Karnataka High Court
B A Varadarajachar vs The Lakshmi Vilas Bank Ltd on 15 February, 2022
Bench: Ravi V Hosmani
1
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 15TH DAY OF FEBRUARY, 2022
BEFORE
THE HON'BLE MR. JUSTICE RAVI V. HOSMANI
R.F.A.NO.421 OF 2020 (DEC/INJ)
BETWEEN:
SRI. B. A. VARADARAJACHAR
S/O ANJANEYACHAR
AGED ABOUT 59 YEARS
R/AT NO.45, BANASWADI MAIN ROAD
KRISHNARAJAPURAM HOBLI
BANGALORE 560 043. ...APPELLANT
[BY SRI. MADHUKAR M. DESHPANDE, ADVOCATE (VC)]
AND:
1. THE LAKSHMI VILAS BANK LTD
A BANKING COMPANY WITHIN THE MEANING OF
BANKING REGULATION ACT, 1949
HAVING ITS REGISTERED OFFICE AT KARURU
TAMIL NADU 639 006 AND HAVING ITS
BRANCH AT KORAMANGALA NO.68
JYOTHI NIVAS COLLEGE ROAD, 5TH BLOCK
KORAMANGALA, BANGALORE 560 095
REPRESENTED BY ITS BRANCH MANAGER.
2. RELIANCE ASSET RECONSTRUCTION COMPANY LTD
A COMAPNY AS PER THE COMPANIES ACT, 2013
REGISTERED AS AN ASSET RECONSTRUCTION
COMPANY UNDER SECTION 3 OF SARFAESI ACT, 2002
HAVING ITS OFFICE AT RELIANCE CENTER
NORHT WING, 6TH FLOOR
OFF WESTERN EXPRESS HIGHWAY
SANTACRUZ (EAST), MUMBAI 400 055.
REPRESENTED BY ITS MANAGING DIRECTOR.
2
3. M/S SUJAN PRECISION COMPONENTS PRIVATE LIMITED
A COMPANY INCORPORATED UNDER THE
PROVISIONS OF THE COMAPNIES ACT, 1956
HAVING ITS REGISTERED OFFICE AT NO.158
6TH CROSS, 5TH MAIN, BOMMASANDRA INDL. AREA
BANGALORE 560 099.
REPRESENTED BY ITS MANAGING DIRECTOR
SRI B.S. PADMANABHACHAR.
4. SRI.B.S. PADMANABHACHAR
S/O SRINIVASACHAR .B
AGED ABOUT 42 YEARS
R/AT NO.2, KALARAVA PARISARA
19TH CROSS, KASHI MUTT ROAD
MALLESHWARAM, BANGALORE 560 055.
5. SMT. BHARATHI PADMANABHACHAR
W/O B.S. PADMANABHACHAR
AGED ABOUT 38 YEARS
R/AT NO.2, KALARAVA PARISARA
19TH CROSS, KASHI MUTT ROAD,
MALLESHWARAM, BANGALORE 560 055.
6. SMT. V. KOUSHALYA
W/O R. SHARAVANA
AGED ABOUT 46 YEARS
NO.251, 1ST FLOOR
DODDABANASAWADI MAIN ROAD,
BENGALURU 560 043. ...RESPONDENTS
[BY SRI. U.S.YOGESH KUMAR, ADVOCATE FOR R1 V/O DATED
08.03.2021; SRI. SURYANARAYAN RAO M.S., ADVOCATE FOR C/R2
(C.P.NO.247/2020), NOTICE TO R3 TO R6 IS DISPENSED WITH]
THIS R.F.A IS FILED UNDER SECTION 96 OF CPC., 1908 AGAINST
THE JUDGMENT AND DECREE DATED 04.01.2020 PASSED ON I.A.NO.4 IN
O.S. NO.688/2019 ON THE FILE OF THE XXXV ADDITIONAL CITY CIVIL
AND SESSIONS JUDGE, BENGALURU, DISMISSING THE SUIT AS NOT
MAINTAINABLE AND DISPOSING THE I.A.NO.4 FILED UNDER ORDER 7
RULE 11 OF CPC.,
3
THIS APPEAL HAVING BEEN HEARD AND RESERVED FOR
JUDGMENT ON 21.09.2021, THIS DAY, THE COURT PRONOUNCED THE
FOLLOWING:
JUDGMENT
Challenging judgment and decree dated 04.01.2020 passed
by XXXV Additional City Civil and Sessions Judge, Bengaluru (CCH-
36) in O.S.No.688/2019, this appeal is filed.
2. Appellant was plaintiff; while respondents herein were
defendants no.1 to 6 respectively (Hereinafter referred to as per
their ranks before trial Court).
3. Brief facts as stated are that, plaintiff filed
O.S.No.688/2019 against defendants seeking for a decree to
declare documents mentioned in schedule - B as void and illegal
and to declare that plaintiff is discharged from guarantee and
surety given by him to defendant no.1 - Bank for repayment of loan
granted to defendant no.3 and that schedule - 'A' property is not
available as security for repayment of loan availed by defendant
no.3 from defendant no.1 - Bank and for permanent injunction
against defendants no.1 and 2 from taking any coercive action
against plaintiff and from alienating suit schedule property etc. In
plaint, it was stated that plaintiff is owner of property bearing
Sy.No.250, Municipal No.251, Old No.499/7, PID No.88-12-251
measuring 7159 Sq. ft. with building, (referred to as 'schedule
property' for short), situated at main road, Banasawadi within
jurisdiction of Bruhat Bengaluru Mahanagara Palike ('BBMP' for
short). Said property had fallen to share of plaintiff in terms of
compromise decree dated 29.01.1999 passed in
O.S.No.10331/1995. Thereafter plaintiff was in possession of same.
