Karnataka High Court
Sri B A Varadarajachar vs M/S Reliance Asset Reconstruction ... on 27 January, 2025
Author: Krishna S Dixit
Bench: Krishna S Dixit
-1-
NC: 2025:KHC:3621-DB
WP No. 13473 of 2024
IN THE HIGH COURT OF KARNATAKA AT BENGALURU
DATED THIS THE 27TH DAY OF JANUARY, 2025
PRESENT
THE HON'BLE MR JUSTICE KRISHNA S DIXIT
AND
THE HON'BLE MR JUSTICE G BASAVARAJA
WRIT PETITION NO. 13473 OF 2024 (GM-DRT)
BETWEEN:
SRI B A VARADARAJACHAR,
S/O ANJANEYACHAR,
AGED 65 YEARS,
RESIDING AT NO.45,
BANASWADI MAIN ROAD,
KRISHNARAJAPURAM ROAD,
BENGALURU-560043.
...PETITIONER
(BY SRI. MADHUKAR M. DESHPANDE., ADVOCATE)
AND:
Digitally signed by
LAKSHMINARAYAN N
M/S RELIANCE ASSET RECONSTRUCTION
Location: High Court COMPANY LIMITED,
of Karnataka
A COMPANY REGISTERED UNDER
COMPANIES ACT, 1956
ACTING IN ITS CAPACITY AS A TRUSTEE
OF THE RELIANCE ARC 010 TRUST,
REPRESENTED BY ITS AUTHORIZED SIGNATORY,
MR. RAJESH SURESH BICHITKAR
HAVING ITS OFFICE AT RELIANCE CENTER,
NORTH WING, 6TH FLOOR,
OFF WESTERN EXPRESS HIGHWAY,
SANTACRUZ, EAST MUMBAI-400055.
...RESPONDENT
(BY SRI. VIGNESH SHETTY, ADV. FOR C/RESPONDENT)
-2-
NC: 2025:KHC:3621-DB
WP No. 13473 of 2024
THIS WRIT PETITION IS FILED UNDER ARTICLES 226
AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE
OF WRIT IN THE NATURE OF CERTIORARI OR QUASH OR SET
ASIDE THE ORDER DATED 18.04.2024 PASSED BY THE DEBT
RECOVERY APPELLATE TRIBUNAL AT CHENNAI IN M.A No-
40/2023 VIDE ANNEXURE-A ETC.
THIS PETITION, COMING ON FOR FURTHER HEARING,
THIS DAY, ORDER WAS MADE THEREIN AS UNDER:
CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT
and
HON'BLE MR JUSTICE G BASAVARAJA
ORAL ORDER
(PER: HON'BLE MR JUSTICE KRISHNA S DIXIT)
This petition by the guarantor-cum-surety of the subject
loan, seeks to lay a challenge to the order dated 18th April
2024, whereby the Debt Recovery Appellate Tribunal at
Chennai has negatived his Miscellaneous Appeal No.40 of 2023.
Petitioner has also sought for the quashment of Debt Recovery
Tribunal's order dated 28th June 2023, whereby his Application
No.724 of 2022, seeking stay of all further proceedings in
respondent's Original Application No.73 of 2025, has been
negatived.
2. Sri.Madhukar Deshpande, learned Counsel appearing for
the petitioner argues that although his client was admittedly a
guarantor having executed mortgage for securing the
NC: 2025:KHC:3621-DB
repayment of initial debt, his client's liability by virtue of
suretyship, would stand discharged, absolutely because of, (a)
Novatio inasmuch as new transaction has been brought about
by executing a whole lot of new loan documents; and (b) there
is fraud & fabrication of documents perpetrated by the principal
borrower hand-in-glove with the officials of the respondent. He
cites the decision of Apex Court in the case of S.P.
CHANGALVARAYA NAIDU (DEAD) BY LRs v. JAGANNATH
(DEAD) BY LRs1 in support of his contention that all
transactions stand voided by virtue of fraud & fabrication.
