IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 04.07.2007 CORAM THE HON'BLE MR.JUSTICE S.ASHOK KUMAR CRP (PD) No.829 of 2007 and M.P. No.2 of 2007 Bank of India rep.by its Branch Manager Lakkampatti Branch No.70 Sathi Main Road Karatadipalayam Gobichettipalayam 638 453. ... Petitioner Vs. 1. N.Natarajan 2. R.Sakadevan ... Respondents Civil Revision Petition is filed under Art.227 of the Constitution of India against the order dated 10.11.2006 made in I.A.No: 784 of 2006 in O.S.No. 227 of 2006 on the file of the learned District Munsif Court, Sathyamangalam. For Petitioner : M/s.Sree Associates For Respondent : Mr.P.R.Balasubramanian for R1 ORDER
This Civil Revision Petition is filed against the order dated 10.11.2006 made in I.A.No: 784 of 2006 in O.S.No. 227 of 2006 by the learned District Munsif, Sathyamangalam in extending the interim stay when the suit and the I.A., are not maintainable in law in view of the bar under Section 34 of the SARFAESI Act.
2. The first respondent/plaintiff filed the suit for the relief of perpetual injunction against the defendants and their men from interfering with the peaceful possession and enjoyment of the suit property till the completion of the agreement period of three years starting from 10.3.2006 and ends with 10.3.2009. According to the plaintiff he entered into an agreement on 10.3.2006 with the second respondent herein and took possession of the suit property and invested huge amount for working capital and doing modern rice mill business. It is his case that he also verified the encumbrance and found that there was no encumbrance entries regarding the suit property and the land. The plaintiff alleges that the second respondent in collusion with the revision petitioner/mortgagee makes attempts to get possession of the suit property where the modern rice mill is being run by the plaintiff in a profitable manner under the guise of non payment of the loan amount obtained by the first respondent to the Bank/mortgagee. Therefore along with the plaint, the plaintiff also took out an application for temporary injunction to restrain the defendants from disturbing his running of the Modern Rice Mill till the agreement period is over.
3. The revision petitioner/bank resisted the said application stating that the second respondent herein obtained a loan of Rs.20 lakhs by depositing the title deeds. Since the second respondent failed to conduct the CC account properly and pay the interest as per the contract, the account was classified as a Non Performing Asset by the Bank and action was taken under the SARFAESI Act and notice under Section 13(2) of the said Act was served and since 60 days as stipulated in the said notice expired, further action was taken by the Recovery Enforcement Agents of the bank to bring the property for sale and the same is in progress and once the action is initiated invoking the SARFAESI Act, no other court has the jurisdiction to stay the proceedings except the Debt Recovery Tribunal. It is also alleged by the Bank that the first respondent and the second respondent colluded together and entered into an unregistered lease agreement, which agreement is not valid in the eye of law since any lease agreement for more than 11 months has to be registered. The plaintiff has not gone through the original title deeds before entering into such lease agreement.
4. The learned District Munsif, Sathyamangalam, on hearing the counsel for the plaintiff and perusing the documents granted a limited interim stay and has been extending the stay. Aggrieved of the same, the present revision is filed by the Bank/mortgagee.
5. Learned counsel appearing for the revision petitioner contended that the suit itself is not maintainable since the civil Court’s jurisdiction is explicitly barred under Section 34 of the SARFAESI Act after issuance of notice under Section 13(2) of the Act. The second respondent is the absolute owner of the suit property mortgaged to the Bank for availing the loan and as such inevitably the Bank has the propriety to enforce the security for realizing the outstanding due. If at all, the respondents have to file reply to the bank’s notice under Section 13(2) of the SARFAESI Act and there is a further remedy of appeal under Section 17 of the said Act. It is also contended that the very lease agreement based on which the suit has been filed is an unregistered lease agreement for three years that too for a meager advance of Rs.50,000/= which will expose the collusion between the first and second respondents.