4. Defendant no.3 was a company incorporated under
Companies Act. Defendant no.4 was it's director and defendant no.5
was his wife. Defendant no.6 was a tenant of plaintiff occupying a
portion of schedule - 'A' property. Defendant no.1 - a scheduled
Bank and defendant no.2 - an Asset Reconstruction Company &
assignee of defendant no.1. During 2010, defendant no.3
represented by defendant no.4 approached defendant no.1 for
financial assistance for its business. Defendant no.1 provided term
loan of Rs.130.00 lakhs to defendant no.3. It also provided Open
Cash Credit Limit ('OCCL' for short) of Rs.300.00 lakhs in favour of
defendant no.3 against hypothecation of raw-materials, work in
progress, finished goods and book debts. OCCL was secured against
personal guarantee of defendants no.4 and 5. It was specifically
asserted by plaintiff that plaintiff had not executed any letter of
guarantee in favour of defendant no.1. He also did not pledge suit
schedule property as security to defendant no.1 for loan/credit limit
extended to defendant no.3.
5. Even when term loan sanctioned by defendant no.1 to
defendant no.3 was increased to Rs.430.00 lakhs, plaintiff did not
offer schedule property as security to defendant no. 1 - Bank. He
also did not execute any letter of guarantee.
6. During July, 2011, defendant no.1 - bank provided
further OCCL of Rs.450.00 lakhs to defendant no.3 i.e., a total
OCCL of Rs.750.00 lakhs (Rs.300.00 lakhs + Rs.450.00 lakhs). It
was stated that at the instance of defendant no.3 and defendant
no.4, plaintiff executed letter of guarantee dated 16.07.2011 and
stood as guarantor for repayment of OCCL of Rs.750.00 lakhs. He
also executed registered memorandum of deposit of title deeds on
25.07.2011 mortgaging suit schedule property in favour of
defendant no.1 for repayment of OCCL of Rs.750.00 lakhs. It was
further stated that during August 2012, plaintiff addressed a letter
to defendant no.1 for the purposes of Section 18 of Indian
Limitation Act.
7. However, it is alleged that defendant no.1 in collusion
with defendant no.3 falsely mentioned in the letter that plaintiff had
executed guarantee agreement dated 29.09.2010 in favour of
defendant no.1. It is alleged that this amounted to material
alteration and variation of terms of agreement.
8. Thereafter, it is stated that defendant no.1 sanctioned
further additional term loan without knowledge or notice of plaintiff.
In order to bind plaintiff to this additional liability several
documents were concocted by fabricating signature of plaintiff, by
defendant no.3 represented by defendant no.4 in collusion with
officers of defendant no.1. Above fraudulent acts came to notice of
plaintiff during February 2015, when a news item was published in
Kannada Prabha Daily Newspaper that defendant nos. 4 and 5
defrauded several persons. Plaintiff also lodged a complaint with
Malleshwaram police station on 20.02.2015 against defendants no.4
and 5. After investigation, City Crime Branch filed charge sheet on
23.10.2018 in C.C.No.28420/2018 before IV ACMM, Bengaluru
alleging that officers of defendant no.1 granted additional loan
facility without knowledge of plaintiff. Plaintiff obtained copy of
charge sheet and documents on 05.11.2018. It was further stated
in the plaint that defendant no.1 in the interregnum filed
O.A.No.173/2015 before Debts Recovery Tribunal ('DRT' for short),
Bengaluru against plaintiff, defendants no.3, 4 and 5 etc., seeking
for issuance of recovery certificate. It was further stated that based
on created, fabricated and concocted documents, defendant no.1
issued demand notice under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act ('SARFAESI Act' for short) on 14.01.2015 against
various persons including plaintiff. Thereafter, on 23.10.2018,
defendant no.2 obtained order under Section 14 of SARFAESI Act
from ACMM, Bengaluru in Crl.Misc.No.50252/2018, based on the
same fabricated and concocted documents. As entire transaction
between defendant no.1 and defendants no.3, 4 and 5 were
collusive and based on concocted documents and liability was
sought to be foisted on to the plaintiff, plaintiff was entitled for
decree as sought for.
9. In the plaint, plaintiff made specific allegations of fraud,
concoction and fabrication of documents to cause financial liability
on plaintiff illegally in collusion with officials of defendant no.1 by
defendants no.3, 4 and 5 which stood vindicated in the charge
sheet filed by police.
10. Defendant no.1 filed written statement denying
allegations made by plaintiff. It was asserted that defendants no.3
and 4 obtained financial assistance from bank by executing all
necessary loan documents and plaintiff had also executed
documents offering himself as guarantor. It was specifically stated
that plaintiff had executed memorandum of deposit of title deed
dated 25.07.2011 by creating security interest over schedule
property for enhanced loan of Rs.750.00 lakhs. It was further
stated that plaintiff had consciously executed letter of guarantee on
16.07.2011 in consonance of the above. Defendant no.1 specifically
denied allegations of fraud, collusion and fabrication or concoction
of any documents by its officials. It stated that it had already
assigned security interest in favour of defendant no.2 and
defendant no.2 was proceeding against plaintiff under the
provisions of SARFAESI Act. It was further specifically stated that as
defendant no.2 had initiated measures under Section 13(4) of
SARFAESI Act and also obtained an order under Section 14, as
admitted in the plaint, suit was not maintainable and barred under
Section 34 of SARFAESI Act.
11. Defendant no.2 - the assignee, filed separate written
statement. It contended that suit was not maintainable in law and
was barred by Section 34 of SARFAESI Act. It was stated that in
relation to the very same transaction, defendant no.1 filed
O.A.No.173/2015 before DRT, Bengaluru, against plaintiff and
defendants no.3 to 6 which was pending. It was further stated that
it had filed Crl.Misc.P.No.50252/2018 under Section 14 of
SARFAESI Act which was allowed on 23.10.2018 and physical
possession was taken through process of Court on 18.12.2018 and
secured asset was liable to be sold through auction for recovery of
secured debt. Though plaintiff was aware of the proceedings,
instead of approaching DRT, filed the instant suit which was not
maintainable and filed only with a view to scuttle, distract and
protract legal proceedings.