2.1 Secondly, Mr.Deshpande submits that his Civil Suit in OS
No.688 of 2019 founded on fraud & fabrication is pending and
that the respondent herein also happens to be one of the
defendants to the same; the respondent's application filed
under Order VII Rule 11(d) of the Code of Civil Procedure was
favoured by the Civil Court vide order dated 04th January 2020
and the suit was dismissed; the same was put to challenge in
RFA No.421 of 2020, which came to be allowed by a Learned
Single Judge of this Court vide judgment dated 15.02.2022 and
dismissal order having been set at naught, suit is restored to
(1994)1 SCC 1
NC: 2025:KHC:3621-DB
the trial Court for trial & disposal; that the order of this court
would bind the respondent as well; that the debt recovery
Tribunal being a creature of Law, has only been conferred with
limited jurisdiction and it tries the causes in a summary way;
therefore, it has no power to try the complex issues of fraud &
fabrication. In support of his position, he relies upon certain
rulings.
2.2 After service of notice, the respondent-Asset
Reconstruction Company has entered caveat through its Senior
Panel Counsel, who vehemently opposes the petition making
submission in justification of the impugned orders of Debt
Recovery Tribunal and Debt Recovery Appellate Tribunal. He
refutes the submission of learned Counsel for the petitioner
contending that the DRT functions under the provisions of the
Recovery of Debts and Bankruptcy Act, 1993; it has all powers
which Civil Courts do possess; even the contentions of novatio,
limitation and 'fraud & fabrication' can also be duly adjudicated
upon. Therefore, petitioner is not justified in seeking to stall
the DRT proceedings with one or the other pretext. He also
highlights the likely consequences of allowing the borrowers &
sureties to approach the Civil Court to litigate on issues of the
NC: 2025:KHC:3621-DB
kind and thereby interdicting the speedier loan recovery, which
the 1993 Act intends. He also adds that the subject suit is
essentially founded on the lack of jurisdiction of Tribunals
constituted under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002
as distinguished from those constituted under the 1993 Act. In
support of his contention, he too banks upon certain rulings.
3. Having heard the learned Counsel for the parties and
having perused the petition papers, we are inclined to grant a
limited indulgence as under and for the following reasons:
3.1 Initially, Term Loan of Rs.1.30 crore along with Rs.3.00
crore Open Cash Credit limit was availed in the year 2010.
Subsequently, on 14th July 2011, the Open Cash Credit Limit
came to be enhanced to Rs.7.50 crore and the repayment of
the entire loan was secured by execution & registration of
mortgage of the subject property, dated 25th July 2011. The
Letter of Guarantee also came to be executed by the petitioner
on 16th July 2011. These facts are not in dispute.
Later, the Open Cash Credit Limit facility limit came to be
further enhanced to Rs.10.00 crore. In that connection, the
NC: 2025:KHC:3621-DB
Principal Debtor had executed certain documents and it is the
case of the petitioner that certain documents were fabricated as
purporting to have been executed by them. This is militantly
disputed by the learned Senior Panel Counsel of respondent.
3.2 In relation to alleged fraud and fabrication, as already
mentioned above, petitioner has instituted a suit in OS No.688/
2019. In the meanwhile, the respondent Company instituted
Original Application No.173 of 2015 before the Debt Recovery
Tribunal, Bengaluru on 30.01.2015. Petitioner herein filed his
Written Statement on 27.03.2019 resisting the Original
Application inter alia on the ground of fraud & fabrication.
However, he has admitted the transaction to the tune of
Rs.7.50 crore. Petitioner had moved an Application before the
DRAT on 25.03.2022 under Section 10 read with Section 151 of
Code of Civil Procedure and Section 22(2)(h) of 1993 Act,
seeking stay of DRT proceedings. The said application having
been turned down on 20.06.2023, petitioner moved
Miscellaneous Appeal No.40 of 2023 which also met the same
fate at the hands of the DRAT, Chennai, vide order dated
18.04.2024.
NC: 2025:KHC:3621-DB
3.3 Vehement submission of learned Counsel for the
petitioner that once there is novatio, a new arrangement comes
into existence and eventually, the surety is absolutely
discharged, is essentially a mixed question of law & fact, which
the DRT has to treat after holding trial and therefore, this Court
need not venture examination of the same. It hardly needs to
be stated that the jurisdiction of the DRT/DRAT to undertake
examination of the said issue is apparent from the very
provisions of the 1993 Act. Where Tribunal is shown to have
jurisdiction, the challenge to the orders of such Tribunal would
fall u/a 227 of the Constitution that vests a limited supervisory
jurisdiction, the other provision namely Article 226 having been
ornamentally employed in the pleadings vide NARESH
SHRIDHAR MIRAJKAR AND OTHERS v. STATE OF
MAHARASHTRA AND ANOTHER2. Similarly, the question as
to bar of limitation is again a mixed question of law & facts and
therefore, that also has to be adjudged by the Tribunal at the
appropriate stage of proceedings that pend before it.
