Jurisdiction of Debt Recovery Tribunal and jurisdiction of Civil Court: juxtaposition

In the instant article I would like to discuss the latest amendments made by Central Government by Act no 44 of 2016 in the section 17 of the Securitization Act 2002 and the interpretation given to it by Apex court. The amendment of  2016 included the words “ Any person ( including borrower) in section 17(10 and inserted a new sub clause 4a defining the rights of a tenant.

The above amendment were necessitated in he light of judgment passed by Apex Court in Harsha Goverdhan Sondagar Vs International Assets Reconstruction Company Ltd ( Criminal appeal no 736 of 2014 ) In this particular matter Apex Court delt with the rights of lawful lease in the promises mortgaged with the secured Creditor . The matter was decided in the light of Sec 13, 14,34,35,37 of Sarfaesi Act and Sec 65, 105,109 and sections 7,8,48 of Transfer of property Act. The Supreme Court while protecting the rights of the lawful tenant  divided the tenancy in three categories and held that the lawful tenant may not be evicted without following the due  process of law and he court has a duty to protect the interest of lawful tenant. Since the SARFAESI Act does not have any provision of restoring the possession to the third party it was decided that the lessee may invoke the jurisdiction of civil court.

The legislature with an intention to make the D.R.T. absolute in the matter of recovery of bank dues amended the Act of 2002 .

A perusal of the Amendment Act 44 of 2016 will reveal that it has greatly enhanced the scope of Sec 17.  The term “ Any person (including borrower) aggrieved by any measure taken  by secured creditor under sec 13(4)’  have drastically widened the scope of the application to be filed before Debt Recovery Tribunal. The borrower too has been included in the definition of any person so any person in whatever capacity that person may be if is having any grievance against any action taken by the secured creditor on whatever ground has only one remedy that is to file application before DRT. Sec. 34 lays down that no civil court has jurisdiction to entertain any suit or proceedings in respect o any mater which a DRT or the Appellate authority  of DRT is empowered to determine.

A combined reading of these two sections makes it abundantly clear that jurisdiction of civil courts is barred totally in the matter of enforcement of security interest by the banks .

This view was further emphasized and supported by the Supreme Court of India in Authorised officer of State Bank of India Vs Allwin Alloys (P) Ltd. Decided on May 17, 2018. In the instant matter the mortgagor company subsequent to mortgage of a flat to bank in security of loan , transferred the flat to a third party on the basis of an unregistered  Memorandum of Understanding. The bank initiated recovery proceeding against the flat before DRT. The action of the bank was upheld by the DRT and the DART. But the High Court decided in favour of purchaser and decided that the DRT was not the proper forum to decide the question of title of the property. This decision of the High Court was challenged by the Bank before Apex Court. The Supreme court decided in favour of bank and held that section 34 of the SARFAESI Act totally bars the jurisdiction of the civil court. Similarly in the matter of Jagdish Singh Vs Hiralal (2014) SCC 479 Apex Court decided where issue of the division of the secured interest was involved that this matter too may be decided by DRT only.

In the light of above two judgments of Apex Court we have to discuss whether it is the correct position of law and whether this position was intended by the legislature?

The Tribunals are established to lessen the burden of civil courts and with the object to deal with special facts and circumstances of a matter within the preview of a special act. The nature of proceedings before these tribunal is in the form of summary trial. Generally these Tribunals are headed by a person having sound knowledge of the subject the Tribunal deals with. These tribunals are from the rigors of CPC and ar able to deliver quick judgment.   Whereas the civil court follow the rules of CPC and every matter is decided by exchange of pleadings between the parties, framing of issues, submission of documentary and oral evidence by both the parties, hearing of arguments etc. All these steps are taken in a particular manner as provided in the sections , orders and rules of CPC and other legislation. The civil court after considereing all the facts and circumstances of the suit passes a decree which finally decides the matter of the suit and is binding on all.

The DRT Act has no provision which declares the Tribunal a civil court.  It may not pass any decree. According to Sec 17 scope of its jurisdiction is limited to examining whether the measures taken by secured creditor are in accordance with the sections and rules of the act. The DRT having perused the evidences before it is if satisfied if any provision of law is flouted by the bank it will set aside the action of the secured creditor and will restore the possession of the borrower or the aggrieved person. The bank does not lose its right to proceed against the borrower again by following the correct procedure.

Lawfulness of tenancy , dispute regarding title of the property  , the dispute regarding boundaries and  easementry  rights, disputes challenging the mortgage particularly on the ground of impersonation, disputes regarding inheritance and succession of the property,  are some example which require detail investigation in the dispute in the light of various acts and require appreciation of various oral and documentary evidences , examination of witnesses, and a patient hearing of the legal arguments of counsels of all the concerned parties.

The civil courts while dealing with such disputes has an elaborate procedure provided in CPC. All the parties to the dispute are required to appear  before the civil court submit their pleadings, and oral and documentary evidence, cross examine the witness of the other party and advance legal and factual arguments in its favour . The civil court examine all these facts in the light of law and other precedents of the superior court and then pass an order. The parties have opportunity of appeal. Ultimately the order of the civil court takes the shape of a decree and is binding on all . The dispute is finally decided forever.

No law bestows the power of the civil court on DRT. The DRT may not finally resolve any civil dispute and pass a final decree. Thus despite the order of DRT the resolution of civil dispute does not take place finality.

The SARFAESI ACT 2002 is  a code in itself for the purpose of enforcing security and the DRT has to just examine whether al the formalities as required under the act have been successfully completed by the secured creditor. The Act nowhere gives more jurisdictions to the DRT. Regaling powers of civil court to DRT was never the intention of the framers of law otherwise it would not have been stated in the Act that provisions of CPC would not apply to proceedings of DRT.

SARFAESI  ACT was framed to provide a tool of expeditious recovery  not to decide the civil disputes despite the fact that these may relate to secured assets. The interpretation of Sec 17 of Sarfaesi Act done by Apex Court is nothing but an over zeal to enforce recover of loan. In my opinion the correct procedure will be that where DRT is satisfied  that a genuine dispute  of civil nature is involved it should refer the matter for opinion to a civil court and decide the matter in the light of that opinion . the proceedings in civil court should not be below the court of Distt. Judge and proceedings should be culminated in a time bound manner without granting any adjournment to any party for any reason what so ever.Prefarable an lega arrangement may be made that the proceedings in such cases will be held on dayto day basis till he matter is finally decided. This may help in emoving this juxtaposition.

 

rajeev sharma 
on 12 August 2019
Published in Corporate Law
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