12. Along with its written statement, defendant no.2 filed
application under Order VII Rule 11 of CPC for rejection of plaint on
the ground that jurisdiction of the Civil Court was barred from
entertaining grievances over which the DRT or the Appellate
Tribunal had exclusive jurisdiction under Section 34 of SARFAESI
Act. Said application was numbered as I.A.No.4.
13. Plaintiff filed objections to I.A.No.4. It was contended
that as plaintiff was seeking for relief of declaration of discharge
from guarantee and surety, only Civil Court had jurisdiction. It was
further stated that question of fraud was required to be decided
only by Civil Court and as plaintiff was not challenging proceedings
initiated under Section 13 and 14 of SARFAESI Act, it was not
required to avail remedy available under Section 17 of the Act.
14. Based on pleadings, trial Court framed following
issues:-
1. Whether suit of the plaintiff is
maintainable in view of Section 34 of
SARFAESI Act?
2. Whether plaintiff is entitled for suit
reliefs?
3. What order or decree?
15. After hearing learned counsel for plaintiff and
defendants no.1 and 2 and also on issue no.1 and I.A.No.4, trial
court proceeded to answer issue no.1 in negative and dismissed the
suit as not maintainable. Aggrieved by said order, plaintiff is in
appeal.
16. At the out set, Sri. Madhukar Deshpande, learned
counsel for plaintiff/appellant submitted that following propositions
arose for consideration in this appeal:
1) The bar under Section 34 of SARFAESI Act would not
apply to cases falling within the exception as indicated
by the Hon'ble Supreme Court in Mardia Chemicals
Ltd. Vs. Union of India reported in (2004) 4 SCC
311 and Civil Suit would be maintainable even if suit
involves questions regarding enforcement of security
interest.
2) Debt Recovery Tribunal cannot be equated with Civil
Court and no declaratory relief can be granted by Debt
Recovery Tribunal.
3) Plaint cannot be rejected in respect of one or some of
defendants. It either has to be rejected as a whole
against all defendants or Order VII Rule 11 of CPC
would not apply.
17. Elaborating his submissions, learned counsel submitted
that plaintiff in paragraphs no.10 to 24 of plaint provided particulars
of manner in which plaintiff was defrauded by defendants no.3 to 5
in collusion with defendant no.1. The pleadings would meet the
requirements of Order VI Rule 4 of CPC. Plaintiff had further
narrated events that led to discharge of plaintiff from liability in
view of Sections 133 and 135 of the Contract Act. Plaintiff had also
very clearly stated cause of action for filing the suit. As plaintiff had
raised issues of fraud committed by defendants against plaintiff, he
sought declaratory relief referable to Sections 34 and 38 of Specific
Relief Act. Above facts would clearly fall within the exception stated
in Mardia Chemical's case (supra) and suit would be maintainable.
18. On the other hand defendants no.1 and 2 baldly denied
plaintiff's assertion regarding fraud and discharge. Though plaintiff
produced charge sheet filed by jurisdictional police against
defendants for playing fraud on plaintiff and though involvement of
officials of defendant no.1 was yet to be investigated, trial Court
proceeded to disbelieve plaintiff's assertion merely on the basis of
bare denial by defendants no.1 and 2. The question regarding
practice of fraud on plaintiff would require evidence to be led.
However, without subjecting the cause to trial, trial Court dismissed
plaint and thereby committed jurisdictional error. In support of his
proposition learned counsel relied upon paragraphs 51, 53 and 80
of Mardia Chemical's case (supra)
"51. However, 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 his 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. We find such a scope
having been recognized in the two decisions of the
Madras High Court which have been relied upon heavily
by the learned Attorney General as well appearing for
the Union of India, namely, V. Narasimhachariar [AIR
1955 Mad 135] , AIR at pp. 141 and 144, a judgment of
the learned Single Judge where it is observed as follows
in para 22 : (AIR p. 143)
"22. The remedies of a mortgagor against the
mortgagee who is acting in violation of the
rights, duties and obligations are twofold in
character. The mortgagor can come to the court
before sale with an injunction for staying the
sale if there are materials to show that the
power of sale is being exercised in a fraudulent
or improper manner contrary to the terms of the
mortgage. But the pleadings in an action for
restraining a sale by mortgagee must clearly
disclose a fraud or irregularity on the basis of
which relief is sought : Adams v. Scott [(1859) 7
WR 213, 249] . I need not point out that this
restraint on the exercise of the power of sale will
be exercised by courts only under the limited
circumstances mentioned above because
otherwise to grant such an injunction would be
to cancel one of the clauses of the deed to which
both the parties had agreed and annul one of
the chief securities on which persons advancing
moneys on mortgages rely. (See Ghose,
Rashbehary : Law of Mortgages, Vol. II, 4th
Edn., p. 784.)"
53. We also find it appropriate to mention at this stage
that in reply to the submission made by Shri Dholakia
on behalf of the guarantors that even though a
guarantor may stand discharged as envisaged under
Sections 133 and 135 of the Indian Contract Act e.g.
where any variance in terms of the contract has been
made without his consent, then too guarantor may be
proceeded against and he will have no right to raise an
objection, before measures have been taken against
him under Section 13(4) of the Act nor could he
approach the civil court. It is submitted by the
respondent that in such cases a civil court may have
jurisdiction to entertain the case as character as a
guarantor itself is denied.