AIR 1967 SC 1
NC: 2025:KHC:3621-DB
3.4 The above being said, there is force in the submission of
learned Counsel for the petitioner that the DRT is a creature of
a special statute namely the 1993 Act exercising summary
jurisdiction in a class of matters involving debts of Banks and
Financial Institutions. Apparently, the complex & complicated
questions of fraud & fabrication cannot be examined inasmuch
as voluminous oral evidence in addition to documentary may
become necessary. Therefore, petitioner has rightly instituted
the subject suit for demonstrating fraud, fabrication & duplicity
of the Principal Borrower allegedly hand-in-glow with officials of
the bank. We are also told that now the evidence of petitioner
as PW.1 is being accomplished before long after the remand in
the subject RFA.
3.5 The vehement submission of learned Senior Panel
Counsel appearing for the respondent-Company that the power
of the DRT is co-extensive with that of the Civil Court and
therefore, it can undertake examination of the issue as to 'fraud
& fabrication', therefore is bit difficult to countenance.
3.6 A perusal of the provisions of 1993 Act and 2002 Act
makes it abundantly clear that DRT or DRAT is not an absolute
NC: 2025:KHC:3621-DB
substitution for the Civil Court. Secondly, it follows the
summary procedure inasmuch as its object is to secure
speediest recovery of public debts for bolstering the sustenance
of domestic economy. Thirdly, execution of Civil Court's
jurisdiction cannot be readily inferred vide DHULABAI v.
STATE OF MADHYA PRADESH3. Learned Counsel for the
petitioner is justified in seeking succor for his submission by
placing reliance on the Division Bench decision of Delhi High
Court in RAJAN MALHOTRA AND ANOTHER v. UNION
BANK OF INDIA4, wherein substantially similar issue was
debated under the 1993 Act and answered in favour of
debtor/surety therein. Learned Counsel for the petitioner fairly
submits that challenge to this decision is pending before the
Apex Court in Civil Appeals No.2416, 2417 and 2418 of 2021
and that no stay has been granted thereto.
3.7 There is another aspect to the matter: The 1993 Act and
the 2002 Act are Parliamentary legislations. If some other High
Court places its interpretation on the provisions of such
legislations, their views become more than persuasive, to say
AIR 1969 SC 78
2019 SCC OnLine Del 11177
- 10 -
NC: 2025:KHC:3621-DB
the least, in the light of Apex Court decision in M/S. KUSUM
INGOTS AND ALLOYS LIMITED v. UNION OF INDIA AND
ANOTHER5. Of course, we are not going to the extent of
saying that those views absolutely bind us with no discretion to
differ. For cogent reasons, arguably other High Courts can
differ. We do not want to say anything beyond this. However,
no reasons are canvassed before us by the counsel appearing
for the respondent as to why we should differ from the views of
Delhi High Court.
3.8 The vehement reliance of learned Senior Panel Counsel
for the respondent on the decision of Apex Court in M/S. N.N.
GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO UNIQUE
FLAMES LIMITED AND OTHERS6, does not come to his
rescue inasmuch as it was a case relating to arbitrability of
fraud & fabrication of Bank Guarantee. It has nothing to do with
the powers of DRT/DRAT under the provisions of 1993 Act or of
2002 Act. It was a case arising under the Arbitration and
Conciliation Act, 1996, wherein Court deviated from the
AIR 2004 SC 2321
(2021) 4 SCC 379
- 11 -
NC: 2025:KHC:3621-DB
conventional stand that Arbitrators could not decide the issue of
'fraud and fabrication' and held that now they can.
