SARFAESI Act and Civil Court Jurisdiction: A Landmark Judgment


Court:
Supreme Court of India

Case Name: Central Bank Of India vs. Smt. Prabha Jain

Citation: 2025 INSC 95 (Reportable)

Background of the Case

The Supreme Court of India addressed a series of civil appeals concerning the interplay between the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the jurisdiction of civil courts. The central issue was whether civil courts can adjudicate on the validity of sale deeds and mortgage deeds when the properties are under SARFAESI Act proceedings. This was particularly in the context where a third party, not the borrower, claimed an independent ownership right over the secured asset. The lead case involved Smt. Prabha Jain, who sought to reclaim her share of family land, arguing that her brother-in-law illegally sold the land which was later mortgaged to the Central Bank of India. The bank argued that the civil court's jurisdiction was barred by Section 34 of the SARFAESI Act, which gives exclusive jurisdiction to the Debt Recovery Tribunal (DRT).

Facts of the Lead Case: Smt. Prabha Jain

  • Smt. Prabha Jain’s father-in-law purchased the suit land in 1967.
  • Upon his death in 2005, the land was inherited by his son, Mahendra Kumar Jain (Smt. Prabha Jain’s husband), his other son Sumer Chand Jain, and his wife (Prabha Jain’s mother-in-law).
  • After her husband's death, Smt. Prabha Jain inherited his 1/3rd share of the property.
  • Sumer Chand Jain, without partitioning the land, illegally divided it into plots and sold them.
  • One such plot was sold to Parmeshwar Das Prajapati in 2008, who then mortgaged it with the Central Bank of India for a loan.
  • Upon default, the bank initiated SARFAESI proceedings to take possession of the property.
  • Smt. Prabha Jain filed a civil suit seeking a declaration that the sale deed by Sumer Chand Jain and the subsequent mortgage to the bank were void, and also sought possession of the land and damages.

The Bank's Argument and the Trial Court's Decision

The Central Bank of India argued that Section 34 of the SARFAESI Act barred the civil court's jurisdiction, as these issues should be addressed by the DRT. The trial court agreed and rejected the plaint.

The High Court's Decision

The High Court reversed the trial court's decision, holding that the DRT did not have the jurisdiction to decide the validity of sale deeds and mortgages when the issue was not relating to enforcement action under section 13(4). The High Court stated such matters are within the jurisdiction of civil courts. The High Court also found that the court fees paid were adequate.

Supreme Court's Analysis of Section 34 of the SARFAESI Act

The Supreme Court analyzed Section 34 of the SARFAESI Act, which states that civil courts do not have jurisdiction over matters that the DRT or Appellate Tribunal are empowered to determine. The Court clarified that the bar on civil court jurisdiction only applies to matters that specifically fall under the DRT's authority as defined by the SARFAESI Act.

DRT's Limited Jurisdiction

The Court emphasized that the DRT's jurisdiction is primarily to adjudicate the legality of measures taken by the secured creditor under Section 13(4) of the SARFAESI Act. The DRT's power to restore possession is limited to returning it to the borrower or those claiming through the borrower as per the unamended Section 17(3). The DRT does not have the power to examine questions of title, the validity of a sale deed or mortgage deed prior to the mortgage to the bank under section 13(4). The SARFAESI Act was not enacted for adjudicating these issues and hence Section 34 cannot be used to bar a civil suit regarding same. The DRT does not have the jurisdiction to grant a declaration with respect to the mortgage deed or the sale deed as sought by the plaintiff.

Civil Court's Jurisdiction

Civil courts possess the power under Section 9 of the Code of Civil Procedure to decide all questions of civil nature. This power is only ousted when there is an express or implied bar. The jurisdiction to declare a sale deed or a mortgage deed illegal is vested with the civil court. The Court cited precedent emphasizing that the bar to the civil court's jurisdiction needs strict interpretation and should not be readily inferred.

Illustrative Examples

The Court provided two examples to illustrate that the DRT does not have jurisdiction to decide such issues: a dispute between two sons with conflicting wills and a dispute between an adopted child and their adoptive father's brother.

Interpretation of "Restore" in Section 17(3)

The Supreme Court highlighted the significance of the word “restore” in Section 17(3) of the SARFAESI Act, noting that it limits the DRT’s power to return possession only to those who had possession before the bank took over, not to others claiming ownership.