80. Under the Act in consideration, we find that before
taking action a notice of 60 days is required to be given
and after the measures under Section 13(4) of the Act
have been taken, a mechanism has been provided
under Section 17 of the Act to approach the Debts
Recovery Tribunal. The above noted provisions are for
the purpose of giving some reasonable protection to the
borrower. Viewing the matter in the above perspective,
we find what emerges from different provisions of the
Act, is as follows:
"1. Under sub-section (2) of Section 13 it is
incumbent upon the secured creditor to serve 60
days' notice before proceeding to take any of the
measures as provided under sub-section (4) of
Section 13 of the Act. After service of notice, if
the borrower raises any objection or places facts
for consideration of the secured creditor, such
reply to the notice must be considered with due
application of mind and the reasons for not
accepting the objections, howsoever brief they
may be, must be communicated to the
borrower. In connection with this conclusion we
have already held a discussion in the earlier part
of the judgment. The reasons so communicated
shall only be for the purposes of the
information/knowledge of the borrower without
giving rise to any right to approach the Debts
Recovery Tribunal under Section 17 of the Act,
at that stage.
2. 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.
3. That the Tribunal in exercise of its ancillary
powers shall have jurisdiction to pass any
stay/interim order subject to the condition as it
may deem fit and proper to impose.
4. In view of the discussion already held in this
behalf, we find that the requirement of deposit
of 75% of the amount claimed before
entertaining an appeal (petition) under Section
17 of the Act is an oppressive, onerous and
arbitrary condition against all the canons of
reasonableness. Such a condition is invalid and
it is liable to be struck down.
5. As discussed earlier in this judgment, we find
that it will be open to maintain a civil suit in civil
court, within the narrow scope and on the
limited grounds on which they are permissible,
in the matters relating to an English mortgage
enforceable without intervention of the court".
19. Learned counsel further relied upon paragraph no.17 of
the decision of Hon'ble Supreme Court in the case of Indian Banks
Vs. ABS Marines Product Ltd., reported in (2006) 5 SCC 72:
"17. Making a counterclaim in the bank's application
before the Tribunal is not the only remedy, but an
option available to the defendant borrower. He can also
file a separate suit or proceeding before a civil court or
other appropriate forum in respect of his claim against
the bank and pursue the same. Even the bank, in
whose application the counterclaim is made, has the
option to apply to the Tribunal to exclude the
counterclaim of the defendant while considering its
application. When such application is made by the bank,
the Tribunal may either refuse to exclude the
counterclaim and proceed to consider the bank's
application and the counterclaim together; or exclude
the counterclaim as prayed, and proceed only with the
bank's application, in which event the counterclaim
becomes an independent claim against a bank/financial
institution. The defendant will then have to approach
the civil court in respect of such excluded counterclaim
as the Tribunal does not have jurisdiction to try any
independent claim against a bank/financial institution. A
defendant in an application, having an independent
claim against the bank, cannot be compelled to make
his claim against the bank only by way of a
counterclaim. Nor can his claim by way of independent
suit in a court having jurisdiction, be transferred to a
tribunal against his wishes".
20. Learned counsel submitted that in the above case, it
was held that civil court will have jurisdiction, as DRT would not
have jurisdiction to try dispute relating to claim of damages by
debtor. Likewise, he relied upon decisions of High Court of Delhi in
the case of Ashok Kumar Raizada Vs. Bank of Rajasthan,
reported in ILR 2014 Delhi 356 and in the case of Sadanand
Properties Pvt., Ltd., Vs. Punjab National Bank reported in
2015 SCC Online Del. 7179; and the High Court of Madras in the
case of K. Deendayalan Vs. N. Satishkumar reported in 2015
(1) L.W. Page 229, the High Court of Andhra Pradesh in Rajanala
Kumari Vs. State of Telangana reported in 2018 SCC Online
Hyd. 33 and lastly the High Court of Bombay in Bank of Baroda
Vs. Gopal Sriram Panda reported in 2021 SCC Online Bom.466.
Insofar as scope of Section 9 of CPC, learned counsel relied
upon decision of the Hon'ble Supreme Court in Nahar Industrial
Enterprises Ltd., Vs. Hongkong and Shanghai Banking
Corporation reported in (2009) 8 SCC 646, it has held in
paragraphs 85, 86, 117 and 118 as under:
"85. If the Tribunal was to be treated to be a civil
court, the debtor or even a third party must have an
independent right to approach it without having to wait
for the bank or financial institution to approach it first.
The continuance of its counterclaim is entirely
dependent on the continuance of the applications filed
by the bank. Before it no declaratory relief can be
sought for by the debtor. It is true that claim for
damages would be maintainable but the same have
been provided by way of extending the right of
counterclaim.
86. The Debts Recovery Tribunal cannot pass a decree.
It can issue only recovery certificates. [See Sections
19(2) and 19(22) of the Act.] The power of the Tribunal
to grant interim order is attenuated with
circumspection. [See Dataware Design Labs (P)
Ltd. v. SBI [(2005) 127 Comp Cas 176 (Ker)] , Comp
Cas at p. 184.] Concededly in the proceeding before the
Debts Recovery Tribunal detailed examination, cross-
examinations, provisions of the Evidence Act as also
application of other provisions of the Code of Civil
Procedure like interrogatories, discoveries of documents
and admission need not be gone into. Taking recourse
to such proceedings would be an exception. Entire focus
of the proceedings before the Debts Recovery Tribunal
centres round the legally recoverable dues of the bank.
117. The Act, although, was enacted for a specific
purpose but having regard to the exclusion of
jurisdiction expressly provided for in Sections 17 and 18
of the Act, it is difficult to hold that a civil court's
jurisdiction is completely ousted. Indisputably the banks
and the financial institutions for the purpose of
enforcement of their claim for a sum below Rs 10 lakhs
would have to file civil suits before the civil courts. It is
only for the claims of the banks and the financial
institutions above the aforementioned sum that they
have to approach the Debts Recovery Tribunal. It is also
without any cavil that the banks and the financial
institutions, keeping in view the provisions of Sections
17 and 18 of the Act, are necessarily required to file
their claim petitions before the Tribunal. The converse is
not true. Debtors can file their claims of setoff or
counterclaims only when a claim application is filed and
not otherwise. Even in a given situation the banks
and/or the financial institutions can ask the Tribunal to
pass an appropriate order for getting the claims of
setoff or the counterclaims, determined by a civil court.
