Mrs. Sunayana Malhotra & Ors. vs Icici Bank
2009 Latest Caselaw 4017 Del

     *IN THE HIGH COURT OF DELHI AT NEW DELHI


+                    IA No.5814/2009 in CS(OS)No.527/2009


%                                       Date of decision: 06.10.2009


MRS. SUNAYANA MALHOTRA & ORS.                                ....Plaintiffs
                             Through: Y.P. Narula, Sr. Advocate with Ms.
                                      Sugandha Anand, Advocate


                                       Versus



ICICI BANK                                                  ... Defendant

                             Through: Mr. Paras Khattar, Advocate.


CORAM :-
HON'BLE MR. JUSTICE RAJIV SAHAI ENDLAW

1.     Whether reporters of Local papers may
       be allowed to see the judgment?   Yes

2.     To be referred to the reporter or not?        Yes

3.     Whether the judgment should be reported
       in the Digest? Yes


RAJIV SAHAI ENDLAW, J.

1. Application of the defendant under Order 7 Rule 11 of the CPC

for rejection of the plaint for the reason of the relief claimed in the

suit being barred by Section 18 of the Recovery of Debts Due to

Banks & Financial Institutions Act, 1993 (DRT Act) r/w Section 34 of

the Securitization & Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002 (Securitization Act) is for

consideration.

2. The plaintiffs have instituted the suit for declaration and

permanent injunction. They have pleaded that they along with others

had promoted M/s Sudarshan Consolidated Limited since known as

M/s Willy Agrotech Limited; that the said company had obtained

certain credit limits from the defendant and had executed the loan

documents in favour of the defendant bank; that the plaintiffs had

also executed personal guarantees in favour of the defendant; that

the plaintiffs have sold their shareholding in the company and have

resigned from the Board of Directors of the company and are left

with no concern with the company; that the defendant had got issued

notice dated 31st December, 2008 claiming the plaintiffs to be jointly

and severally liable for the debts of the company; that the plaintiffs

are not so liable for the debts of the company not only for the reason

of having transferred their shares and resigned from the Board of

Directors of the company but also for the reason of the defendant

having altered the terms & conditions of the credit facility with the

company. The plaintiffs have further pleaded that notwithstanding

the aforesaid and in breach of the RBI guidelines with regard to

"willful defaulters", the defendant had threatened to declare the

plaintiffs as willful defaulters and which would interfere with the

plaintiffs' right to carry on other businesses. The plaintiffs have

claimed the relief of declaration that the personal guarantees

executed by the plaintiffs in favour of the defendant stand

discharged, the relief of perpetual injunction restraining the

defendant from invoking the personal guarantees and for mandatory

injunction directing the defendant to produce the documents of

personal guarantee and for cancellation thereof.

3. The suit came up first before this court on 20th March, 2009

when the senior counsel for the plaintiffs was asked to satisfy the

court as to how the reliefs claimed in the suit were not barred by the

DRT Act. On the next date i.e. 24th March, 2009, the counsel for the

defendant appeared and sought time to file the written statement. In

the circumstances, the plaint was registered as a suit. On the

application of the plaintiffs for interim relief the defendant was

restrained from declaring the plaintiff as willful defaulters, subject to

the condition that the plaintiffs shall not alienate any of their

immovable property save in the normal course of business and not

deal with/conduct their affairs to the detriment of the defendant.

The plaintiffs were also directed to file list of their assets in the

court. Thereafter, the application under consideration was filed.

Since it involved only legal questions, arguments thereon were heard

without calling for a reply. The senior counsel for the plaintiffs on 1 st

May, 2009 also clarified that the interim order restraining the

defendant from declaring the plaintiffs as defaulters was not

intended to be an embargo to the defendant initiating proceedings

against the plaintiffs before DRT. It was further clarified that in the

event of the defendant initiating proceedings against the plaintiffs

before DRT, the plaintiffs shall not before the DRT take up the plea

of those proceedings being not maintainable owing to pendency of

this suit. The interim order was clarified accordingly.

4. The matter does not require detailed discussion in view of the

judgment of the Supreme Court in Nahar Industrial Enterprises

Ltd. Vs. Hong Kong and Shanghai Banking Corporation

MANU/SC/1330/2009 pronounced since the orders were reserved in

the present case. The Supreme Court has held that no independent

proceedings can be initiated by a debtor before DRT; a debtor under

the common law of contract as also in terms of the agreement may

have an independent right; no forum has been created for

endorsement of that right - jurisdiction of civil court is barred only in

respect of matters which strictly come within the purview of Section

17 of DRT Act and not beyond the same; the civil court therefore will

continue to have jurisdiction; that even a set off or a counter claim

permitted to be raised under sub Sections 6 to 11 of Section 19 of

the DRT Act can be lodged only if the proceedings have been

initiated by a bank; such set off or counter claim can also be directed

to be instituted in civil court on an application of the bank; an order

of injunction for attachment or appointment of a receiver can be

initiated only at the instance of the bank; DRT can issue a certificate

only for recoveries of dues of a bank - it cannot pass a decree; that

the statutory provisions contained in Sections 17 & 18 of DRT Act

cannot be said to have ousted the jurisdiction of the civil court qua

the suits filed by the debtor - the jurisdiction of the civil court is

barred in relation only to the applications from the bank or recovery

of debts due to such bank; that the jurisdiction of a civil court is

preemptive in nature - unless the same is ousted expressly or by

necessary indication it will have jurisdiction to try all types of suits;

that the possibility of a debtor filing a preemptive suit and obtaining

orders of injunction cannot be ruled out but that by itself cannot be a

ground for ousting the jurisdiction of the civil court. The court

quoted portion of judgment in Indian Bank Vs. A.B.S. Marine

Products Pvt. Ltd. AIR 2006 SC 1899 laying down that Sections 17 &

18 of DRT Act had not been amended and jurisdiction had not been

conferred on DRT even after amendment of Section 19 to try

independent suits or proceedings initiated by borrowers or others

against Banks/Financial Institutions; nor the jurisdiction of civil court

barred in regard to such suits/proceedings.

