/2017-18/ 10156
having Email [email protected] and
Contact No. 9821031996 is appointed as an
Administrator to take over the control and
management of the affairs of the Company
pending final disposal of the Petition."
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50. The above document attached to the plaint would clearly go to
show that even the resolution passed by the Board of respondent no. 1
company on 8.11.2022 was considered to be prejudicial to the interest
of the company per se and accordingly, it was stayed. Accordingly
respondent nos. 2 and 3 therein were restrained from dealing with
the assets of the company pending the disposal of the said matter.
51. The above averments as well as documents would clearly show
that there are specific pleadings with regard to fraud and collusion
between the bank as well as defendant nos.3 and 4 and thus for that
limited purpose of claim declaring loan facility agreement dated
29.11.2020 and consequently creating of Mortgage i.e secured assets
is a fraud, certainly comes within Section 9 of CPC and to that effect
bar under Section 34 of the SARFAESI Act as discussed in the case of
Mardia Chemicals Ltd (supra) would not be absolute.
52. Even otherwise declaration which is claimed in the suit as
found in the prayer clause (a), cannot be agitated before any other
forum except a Civil Court and that too on specific allegations of
fraud and collusion between the respondent nos. 1, 3 and 4.
53. Matter could have been disposed of on the above aspect itself,
however, since other aspects were also argued with regard to orders
passed by DRT Mumbai under Section 17 of the SARFAESI Act on an
application by the plaintiffs, it is necessary to discuss such aspects
also.
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54. Plaint paragraph 20 further shows that defendant no.1 while
application was pending before the NCLT, approached Additional
Collector South Goa under Section 14 A of the SARFAESI Act seeking
relief to take physical possession of the alleged secured assets of
respondent no.2 company.
55. Plaint paragraph 21 further shows that plaintiff upon learning
of such attempts on the part of defendant no.1, filed an intervention
application before the Additional Collector which was allowed by
order dated 18.5.2023. Defendant no.1 bank took a stand before
Additional Collector that if the plaintiff is aggrieved by such
proceedings under Section 14 of the SARFAESI Act, he should
approach DRT Mumbai. In the meantime, Additional Collector vide
its order dated 26.6.2023 allowed said application and directed
defendant no.1 to take forceful possession of the secured assets from
the Administrator appointed by NCLT Mumbai.
56. Plaintiff then pleaded about the contrary stand taken by the
bank before the Additional Collector to that of one taken before the
DRT Mumbai. Defendant no.1 in the proceedings before DRT
Mumbai took stand that the plaintiff has no locus standi to file
proceedings whereas before the Additional Collector it would claim
that plaintiff if consider himself as aggrieved, shall approach DRT.
57. Plaint paragraph 23 further shows that plaintiff approached
DRT Mumbai by filing an application under Section 17(1) of the
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SARFAESI Act claiming to be the director of defendant no.2
company, challenging the orders passed by Additional Collector for
taking possession. An interim application was also filed to restrain
Additional Collector or the bank from taking forceful possession. It
further shows that DRT Mumbai vide its order dated 18.8.2023
rejected the application filed by the plaintiff on the ground that
plaintiff has no locus to approach DRT as he is merely a shareholder.
58. Plaint further shows that the plaintiff filed an appeal before the
DRAT challenging the order dated 18.8.2023 however, it is also
pleaded that the plaintiff is taking appropriate steps to withdraw the
said appeal since the suit was filed and that defendant no.1 had
forcefully taken the possession on 21.8.2023 from the Administrator.
59. It is the contention of Mr Kantak that when the plaintiff
approached DRT Mumbai with an application under Section 17(1) of
SARFAESI Act, the same was rejected on the ground that plaintiff has
no locus to approach DRT.
60. It is the contention of Mr Kantak that application under
Section 17 could be filed by any person including a borrower,
aggrieved by any of the measures referred to in sub Section (4) of
Section 13 taken by the secured creditor. He submits that Section
13(4) of the SARFAESI Act gives powers to the secured creditor to
take necessary steps in case the borrower fails to discharge his
liability in full within the specified period.
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61. It is the contention of Mr Kantak that as per DRT, plaintiff is
not an aggrieved person in respect of any action taken under Section
13(4) and therefore bar under Section 34 of the SARFAESI Act will
not apply to the plaintiff. According to Mr Kantak since the plaintiff is
considered as not having locus to challenge the proceedings under
Section 17 of the Act, contention raised by the plaintiff is not covered
under Section 13(4) and hence bar under Section 34 of the
SARFAESI Act is not attracted.
62. Submission of Mr Kantak certainly requires consideration as
the plaintiff approached the authority under the DRT challenging the
action taken by Additional Collector on an application filed by
defendant no.1 bank under Section 14 of the SARFAESI Act.
63. Section 34 of the said Act reads thus:-
"Civil Court not to have jurisdiction- No Civil Court
shall have jurisdiction to entertain any suit or
proceeding in respect of any matter which a Debts
Recovery Tribunal or the Appellate Tribunal is
empowered by or under this Act to determine and no
injunction shall be granted by any Court or other
authority in respect of any action taken or to be
taken in pursuance of any power conferred by or
under this Act or under the Recovery of Debts Due to
Banks and Financial Institutions Act, 1993 (51 of
1993)."