Analysis of Precedents

The Supreme Court analyzed several precedents:

  • Mardia Chemicals Ltd. v. Union of India (2004): Recognized the bar on civil court jurisdiction regarding matters the DRT can decide but carved an exception for cases of fraud.
  • Jagdish Singh v. Heeralal (2014): Broadened the scope of "any person" under section 17 to include a person claiming an interest in the secured property but clarified that this did not mean that DRT's powers were also broadened to decide on title.
  • State Bank of Patiala v. Mukesh Jain (2017): Reiterated that civil courts cannot entertain suits challenging proceedings under Section 13 of SARFAESI.
  • Axis Bank v. Madhav Prasad Aggarwal (2018): Highlighted that Section 34 bars jurisdiction for suits relating to matters that the DRT can decide, or actions under the SARFAESI Act.
  • Bank of Baroda v. Moti Bhai (1985): This case was used to analyze the meaning of the words "in respect of any matter arising under this Act".
  • Bank of Rajasthan Ltd. v. VCK Shares & Stock Broking Services Ltd (2023): Held that civil courts retain jurisdiction to entertain independent suits against banks (especially when it is not a recovery suit) and that these cannot be transferred to a DRT.

Findings on Rejection of Plaint

The Court declared that a plaint cannot be rejected in parts i.e., against one party while maintaining the suit against the other parties. The plaint has to be rejected as a whole or not at all.

Final Ruling

The Supreme Court upheld the High Court’s decision, emphasizing that the civil court had jurisdiction to decide on title issues and the validity of the sale deed and mortgage in this case. The Court noted that the questions of law remain open regarding the powers of a DRT and Appellate Authority beyond the scope of Section 17 of the SARFAESI Act.

Rationale, reasoning given by the Judges

The Court held that the jurisdiction of the civil court is plenary and is only ousted when there is an express or implied bar. The DRT's jurisdiction is limited to the matters specifically listed in the SARFAESI Act. Issues of title, validity of sale deeds and mortgages, partition suits, and possession to a third party cannot be addressed by the DRT. The court also highlighted the word "restore" in Section 17(3), limiting the power of the DRT to return possession only to those who were previously in possession. The provisions that bar civil court jurisdiction have to be interpreted strictly and not readily inferred.

Excerpt, important quotes from the decision

  • "Hence, the Civil Court’s jurisdiction is only ousted in respect of those matters which the Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the SARFAESI Act to determine."
  • "The SARFAESI Act has not been enacted for providing a mechanism for adjudicating upon the validity of documents or to determine questions of title finally. The DRT does not have the jurisdiction to grant a declaration with respect to the mortgage deed or the sale deed as sought by the Plaintiff.”
  • "The jurisdiction to declare a sale deed or a mortgage deed being illegal is vested with the civil court under Section 9 of the Code of Civil Procedure. Therefore, the civil Court has the jurisdiction to finally adjudicate upon the first two reliefs."
  • "The expression “any person” used in Section 17 is of wide import and takes within its fold not only the borrower but also the guarantor or any other person who may be affected by action taken under Section 13(4) of the Securitisation Act."
  • "The Court emphasized that the DRT only has the power to "restore" possession which means to give possession back to the party who was in possession when the Bank took possession. It has no power to hand over possession to a third party who was not in possession."
  • "In other words, the plaint has to be rejected as a whole or not at all, in exercise of power under Order 7 Rule 11(d) CPC."
  • "A provision seeking to bar jurisdiction of a civil court requires strict interpretation. The court, it is well settled, would normally lean in favour of construction, which would uphold retention of jurisdiction of the civil court."

Points to Remember

  • Section 34 of the SARFAESI Act only bars civil court jurisdiction in matters that DRT is specifically empowered to determine.
  • DRT's jurisdiction is limited to actions under Section 13(4) of the SARFAESI Act and does not include title disputes or validity of sale deeds.
  • Civil courts retain jurisdiction over issues that the DRT cannot address, such as declaration of title and possession to third parties.
  • The word "restore" in Section 17(3) limits the DRT to returning possession to those who were previously in possession.
  • Plaints cannot be rejected in part, but only in their entirety.
  • Provisions that bar civil court jurisdiction have to be interpreted strictly and not readily inferred.

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