Civil Courts Can't Decide Premature Loan Repayment Disputes, Only NCLT Has Jurisdiction: Allahabad High Court
The Allahabad High Court has held that civil courts cannot decide disputes regarding premature repayment of a loan. Only the National Company Law Tribunal (NCLT) has such jurisdiction under Section 45QA of the Reserve Bank of India Act, 1934, read with Section 430 of the Companies Act, 2013.
Section 45QA of the Reserve Bank of India Act, 1934, empowers the Company Law Board, constituted under Section 10E of the Companies Act, 1956, to address repayment issues on its own motion or based on an application by a party and to direct repayment of the loan.
Section 430 of the Companies Act, 2013 bars civil courts from entertaining matters triable before the NCLT or the National Company Law Appellate Tribunal under the Companies Act.
Justice Sandeep Jain held:
“It is apparent from the language of Section 430 of the Companies Act, 2013 that where any matter is to be determined under this Act or any other law, which includes the RBI Act, by the NCLT, then no injunction can be granted by any court or other authority in respect of any action taken or to be taken by the NCLT, in pursuance of any power conferred by the RBI Act. It is clear that under Section 45 QA of the Act only the NCLT had the jurisdiction to decide the dispute of premature repayment of the loan taken by plaintiff from the defendant, hence, the civil court had no jurisdiction in this matter.”
Shivam Traders And Hire Purchase Pvt. Ltd., The plaintiff, took a long-term loan from Madhusudan Vehicles Pvt. Ltd.,the defendant, in 2019. The loan agreement stipulated that the defendant could not call for repayment before the majority of the 9-year term.
However, after one year, the defendant allegedly harassed the plaintiff for repayment of the loan and interest. Since the defendant wrote to the RBI seeking repayment, the plaintiff filed a suit seeking a declaration and protection from infringement of its rights.
The defendant moved under Order VII Rule 11 CPC to reject the plaint, arguing that civil courts lacked jurisdiction under the Companies Act. The Trial Court agreed and rejected the plaint, holding that Section 430 of the Companies Act, 2013 barred civil courts from hearing disputes where the NCLT had jurisdiction. It held that NBFC loan repayment disputes fall exclusively under the NCLT's purview.
The plaintiff challenged this order before the High Court in First Appeal.
The Court observed that Section 45-I(bb) of the RBI Act includes loans in the definition of deposit, making NBFCs liable under Section 45QA for defaults. It noted:
“It is also apparent that under Section 45 QA of the RBI Act, the Company Law Board, now National Company Law Tribunal(NCLT) is the only judicial authority which can decide this dispute as to whether the depositors are entitled to claim back their deposit/loan from the NBFC, whether the NBFC has committed any default in repaying the loan or the deposit, the manner in which the money is to be refunded, how to safeguard the interests of the company or the depositors, etc.”
The Court further found that the plaintiff approached the High Court with unclean hands, concealing pending NCLT proceedings initiated by the defendant. This attempt to prevent the defendant from filing an application under Section 45QA of the RBI Act violated Section 41(b) of the Specific Relief Act, and only the NCLT could decide the defendant's entitlement to premature repayment. It held:
“...there was no need for the plaintiff to file the instant suit, because the defendant had in fact already initiated proceeding under Section 45 QA of the RBI Act before the NCLT, prior to the filing of the instant suit by the plaintiff, which was concealed by the plaintiff, in which the plaintiff would have got full opportunity of hearing and showing that the defendant's claim was false, frivolous and vexatious.”
Accordingly, the Court dismissed the appeal and awarded costs in favor of the defendant.
Case Title: Shivam Traders And Hire Purchase Pvt. Ltd. v. Madhusudan Vehicles Pvt. Ltd.
For Appellant: Anil Kumar Pandey
For Respondent: Vedant Agarwal