6. In this respect it is relevant to extract the relevant portions of the order passed by Rajeswaran,J., in Company Application No.180 of 2007, which are as follows:
“19. To decide the issue involved in this revision, sections 13,17,18,19,34 and 35 of SARFAESI Act are relevant and they are extracted below for better appreciation:
“13.Enforcement of security interest:-(1) Notwithstanding anything contained in section 69 or section 69-A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or tribunal, by such creditor in accordance with the provisions of this Act.
(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset,then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section(4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3-A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower.
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17-A.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-
(a)take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;
(b)take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset;”
“17.Right to appeal:-(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorised officer under this Chapter, (may take an application along with such fee, as may be prescribed,) to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such measures had been taken;
(Provided that different fees may be prescribed for making the application by the borrower and the person other than the borrower)
(Explanation:-For the removal of doubts, it is hereby declared that the communication of the reasons to the borrower by the secured creditor for not having accepted his representation or objection or the likely action of the secured creditor at the stage of communication of reasons to the borrower shall not entitled the person (including borrower) to make an application to the Debts Recovery Tribunal under this sub-section)
(2)The Debts Recovery Tribunal shall consider whether any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor for enforcement of security are in accordance with the provisions of this Act and the rules made thereunder.
(3)If, the Debts Recovery Tribunal, after examining the facts and circumstances of the case and evidence produced by the parties, comes to the conclusion that any of the measures referred to in sub-section (4)of section 13, taken by the secured creditor are not in accordance with the provisions of this Act and the rules made thereunder, and require restoration of the management of the business to the borrower or restoration of possession of the secured assets to the borrower, it may by order, declare the recourse to any one or more measures referred to in sub-section (4) of section 13 taken by the creditors assets as invalid and restore the possession of the secured assets to the borrower or restore the management of the business to the borrower, as the case may be, and pass such order as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under sub-section (4) of section 13.
(4)If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured credit shall be entitled to take recourse to one or more of the measures specified under sub-section(4) of section 13 to recover his secured debt.
(5)Any application made under sub-section (1)shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application.
Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so, however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making of such application made under sub-section(1).
(6)If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any party to the application may make an application, in such form as may be prescribed, to the Appellate Tribunal for directing the Debts Recovery Tribunal for expeditious disposal of the application pending before the Debts Recovery Tribunal and the Appellate Tribunal may, on such application by the Debts Recovery Tribunal.
(7)Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of Debts Due to Banks and Financial Institutions Act, 1993(51 of 1993) and the rules made thereunder.)”
“18.Appeal to Appellate Tribunal:-(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal (under section 17, may prefer an appeal along with such fee, as may be prescribed) to the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal:
(Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower:)
(provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less:
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso)
(2)Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993(51 of 1993) and rules made thereunder.”
“19.Right to borrower to receive compensation and costs in certain cases:-If the Debts Recovery Tribunal or the court of District Judge, on an application made under section 17 or section 17-A or the Appellate Tribunal or the High Court on an appeal preferred under section 18 or section 18-A, holds that the possession of secured assets by the secured creditor is not in accordance with the provisions of this Act and rules made thereunder and directs the secured creditors to return such secured assets to the concerned borrowers, such borrower shall be entitled to the payment of such compensation and costs as may be determined by such Tribunal or Court of District Judge or Appellate Tribunal or the High court referred to in section 18-B)”
34.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)”
Objects and Reasons-Clause 34:-This clause provides that 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 the proposed legislation 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 the proposed legislation or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.”
“35.The provisions of this Act to override other laws:-The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”
20. A combined reading of the above sections of the SURFAESI Act will bring out the following procedure to be adopted under the Act:
(1) When a borrower has become a defaulter in repayment of secured debt and his account is classified by the secured creditor as non-performing asset, the secured creditor can send a notice in writing under sec.13(2) to discharge in full his liabilities within 60 days.
(2) If a reply is given by the borrower to the notice sent under sec.13(2) raising objections, the same should be considered and if the objections are rejected, the secured creditor shall communicate to the borrower within a week of receipt of such reply the reasons for rejecting the objections.
(3) The reasons so communicated shall not confer any right upon the borrower to challenge the communication
(4) If the borrower fails to discharge his liability within the period of 60 days, the secured creditor may proceed against the borrower by taking possession of the secured assets, taking over the management of the business of the borrower, etc.