The Tribunal is not a high-powered tribunal. It is a one-
man tribunal. Unlike some special Acts, as for example
the Andhra Pradesh Land Grabbing (Prohibition) Act,
1982 it does not contain a deeming provision that the
Tribunal would be deemed to be a civil court.
118. The liabilities and rights of the parties have not
been created under the Act. Only a new forum has been
created. The banks and the financial institutions cannot
approach the Tribunal unless the debt has become due.
In such a contingency, indisputably a civil suit would lie.
There is a possibility that the debtor may file
preemptive suits and obtain orders of injunction, but
the same alone, in our opinion, by itself cannot be held
to be a ground to completely oust the jurisdiction of the
civil court in the teeth of Section 9 of the Code.
Recourse to the other provisions of the Code will have
to be resorted to for redressal of his individual
grievances".
21. Referring to observations made in aforesaid paragraphs,
it was submitted that jurisdiction of Civil Court was not completely
ousted as DRT cannot pass a decree, it can only issue certificate for
recovery. It was further observed that there are no provisions for
detailed examination, cross-examination and all the provisions of
Evidence Act as also provisions in CPC regarding interrogatories,
discovery of documents and admissions etc., would not be attracted
to the procedure before DRT.
22. Learned counsel further submitted that these features
distinguished DRT from civil court. The High Court of Bombay in
Gopal Sriram Panda's case (supra) had held that as declaratory
relief cannot be claimed before DRT, civil suit was maintainable.
Learned counsel submitted that as nature of relief claimed by
plaintiff referable to Section 34 of Specific Relief Act, suit was
maintainable and dismissal of suit was unjustified.
23. In support of his submission that plaint cannot be
rejected only in respect of one of the defendants, learned counsel
relied upon decisions of Hon'ble Supreme Court in the case of Sejal
Glass Ltd., Vs. Navilian Merchants Pvt., Ltd., reported in
(2018) 11 SCC 780 and Madhav Prasad Aggarwal Vs. Axis
Bank Ltd., reported in (2019) 7 SCC 158. In Sejal Glass Ltd.,'s
case (supra) the Hon'ble Supreme Court held that plaint cannot be
rejected in part and against some of defendants or in respect of
some of the properties, it either has to be rejected as a whole or
the provisions of Order VII Rule 11 of CPC would not get attracted.
24. Learned counsel lastly submitted that at the time of
passing impugned order, trial Court has made observations on
merits of suit also, which was unsustainable and contrary to law. It
was submitted that at preliminary stage, trial Court was not
justified in dismissing suit without trial.
25. On the other hand, Sri. U.S. Yogeshkumar, learned
counsel appearing for defendant no.1 (respondent no.1 herein)
submitted that plaintiff and defendants no.3 to 5 availed financial
assistance during 2010 viz., a term loan of Rs.130.00 lakhs and
OCCL of Rs.300.00 lakhs. During July 2011, defendant no.3 availed
further OCCL of Rs.450.00 lakhs i.e., total of Rs.750.00 lakhs. On
25.07.2011, plaintiff executed memorandum of deposit of title deed
as security for above loan, which was registered before Sub -
Registrar, Banasawadi. During November 2012, defendant no.3
approached defendant no.1 along with plaintiff and others for
additional financial assistance and availed it after executing all loan
documents. Thereafter, borrowers and guarantors failed to repay
loan, defendant no.1 being a secured creditor classified loan as Non
- Performing Asset under Section 2(o) of SARFAESI Act on
24.11.2014. Thereafter it filed Original Application no.173/2015
under Section 19 of Recovery of Debts due to Banks and Financial
Institutions Act, 1993 against defendant no.3, plaintiff and others
on 01.01.2015, for recovery of debt of Rs.16,30,77,965/-. In the
said application, defendant no.1 produced copies of all documents
executed by plaintiff and defendants no.3, 4 and 5 for securing
financial assistance from it. Despite the same, plaintiff did not
contest claim of defendant no.1 in the application.
26. Apart from above, defendant no.1 also issued notice on
14.01.2015, under Section 13(2) of SARFAESI Act demanding
payment of Rs.16,15,48,000/- within 60 days from them. Instead
of complying with demand made in the notice or contesting claims
in the application before DRT, on 20.02.2015, plaintiff filed
complaint against respondents no.4, 5 & officials of Andhra Bank
and Laxmi Vilas Bank, which was registered as Crime No.58/2015
by Malleshwaram Police Station for offences punishable under
Sections 420, 409, 406, 418, 120B read with Section 34 of Indian
Penal Code.
27. As borrowers/guarantors failed to pay dues, defendant
no.1 issued notice under Section 13(4) of SARFAESI Act on
15.02.2018. Thereafter, it obtained an order on 23.10.2018 under
Section 14 of SARFAESI Act for taking physical possession of
secured assets.
28. In the meanwhile, on 23.10.2018, police filed charge
sheet for offences punishable under Sections 406, 418, 420, 424,
120B read with Section 34 of IPC. However, no charge sheet was
filed against any of the bank Officials.
29. Learned counsel submitted that when bank was
proceeding to recover the debt by sale of secured assets, plaintiff
filed civil suit to stall measures to be taken by defendant no.1 for
realization of its debt. Suit was filed four years after filing of
complaint and filing of O.A.No.173/2015 by the bank before DRT. It
was submitted that as plaintiff had not challenged any of the
measures taken by defendant no.1 under the provisions of
SARFAESI Act and even if it intended to do so, it ought to have
approached DRT and civil suit was not maintainable in view of the
bar contained in Section 34 of SARFAESI Act.