64. The contention of Mr Kantak needs to be accepted since the
language used in Section 34 to attract bar is with regard to any suit or
proceeding in respect of any matter which a Debts Recovery Tribunal
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or the Appellate Tribunal is empowered by or under this Act to
determine.
65. The question of fraud and collusion and the relief claimed in
the suit of declaration that the loan facility and the mortgage created
in favour of defendant no.1 is a nullity, is certainly not coming within
the jurisdiction of DRT or under the SARFAESI Act. Such declaration
is only permissible under the Specific Relief Act.
66. At this stage, the Court is duty bound to consider only the
plaint and the documents relied therein. No document relied upon
by the defendant could be looked into. The contention of Mr Kantak
that the First Appellate Court in paragraph 25 relied upon the
document produced by the defendants appears to be correct. A
careful reading of the plaint and list of documents would go to show
that such documents cannot be considered as contrary to the
pleadings.
67. Mr Lotlikar appearing for the bank tried to demonstrate that
there was a resolution passed by the Board of Directors, prior to
sanction of the loan. However, such document cannot be looked into
for the purpose of deciding an application under Order VII Rule 11 of
CPC and that too for rejecting a plaint. It is not at all the case of the
defendant that by clever drafting, the plaintiff deliberately suppressed
the vital document from the Court. It is also not the case of the
defendants that for the purpose of passing of such resolution as
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alleged, plaintiff was also present being one of the directors. Thus
such contention on behalf of the defendants cannot be looked into.
68. Mr Desai appearing for the respondent no. 5 strongly contented
that there is no point in allowing such plaint to retain since it would
be futile exercise and even otherwise there is finding on the part of
DRT that the plaintiff is not having any locus to challenge it. He
would submit that plaintiff being one of the shareholders cannot
claim ownership over the company and its assets and therefore, he
has no locus even to challenge loan translation.
69. It is necessary to note here that the main contention of
defendant no.1/bank in filing an application under Order VII Rule 11
of CPC is that the suit is barred under Section 34 of the SARFAESI
Act. It would go to show that only ground for rejection of the plaint is
as far as Section 34 of the SARFAESI Act. Arguments were advanced
before both the Courts below is about such bar under Section 34.
Admittedly no application is filed on behalf of the defendant no. 5 for
rejection of plaint. Only because DRT in its order observed that
plaintiff is not having locus to approach said authority, it does not lie
in the mouth of defendant no. 5 to claim that that plaintiff is also not
having any locus to file the suit. Accordingly, such contention raised,
cannot be accepted.
70. In the case of Bank of Baroda (supra), the Division Bench of
this Court answered the reference made to it which reads thus:-
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"Whether the jurisdiction of a Civil Court to decide
all the matters of civil nature, excluding those to be
tried by the Debts Recovery Tribunal under Section
17 of the Securitisation Act, in relation to
enforcement of security interest of a secured
creditor, is barred by Section 34 of the
Securitisation Act?"
71. After discussing the various decisions together with the object
and the purpose of said Act as well as DRT Act, answer to the
reference is as under:-
"The answer, looking to the nature of the question, in
our view, is in parts :-
(A) Jurisdiction of the Debts Recovery Tribunal, to
decide all matters relating to Section 13 and 17 of the
SARFAESI Act, is exclusive.
(B) In all cases, where the title to the property, in
respect of which a 'security interest', has been
created in favour of the Bank or Financial
Institution, stands in the name of the borrower
and/or guarantor, and the borrower has availed the
financial assistance, it would be only the DRT which
would have exclusive jurisdiction to try such
matters, to the total exclusion of the Civil Court. Any
pleas as raised by the borrowers or guarantors, vis-
a-vis the security interest, will have to be determined
by the DRT.
(C) The jurisdiction of the Civil Court to decide all the
matters of civil nature, excluding those to be tried by
the Debts Recovery Tribunal under Section 13 and 17
of the SARFAESI Act, in relation to enforcement of
security interest of a secured creditor, is not barred
by Section 34 of the SARFAESI Act.
(D) Where civil rights of persons other than the
borrower(s) or guarantor (s) are involved, the Civil
Court would have jurisdiction, that too, when it is
prima facie apparent from the face of record that the
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relief claimed, is incapable of being decided by the
DRT, under Section 17 of the DRT Act, 1993 read
with Section 13 and 17 of the SARFAESI Act.
(E) Even in cases where the enforcement of a
security interest involves issues as indicated in
Mardia Chemicals (supra) of fraud as established
within the parameters laid down in A. Ayyasamy
(supra) ; a claim of discharge by a guarantor under
Sections 133 and 135 of the Contract Act [Mardia
Chemicals (supra)]; a claim of discharge by a
guarantor under Sections 139, 142 and 143 of the
Contract Act; Marshaling under Section 56 of the
Transfer of property Act [J. P. Builders (supra)]; the
Civil Court shall have jurisdiction.