3.9 The second ruling in the case of ICICI LTD v. GRAPCO
INDUSTRIES LIMITED AND OTHERS7, also does not come to
the rescue of respondent inasmuch as the matter essentially
related to the power to grant interim relief availing to the DRT
under the provisions of 1993 Act. Whether DRT can undertake
complex issues like fraud and fabrication did not fall for
consideration, even in the penumbra of the fact matrix. At
paragraph 11 of the decision, the Court observed that power of
the Tribunal in matters of granting interim reprieve are co-
existence with that of Civil Courts. Thus, this ruling too does
not avail to the respondent. The third recent ruling of the Apex
Court in the case of BANK OF RAJASTHAN v. VCK SHARES
AND STOCK BROKING8, also does not lend credence to the
contention of respondent. That was a case relating to filing of
Counter Claim in O.A. filed by the lender bank. The court
rejected the contention that when banks suit for recovery is
transferred, the Counter Claim is not transferred and therefore,
1999(4) SCC 710
2023(1) SCC 1
- 12 -
NC: 2025:KHC:3621-DB
the same should be tried by the Civil Court itself. That is not
the case here. What is significant to note is the absence of the
issue as to Debt Recovery Tribunal's power and competence to
decide the complex issue like fraud and fabrication. That issue
had not cropped up in the said decision. Lord Halsbury, more
than a century ago, in QUINN v. LEATHEM9, observed that a
case is an authority for the proposition it lays down in a given
fact matrix and not for all that, that would logically follow from
what had been so laid down.
3.10 All the above being said, we do not agree with the
submission of learned Counsel for the petitioner that the
proceedings before the DRT on merits, should be interdicted till
after the subject suit is tried & decided. A contra view would
defeat the very idea of speedier recovery of outstanding public
debts, as rightly contended by learned Senior Panel Counsel
appearing for the respondent-Company. Therefore, some via
media admissible in law needs to be worked out. In our
considered view, that can be done by permitting the DRT and
the Civil Court to go on with the respective matters not being
influenced by each other. However, the decree/order to be
[(1901) AC 495]
- 13 -
NC: 2025:KHC:3621-DB
passed by the DRT shall be subject to decree to be entered in
the pending suit, in the sense that if the decree goes in favour
of the petitioner on the ground of fraud & fabrication, to that
extent, no liability shall be fastened on the petitioner. We
repeat that it is only to that extent, and for the rest the liability
would not be disclosed. While making this arrangement, we
have noted that the debt in question is secured by other
properties as well and therefore, the proceedings before the
DRT should not be interdicted.
3.11 The above arrangement would facilitate recovery of loan
by executing the DRT's decree/order should it be in favour of
the respondent, at least as against the properties other than
the one comprised in the suit. If the suit is decided against the
petitioner, then respondent can execute the DRT decree/order
as against the suit property too. In the peculiar fact matrix of
this case, this arrangement would balance the competing
interests of parties. It is also consistent with what the Apex
Court observed in BANK OF RAJASTHAN, supra, which is
reproduced hereunder:
"53. We certainly would not like that the process
envisaged under the RDB Act be impeded in any
- 14 -
NC: 2025:KHC:3621-DB
manner by filing of a eparate suit if a defendant
chooses to do so. A claim petition before the DRT
has to proceed in a particular manner and would so
proceed. There can be no question of stay of those
proceedings by way of a civil proceeding instituted
by a defendant before the Civil Court. The suit
would take its own course while a petition before the
DRT would take its own course. We appreciate that
this may be in the nature of parallel proceedings but
then it is the defendant's own option. We see no
problem with the same as long as the objective of
having expeditious disposal of the claim before the
DRT under the RDB Act is not impeded by filing a
civil suit. Thus, it is not open to a defendant, who
may have taken recourse to the Civil Court, to seek
a stay on the decision of the DRT awaiting the
verdict of his suit before the Civil Court as it is a
matter of his choice.
54. We thus make it abundantly clear that in case of
such an option exercised by the defendant who filed
an independent suit, whatever be the nature of
reliefs, the claim petition under the RDB Act would
continue to proceed expeditiously in terms of the
procedure established therein to come to a
conclusion whether a debt is due to a bank and/or
financial institution and whether a recovery
certificate ought to be issued in that behalf."
In the above circumstances and with above
observations, this writ petition is disposed off.
Both the Civil Court and Debt Recovery Tribunal are
requested to try & dispose off the subject cases within an outer
limit of one year. All contentions of the parties are kept open.
This Court places on record its appreciation for the
performance of learned Counsel for the Petitioner Sri.Madhukar
- 15 -
NC: 2025:KHC:3621-DB
Deshpande and also the learned Panel Counsel for the
respondent Sri.Vignesh Shetty.
Costs made easy.
Sd/-
(KRISHNA S DIXIT)
JUDGE
Sd/-
(G BASAVARAJA)
JUDGE
lnn