30. Learned counsel submitted that relying upon its earlier
decision in the case of United Bank of India v. Satyavathi
Tandon, (2010) 8 SCC 110 = 2010 AIR SCW 5267, the Hon'ble
Supreme Court in Agarwal Tracom Pvt., Ltd., V. Punjab
National Bank and Ors., (2018) 1 SCC 626 had explained
meaning of expression "any person" used in Section 17(1) and "any
of the measures" referred to in Section 13(4) of SARFAESI Act and
held that proper forum for challenging action of secured creditor for
realization of security interest would only be under the provisions of
SARFAESI Act before DRT and invocation of other remedies was
barred. In Authorised Officer, State Bank of Travancore and
Anr. V. Mathew K.C., (2018) 2 SCC 85 also, referring to
Satyavathi Tandon's case (supra) held that provisions of
SARFAESI Act had provided for sufficient measures for redressal of
grievances against action for recovery of dues initiated by banks
and invocation of remedy under Article 226 was barred. In ICICI
Bank Ltd., v. Umakanta Mohapatra, (2019) 13 SCC 497 the
Hon'ble Supreme Court reiterated its observations in Dwarikesh
Sugar Industries Ltd., Vs. Prem Heavy Engineering Works
(P) Ltd., reported in (1997) 6 SCC 450 to the following effect:
"32. When a position, in law, is well settled as
a result of judicial pronouncement of this
Court, it would amount to judicial impropriety
to say the least, for the sub-ordinate Courts
including the High Courts to ignore the settled
decisions and then to pass a judicial order
which is clearly contrary to the settled legal
position. Such judicial adventurism cannot be
permitted and we strongly deprecate the
tendency of sub-ordinate courts in not applying
the settled principles and in passing whimsical
orders which necessarily has the effect of
granting wrongful and unwarranted relief to
one of the parties. It is time that this tendency
stops."
31. In Jagadish Singh v. Heeralal and Ors., (2014) 1
SCC 479, the Hon'ble Supreme Court held that the expression "any
person" was of wide import and takes within its fold not only
borrower, but also guarantor or any other person, who may be
affected by measures taken under Section 13(4) and would include
plaintiffs who had filed a civil suit challenging sale of secured
property on the ground that same was Hindu Undivided Family
property, irrespective of maintainability of civil suit, remedy laid
under Section 17 of SARFAESI Act and High Court erred in holding
that civil court had jurisdiction.
32. Learned counsel further submitted that the High Court
of Delhi in Golf Technologies Pvt. Ltd. And Ors. V. Axis Bank
Ltd. And Ors., reported in AIR 2015 Del. 143 had an occasion to
consider the scope of exceptions carved out in Mardia Chemicals
Ltd., (supra) and held that civil suit was not maintainable even
where plaintiff's allegation was that they had signed on some blank
papers which were subsequently filled in by bank contrary to
understanding between parties. Attention was drawn to para 19 -23
wherein the Court examined legal position availing from precedents
and held that exception carved out in Mardia Chemical's (supra)
has to be construed strictly. The averments in the plaint has to be
considered as a whole and mere allegation of fraud cannot lead to
maintainability of the suit and Court is duty bound to see if
allegations of fraud are made only for purposes of maintaining suit.
Sufficiency of recourse under Section 17 of the Act would bar a suit.
Similar view was expressed by Division Bench of the High
Court Bombay in State Bank of India v. Jigishaben B. Sanghavi
and Ors., reported in (2010) SCC Online Bom. 1868.
33. Sri. M. S. Suryanarayana Rao, learned counsel
appearing for defendant no.2 (respondent no.2 herein) submitted
that appeal was not tenable either on law or on facts. It was
submitted that O.A.No.173/2015 was filed against plaintiff and
other defendants on 30.01.2015. Plaintiff arrayed as defendant no.9
therein had entered appearance and was contesting the same. In
the said application, evidence of applicant was recorded on
18.03.2021 and as many as 145 documents were marked as
exhibits. Instead of seeking permission to cross-examine AW-1 and
for leading his evidence, plaintiff herein filed O.S.No.688/2019
seeking for certain declaratory reliefs, which was not maintainable
in view of bar under Section 34 of SARFAESI Act. In support of his
submissions, learned counsel relied upon decision of Hon'ble
Supreme Court in Mathew K.C. (supra).
34. Heard learned counsel, perused impugned order and
copies of plaint, written statements of defendants no.1 and 2 and
documents annexed to plaint, made available by learned counsel for
plaintiff.
35. From the above submission, the point that arises for
consideration in this appeal is:
"Whether the Civil Court was justified in dismissing
plaintiff's suit as not maintainable in view of bar of
jurisdiction contained in Section 34 of SARFAESI
Act?"
36. Before proceeding to decide the above, a careful
perusal of impugned order is considered necessary in peculiar facts
of this case. Before trial Court, after service of suit summons on
defendants no.1 and 2 and pending service of summons on
defendants no.3 to 6, defendant no.2 filed I.A.No.4 under Order VII
Rule 11 for rejection of suit as barred under Section 34 of
SARFAESI Act.
37. Thereafter, trial court framed issues and heard the
plaintiff, defendants no.1 and 2 on issue no.1 and after answering
issue no.1 in negative, dismissed the suit as not maintainable.
I.A.No.4 was disposed of accordingly.
38. It is significant to note that impugned order is dismissal
of suit as not maintainable. It is not an order of rejection of plaint.
Hon'ble Supreme Court in Kuldeep Singh Pathania Vs. Bikram
Singh Jaryal reported in (2017) 5 SCC 345 and Madiraju
Venkata Ramanaraju Vs. Peddireddigari Ramachandra Reddy
reported in (2018) 14 SCC 1 held that there is a difference
between rejection of plaint under Order VII Rule 11 and dismissal of
suit as not maintainable on a preliminary issue which would fall
within purview of Order XIV Rule 2 CPC.
39. The law regarding scope of Order VII Rule 11 is well
settled. The Hon'ble Supreme Court in Ram Prakash Gupta vs.