(F) Examples as indicated in para 22.3, are
illustrative of the Civil Court's jurisdiction.
(G) The principles laid down in para 33 (i) to (ix) of
Sagar Pramod Deshmukh (supra) are in accordance
with what we have discussed and held above."
72. Answers recorded in the above and more specifically (C ), (D)
and (E) would clearly help the petitioners in the present proceedings.
73. The above observations of the Division Bench of this Court are
therefore certainly binding while deciding the present matter.
74. Mr Desai while placing reliance in the case of Crosscraft
Private Ltd (supra) tried to submit that there is clear bar under
Section 34 of the SARFAESI Act and since the DRT has already
observed that the plaintiff is not having any locus, there will be a
futile exercise in allowing the present petition and asking the trial
Court to decide the suit on merits. In this respect he would try to
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submit that the Apex Court clearly observed in paragraph 13 in the
case of Crosscraft Private Ltd (supra) that the suit is not
maintainable against the secured creditors and auction purchaser.
75. In the case of Crosscraft Private Ltd (supra) the challenge
was to the action of Magistrate under Section 14 of the SARFAESI
Act, the Division Bench of this Court observed that the action under
Section 14 of the SARFAESI Act is in aid and assistance to the bank to
attach and to take possession of the secured assets as provided under
Section 13(4) of the SARFAESI Act, without intervention of the Court.
Thus, it is clear that matter in Cross Craft Private Ltd(supra) is on a
different aspect whereas the suit filed by the plaintiff is challenging
sanction of a loan and that too by collusion and fraud between the
secured creditors and directors of defendant no. 2 company.
76. Another contention of Mr Desai that since DRT has accepted
that the plaintiff has no locus, it would be a waste of time to allow the
suit to go on. He would submit that by clever drafting the plaintiff is
trying to challenge loan agreement where in fact possession of the
secured creditors is already taken and an auction was conducted
wherein defendant no. 5 is a successful purchaser. He claimed that
at this stage, DRT considered that the plaintiff is not having any right
to the property of the company being only a shareholder, thus the suit
itself needs to be thrown out.
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77. Submission of Mr Desai, at the first instance looks to be
impressive however, it is a fact that an application for rejection of the
plaint is filed by defendant no.1/secured creditors on the ground that
the plaint is barred by law under Section 34 of the SARFAESI Act.
78. Application for rejection of plaint is not on any ground of locus
of plaintiff. Thus the above submission and that too in a writ petition
cannot be entertained as tried to be projected by Mr Desai.
79. In the case of Garment Craft(supra), the Apex Court while
considering the powers of High Court under Article 227 of the
Constitution of India observed that High Court while exercising
supervisory jurisdiction does not act as a Court of first appeal to re-
appreciate, reweigh the evidence or facts upon which the
determination under challenge is based. Supervisory jurisdiction is
not to correct every error of fact or even a legal flaw when the final
finding is justified or can be supported. The High Court is not to
substitute its own decision on facts and conclusion. The jurisdiction
exercised is in the nature of correctional jurisdiction to set right grave
dereliction of duty or flagrant abuse, violation of fundamental
principles of law or justice. The power under Article 227 is exercised
sparingly in appropriate cases, like when there is no evidence at all to
justify, or the finding is so perverse that no reasonable person can
possibly come to such a conclusion that the Court or Tribunal has
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come to. It is axiomatic that such discretionary relief must be
exercised to ensure that there is no miscarriage of justice.
80. Applying the above proposition to the matter in hand, one
thing is clear that by rejecting a plaint when there are specific
pleadings regarding fraud and collusion by giving specific instances,
there by applying Section 34 of the SARFAESI Act, clearly amounting
to miscarriage of justice.
81. Plaintiff/petitioner was thrown out as having no locus to
challenge the action of the secured creditors under Section 17 of the
SARFAESI Act. Now by the impugned order plaintiff/petitioner is
thrown out at the initial stage by a Civil Court thereby practically
preventing the plaintiff from having any remedy available to him
against the action of the secured creditors.
82. Application filed before the trial Court is only on the ground
that the suit is barred by law. Once it is observed that there is a
window available to the plaintiff though limited as found out in the
case of Mardia Chemicals Ltd (supra), the impugned order
certainly needs interference in the supervisory jurisdiction of this
Court to prevent injustice being caused to a party who is having no
remedy against the action of the secured creditors.
83. Secondly, the application was not filed on any other grounds.
Besides both the Courts below did not reject the plaint on any other
ground except that it is barred by law and therefore, in a writ petition
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or in a supervisory jurisdiction, it is not permissible for this Court to
look into any other ground for rejecting the paint.
84. Having concluded that the plaint cannot be rejected and bar
created under Section 34 of the SARFAESI Act cannot be applied to
the averments in the plaint, option available to this Court is to quash
and set aside both the orders of the trial Court thereby restoring the
plaint to the file of Commercial Court to be decided in accordance
with law.
85. For all the above reasons, both the impugned orders are hereby
quashed and set aside, plaint in Commercial Suit is restored.
86. Rule is made absolute in the above terms. No cost.
BHARAT P. DESHPANDE, J.
15th October 2024