(5) Any person aggrieved by way of the measures taken by the secured creditor, may prefer an appeal to Debts Recovery Tribunal (DRT) within 45 days under sec.17 of the Act.
(6) DRT under sec.17 shall consider whether the measures taken by the secured creditor are in accordance with the Act after examining the facts and circumstances of the case and the evidence produced by the parties.
(7) DRT should dispose of such appeal filed under sec.17 within 60 days.
(8) Any person aggrieved by any order made by the DRT may prefer an appeal to the Appellate Tribunal within 30 days from the date of receipt of the order.
(9) If the DRT holds that possession of secured assets by the secured creditor is not in accordance with the provisions of the Act and directs to return such secured assets to the borrower, the borrower is entitled to payment of compensation and costs as may be determined by the tribunal.
(10) No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a tribunal or the appellate tribunal is empowered under the Act to determine. (emphasis supplied)
(11) No injunction shall be granted by any court or other authority in respect of any action taken under this Act or the DRT Act (Act 51/1993)(emphasis supplied)
(12) The provisions of SARFAESI Act shall have overriding effect, notwithstanding anything inconsistent therewith contained in any other law.”
7. Thus it is very clear that SARFAESI Act is a self contained code enacted for a special purpose and therefore once a notice is issued under sec.13(2), it has to proceed in the same way as contemplated under the Act and any aggrieved person against the measures taken by the bank under sec.13(4) has to approach the DRT first and the DRAT later and he cannot maintain a civil suit for the measures taken by the bank under sec.13(4) of the Act. Therefore it is to be held that suit is also specifically excluded from the purview of civil courts for the action taken or to be taken by the bank under sec.13(4) of the Act.
8. As far as the present case is concerned, the plaintiff without even replying to the notice issued by the bank under sec.13(2) of the Act within the stipulated period of 60 days, has approached the civil court and also obtained interim order of injunction which is illegal and contrary to the provisions of SARFAESI Act. In such circumstances, I am of the considered opinion that the suit is not maintainable before the trial court. In fact there is no cause of action itself for filing the above suit.
9. In (2005) 126 Comp Cases 630 (cited supra), a Division Bench of this court held that where the challenge is to the notice under sec.13(2) of the SARFAESI Act, the same is to be rejected as a reply is to be given to such notice and if the challenge is to the action under sec.13(4), the same is also to be rejected on the ground of alternative remedy of filing an appeal under sec.17.
10. It is true that the above decision was rendered in a batch of writ petitions challenging the provisions of the Act and the actions taken by the secured creditors. But the law laid down by the Division Bench of this court will apply to suits also.
11. In 2006(4) MLJ 914 (cited supra), this court held that a suit filed by the plaintiff for declaration that the notice issued under sec.13(2) OF SARFAESI Act is void, illegal and for permanent injunction to restrain the bank from alienating or encumbering or transferring or inducting any one into the suit properties, is barred under sec.34 of the SARFAESI Act, because the civil court has no jurisdiction to entertain the suit. This court rejected the plaint itself in the above decision.
12. In 2006(5) CTC 753 (cited supra), the Hon’ble Supreme court held that Sec.35 of the SARFEASI Act gives an overriding effect to that Act with all other laws and of such other laws are inconsistent with the SARFEASI Act. The Supreme court further observed that the very object of Sec.13 of SARFEASI Act is recovery by non-adjudicatory process and it is for this reason that Sec.13(1) and 13(2) of the Act proceeds on the basis that security interest needs to be enforced expeditiously without the intervention of the court/tribunal. The SARFEASI Act states that enforcement would take place by non-adjudicatory process and the Act removes all fetters on the rights of the secured creditors.
13. For the foregoing reasons, this court holds that the very suit filed by the first respondent is not maintainable and liable to be rejected in view of the specific bar contained in Section 34 of the SARFAESI Act. Consequently, the order dated 10.11.2006 made in I.A.No.784 of 2006 in O.S.No:227 of 2006 on the file of the learned District Munsif Court, Sathyamangalam is set aside. Consequently, connected M.P is closed. However, there is no order as to costs.
gkv
To:
The District Munsif,
Sathyamangalam.