Raghav Kumar Gupta reported in (2007) 10 SCC 59 referring to
its earlier decision in T Arivandandam Vs. T. V. Satyapal
reported in (1977) 4 SCC 467 has held that if on a 'meaningful'
and not 'formal' reading of the plaint cause of action or a clear right
to sue is manifest, the power under Order VII Rule 11 cannot be
exercised. It also held that clever drafting creating illusion of a
cause of action has to be nipped in the bud. Though, provision of
Order VII Rule 11(d) permits rejection of plaint, if it is barred by
any law, dismissal of suit as not maintainable would fall within
purview of Order XIV Rule 2 (2)(b) of CPC. Under Order XIV Rule 1,
Civil Courts are required to give finding on all issues framed. But
Order XIV Rule 2 can be invoked as an exception to mandate under
Order XIV Rule 1 under specific circumstances.
40. After framing issues, if Civil Court comes to a conclusion
that any of the issues would go to the root of subject matter of suit
and said issues are pure questions of law, which can be answered
without recording of evidence, then Order XIV Rule 2 would
empower it to decide such preliminary issue forthwith.
41. It has however to be kept in mind that though
provisions of Order XIV Rule 2 of CPC permit dismissal of suit on
maintainability, said provision cannot be invoked where preliminary
issue would be a mixed question of law and fact.
42. In the instant case, trial Court has held that objection
raised by defendant no.2 regarding maintainability of the suit would
go to the root of the matter, accordingly proceeded to decide issue
no.1. Therefore, impugned order cannot be viewed as being passed
under Order VII Rule 11 of CPC. The power exercised by trial court
is relatable to provisions of Order XIV Rule 2 of CPC. The legality of
same requires to be tested accordingly.
43. At the time of passing impugned order, summons were
yet to be served on defendants no.3 to 6. Trial court observed that
as no relief was claimed against defendants no.3 to 6 and as
defendants no.1 and 2 raised objection regarding maintainability of
suit in view of statutory bar contained in Section 34 of SARFAESI
Act, it proceeded to frame issues and took up issue no.1 for
consideration along with IA no.4 filed by defendant no.2.
44. Several reasons have been assigned by trial court for
arriving at conclusion on issue no.1. It has referred to plaint
averments and contents of documents produced along with plaint.
It stated that suit filed by plaintiff is on allegations of fraud against
defendants no.1, 3 and 4 for fraudulently creating twelve
documents enumerated in schedule - B. One of the basis for making
assertion of fraud was filing of charge sheet against defendants in
C.C.No.28420/2018 on a complaint filed by plaintiff for offences
punishable under Sections 120-B, 418, 406, 409 and 420 r/w
Section 34 of IPC. Referring to contents of charge sheet, trial court
observed that there was no charge sheet filed against officials of
bank and investigation was still underway.
45. Based on same, trial court proceeded to observe that
there was no allegation of fraud, cheating etc., against defendant
no.1. As charge sheet was silent regarding role of defendant no.1 in
fraud, trial Court held that merely on the basis of charge sheet
produced by plaintiff, it cannot jump a conclusion that defendant
no.1 played fraud colluding with defendants no.3 and 4. Therefore,
plaintiff's case would not fall within the exceptions carved out in
Mardia Chemical's, case (supra). Trial court observed that plaintiff
did not produce any material to show that defendant no.1 had
played fraud on him. Thereafter referring to decision of High Court
of Bombay in Jigishaben B. Sanghavi's case (supra), wherein, it
was held that provisions of SARFAESI Act bar challenge to any
measure at an anterior stage to Section 13(4) and bars challenge
thereafter before any forum other than DRT under Section 17 of the
Act, trial court held that even allegation of illegal creation of
mortgage would fall within the purview of the DRT and civil suit was
barred.
46. Trial court distinguished the decision in
K. Deenadayalan's case (supra) on the ground that auction sale in
the said case was completed which was questioned, unlike in the
present suit where sale activity was pending, therefore bar under
Section 34 of the Act would be attracted. It also distinguished
decision in Ashok Kumar Raizad's case (supra) on the ground
that there was dispute regarding relationship of creditor and
borrower in the said case unlike in the instant suit, where plaintiff
was not disputing relationship of creditor and borrower.
47. Thereafter, trial court referred to decisions of the
Hon'ble Supreme Court in K.C. Mathew, O.C. Krishnan,
Dwarikesh Sugar Industries Ltd., and in Jagadish Singh cases
for the proposition that when sufficient resolution mechanism is
provided under the aegis of the Act, invocation of other remedies
would be barred.
48. Trial Court further held that plaintiff failed to produce
any document to show that his signatures were forged by defendant
no.1 and had failed to produce handwriting expert's opinion. On
such conclusion, it held that there was no forgery by defendant
no.1. On the said reasoning, plaintiff was non-suited.
49. Firstly, observation of trial court that there was no
allegation of fraud against defendant no.1 would be contrary to
record. As observed by trial court in impugned order itself, plaintiff
had made specific allegation of fraud, concoction and creation of
documents enumerated in schedule - B against defendant no.1 in
collusion with defendants no. 3 to 5. Therefore, observation of trial
court would be perverse.
50. Trial court further held that charge sheet was silent
regarding fraud or forgery committed by defendant no.1, which
would also be contrary to record. The very extractions from charge
sheet, made by trial court indicated that investigation was in vogue
insofar as involvement of defendant no.1 in commission of offences.
Trial court also lost sight of the fact that defendant no.1 was not
discharged and liberty to file additional charge sheet was reserved.
Even the reason assigned that plaintiff failed to produce any
document to substantiate forgery as also its observation that no
report of handwriting expert was produced by plaintiff to
substantiate forgery would be uncharitable, especially, as the
matter was not yet set for trial. At the stage of deciding
maintainability of suit or at the stage of consideration of application
under Order VII Rule 11 of CPC, trial court is only required to verify
whether there are sufficient pleadings to support allegation of fraud
and scrutiny or procrastination about evidence that might be led,
would not be called for nor justified. As the matter was not yet set
for trial, it would always be available for plaintiff to substantiate his
case by appropriate evidence later.