5. In the light of the aforesaid dicta, the plea for rejection of the

plaint in so far as on the ground of the relief claimed therein being

barred by Section 18 of DRT Act is not tenable and is rejected. It is

significant to note that the plaintiffs have in the plaint para 14

expressly stated that no proceeding for recovery had been filed by

the defendant against them till the institution of the suit. The

defendant in the application under Order 7 Rule 11 of the CPC has

not stated having filed any proceeding against the plaintiffs before

DRT. For this reason also the question of the plaintiffs being entitled

to make any counter claim against the defendant before DRT under

the provisions of Section 19 (6) to (11) of DRT Act does not arise.

6. That leaves for consideration the ground of rejection of the

plaint owing to the bar of Section 34 of the Securitization Act. The

said provision was not under consideration in Nahar Industrial

Enterprises Ltd. aforesaid.

7. Section 34 of the Securitization Act bars the jurisdiction of the

civil court to entertain any suit or proceeding (i) in respect of any

matter which DRT is empowered by or under the Securitization Act

to determine and (ii) prohibits the civil court from issuing any

injunction in respect of any action taken or to be taken in pursuance

of any power conferred by or under the Securitization Act or under

the DRT Act.

8. Section 13 of the Securitization Act provides for enforcement

of a "security interest" created in favour of any secured creditor.

Section 2(1)(zf) defines "security interest" as any right title and

interest of any kind whatsoever upon property created in favour of

any secured creditor and includes a mortgage, charge hypothecation

and assignment. Section 17 provides for appeal to the DRT against a

measure of enforcement of "security interest" under Section 13 of

the Act. Thus the DRT under the Securitization Act is empowered to

determine the validity of the measure of enforcement of "security

interest" under the said Act.

9. The defendant in the application under consideration has

nowhere pleaded that it has any "security interest" over any

property of the plaintiffs or that the plaintiffs have created any

mortgage, charge, hypothecation or assignment of any of their

properties in favour of the defendant. On the contrary, the defendant

has in the application repeatedly averred that the plaintiffs had

furnished "personal guarantees" to secure the defendant qua the

liability of the company. Thus the question of any matter which DRT

is empowered by or under Securitization Act to determine does not

arise. Thus of the two limbs carved out herein above of Section 34 of

the Securitization Act the first is not applicable.

10. The second limb prohibits the civil court from granting any

injunction in respect of any action taken or to be taken in pursuance

of any powers under the Securitization Act or the DRT Act. In the

absence of any plea of any "security interest" having been created by

the plaintiffs in favour of the defendant, the question of the

defendant taking any action against the plaintiffs under the

Securitization Act does not arise. As far as the prohibition with

respect to any action to be taken by the defendant against the

plaintiffs under or in pursuance to the DRT Act is concerned, the

senior counsel for the plaintiffs has already made a statement that in

the event of the defendant initiating any proceedings against the

plaintiffs before DRT the plaintiffs shall not set up a plea of the same

being not maintainable owing to the pendency of the present suit.

Even otherwise in the suit no relief restraining the defendant from

taking any action under the DRT Act has been claimed.

11. I may however record that the possibility of a conflict in the

judgment of this court in this suit and of the order of the DRT in the

proceedings, if any, initiated by the defendant against the plaintiffs

before the DRT cannot be ruled out. The relief claimed by the

plaintiffs in this suit if granted would tantamount to holding the

plaintiffs not liable for any claims of the defendant against the

company. In the event of proceedings against the plaintiffs being

initiated before the DRT, the DRT would also be called upon to

decide whether the guarantees furnished by the plaintiffs stand

discharged or not. It is this aspect which had bothered this court in

even admitting the suit. However, I find Nahar Industrial

Enterprises Ltd. to have dealt with this aspect of the matter also. It

has in paras 44 & 45 of the judgment referred to judgment of this

court in Cofex Exports Ltd. Vs. Canara Bank AIR 1997 Delhi 355.

This court had held that finality shall attach to the findings arrived at

and reached by each of the two within its respective jurisdictional

competence; issues heard and decided by the DRT shall operate as

res judicata and shall bind the parties in the suit - however the civil

court shall be free to decide such issues as lie within its jurisdictional

competence and if the civil court must decide an issue seized by it

and within its competence and if there be an unavoidable conflict

between the findings of civil court and the DRT, the findings of the

civil court would override and supercede the findings of DRT. It thus

appears that in such eventuality, if the civil court has decided the

matter first, the finding of the civil court would be binding on the

DRT.

12. I, therefore, do not find any merit in the application. The same

is dismissed, however no order as to costs.

RAJIV SAHAI ENDLAW (JUDGE)

October 6th , 2009 PP