51. In the case on hand, plaintiff has stated that except
executing letter of guarantee dated 16.07.2011 and execution of
deed of memorandum of deposit of title deeds dated 25.07.2011,
plaintiff had not executed any of the documents regarding offer of
guarantee to the transactions before 25.07.2011 or subsequent
thereto. Plaintiff has very clearly alleged that documents
enumerated in schedule - B were forged, concocted or created by
defendant no.1 in collusion with defendants no. 3 to 5. Plaintiff
produced copy of complaint and FIR making allegations of fraud
against defendants. Even charge sheet is also produced.
Admittedly, police after investigation found sufficient material to
substantiate charge of conspiracy, fraud and cheating etc., against
defendants no.3 and 4. Investigating Officer very clearly mentioned
in articles of charge that allegation of involvement of defendant
no.1 in commission of offences was still under investigation.
Therefore, there was no justification for trial court to virtually
exonerate defendant no.1 of forgery. Said conclusion arrived at
before recording of evidence and its consideration cannot be
sustained.
52. The reliefs sought for in the suit would also be of
significance. Admittedly, the plaintiff has sought relief of declaration
in respect of suit schedule 'B' documents and for declaration that
plaintiff is discharged as surety etc. As observed by Hon'ble
Supreme Court in Nahar Industrial Enterprises Ltd., (supra),
DRT cannot pass a decree of declaration. The procedure would not
include detailed examination, cross-examination of witnesses and
provisions of Evidence Act as also provisions of CPC regarding
interrogatories, discoveries of documents and admissions would not
apply. Therefore, remedy provided under provisions of SARFAESI
Act for adjudication of fraud, forgery, manipulation etc., would not
be adequate.
53. The Hon'ble Supreme Court in Mardia Chemical has
carved out exceptions to the bar contained in Section 34 of
SARFAESI Act. Hence, plaintiff made specific allegations of fraud
and forgery against defendant no.1 and also against defendants
no.3 to 5. He has also produced material in the form of complaint
and charge sheet wherein police after investigation had invoked
criminal prosecution against defendants. Investigation against
defendant no.1 about its involvement being incomplete and liberty
being reserved to file charge sheet after completion of
investigation, same cannot be equated with discharge of defendant
no.1. Regardless of criminal prosecution, it would always be
available for plaintiff to substantiate his case by leading
independent evidence.
54. Even insofar as bar of jurisdiction of Civil Court under
Section 34 of SARFAESI Act is concerned, Hon'ble Supreme Court in
Mardia Chemical's case (supra) has culled out certain exceptions,
upon satisfaction of which Civil suit would be maintainable. Recently
a division Bench of this Court in the case of Raghavan S. Vs. N.B.
Rajeev & Ors. in RFA No.1947/2016 disposed of on 22.01.2020
has also held that civil suit would be maintainable for seeking
declaratory relief. Similar view is expressed by a learned Single
Judge in the case of Smt. Nanjamma Vs. N. Narasimhamurthy
& Ors. in RFA No.1397/2019 disposed of on 16.07.2021. It is
entirely possible for plaintiff to camouflage cause of action with
allegation of fraud to bypass statutory bar. But if it appears to the
Civil Court that it were a frivolous suit, it would do well to forthwith
call upon plaintiff to lead evidence on preliminary issue and
thereafter decide the same. This would enable Civil Court to weed
out frivolous suits. My view is fortified by observation of the High
Court of Calcutta in the case of Sha-San Infrastructures Pvt.
Ltd. v. Thakur Corner Byabsayee Kalyan Samity, reported in
2010 SCC OnLine Cal 1784 : (2011) 2 ICC 604 as follows:
"Re: Maintainability of the suit on the bar of
law
18. The Learned Trial Judge held that the
objection regarding the maintainability of the
suit on the bar of Section 34 of the Specific
Relief Act cannot be considered at this stage
without trial of evidence. This Court agrees
with such findings of the learned Trial Judge.
As such this Court does not find any illegality
on this part of the findings of the learned
Trial Judge."
55. A division bench of this Court in the case of R.
Gopalakrishna Vs. Karnataka State Financial Corporation and
Another reported in ILR 2008 Kar. 2034. In the instant case, the
civil court proceeded to dismiss the suit as not maintainable on
coming to a conclusion that no documents were produced by the
plaintiff to substantiate its allegations against defendant no.1. It
also erroneously held that there were no allegations of fraud made
against officials of defendant no.1 - Bank and no charge sheet was
filed against them. These findings could only be given after trial.
When there is no embargo on civil court to record evidence on
preliminary issue, dismissal of suit on concluding that plaintiff did
not produce material in support of his allegation would be wholly
unsustainable. At the same time, calling upon plaintiff to lead
evidence to substantiate allegations of fraud would go a long way in
weeding out frivolous cases and save banking institutions from
lengthy trial. Such a measure would further interest of justice by
balancing interests of both parties.
56. In view of the above, point for consideration is
answered in the negative. I.A. No.4 shall be deemed to have been
rejected on merits. Hence, I pass the following:
ORDER
1. Appeal is allowed.
2. Impugned order dated 04.01.2020 passed by
the XXXV Additional City Civil and Sessions
Judge, Bengaluru in O.S.No.688/2019, is
set-aside. O.S.No.688/2019 is restored to file.
3. Since plaintiff and defendants no.1 and 2 are
represented before this Court, they shall
appear before trial court without awaiting fresh
summons, on 28.03.2022 and take further
orders.
4. Trial court shall issue fresh suit summons and
notices to defendants no.3 to 6 and thereafter
to dispose of suit in accordance with law after
recording evidence, as directed above.
5. Parties to bear their respective costs.
Sd/-
JUDGE
BVK/Psg*
