DRT Cannot Adjudicate Civil Rights Claimed Vis-a-Vis Security Interest Which Are Outside Sec 13/17 SARFAESI : Bombay High Court

A division bench of the Bombay High Court(Nagpur Bench) has delivered an elaborate judgment on the issue of the jurisdiction of the civil courts vis-a-vis the Debts Recovery Tribunal with respect to the security interest under the SARFAESI Act.A division bench comprising Justices SB Shurke and Avinash G Gharote was deciding the following question which was referred to in view of conflicting views expressed by different single bench decisions :"Whether the jurisdiction of a Civil Court to decide all the matters of civil nature, excluding those to be tried by the Debts Recovery Tribunal under Section 17 of the Securitisation Act, in relation to enforcement of security interest of a secured creditor, is barred by Section 34 of the Securitisation Act ?"Bar Under Section 34 SARFAESI Act not absolute;confined to matters under Section 13/17 SARFAESI ActThe division bench held that the bar under Section 34 of the SARFAESI Act, is not absolute, but is restricted to examination by the DRT of the actions of the secured creditor under Section 13 of the SARFAESI Act and the rights available under Section 17 of the SARFAESI Act.DRT cannot embark on an adjudication of the civil rights claimed vis-a-vis the security interest, such as right of partition, specific performance, reliefs under Sections 31 and 34 of the Specific Relief Act, preemption, redemption, declaration in respect of a property."...can a person who claims a right of partition, specific performance, reliefs under Sections 31 and 34 of the Specific Relief Act, preemption, redemption, declaration in respect of a property which is a security interest, approach the DRT for claiming adjudication of his such claim ? And can the DRT grant him such relief ? In our considered opinion, the answer has to be in the negative for the reason that it is not permissible for the DRT to embark on an adjudication of the civil rights claimed vis-a-vis the security interest, in light of the clear, precise and specific language of Section 17 (1) and 18 of the DRT Act read with Sections 13, 17 and 34 of the SARFAESI Act". Situations where civil courts may have jurisdiction over security interestA security interest may at times also involve the common law rights of a citizen, who is not a party to its creation. The judgment illustrated certain examples where the civil court may have jurisdiction over the security interest, despite Section 34 of the SARFAESI Act. (a) In Vineeta Sharma Vs. Rakesh Sharma and others , (2020) 9 SCC 1, the Apex Court, while considering the amendment to Section 6 of the Hindu Succession Act, 1956, whereby a daughter was recognised as a coparcener, has held that such recognition would give her right in the coparcenary property by her birth in the coparcenary and not from the date of death of her father or the amendment. In such a matter if the male members of the family have already created a security interest in such coparcenary properties in favour of the Bank and for non payment of dues, if the same are being sought to be taken possession of and sold by auction, under Section 13 of the SARFAESI Act, can the Special Forum, DRT herein, which is undertaking this exercise, on being approached by the daughter who now due to the amendment to the Hindu Succession Act, 1956, has a share therein which stands recognised retrospectively by the Apex Court, decide and determine the rights of such daughter and grant a preliminary decree delineating her share and take further action to separate her share ? If it cannot, then could it be said that the Civil Court does not have the jurisdiction to do so, in view of the bar created under Section 34 of the SARFAESI Act ? But if it is so held then the daughter in spite of having a right in the property duly recognised by law, would be left remediless, as she cannot go to the Civil Court nor the Special Forum, the DRT, has any authority to determine the extent of her right and grant her the relief which she would be entitled to.(b) Where the owner/borrower/guarantor has entered into an agreement of sale of the property and has accepted consideration resiles from the contract which is then put to enforcement by instituting a suit for specific performance, during the pendency of which if a security interest is created by the owner by offering the property as an equitable mortgage, and the property is then put to auction, can the Tribunal in such a case upon the plaintiff approaching it under Section 17, adjudicate the rights of the plaintiff vis-a-vis the security interest and release the property from further process under the SARFAESI Act ? If the security interest in spite of the notice of the pendency of the suit is put to auction for recovery of the dues of the Bank, how would the principle of lis pendens in Section 52 of the Transfer of Property Act, affect the situation ? This is more so, as by filing a suit, the right of the plaintiff, has become crystallized. What would happen to the suit for specific performance,...

DRT Cannot Adjudicate Civil Rights Claimed Vis-a-Vis Security Interest Which Are Outside Sec 13/17 SARFAESI : Bombay High Court

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DRT Cannot Adjudicate Civil Rights Claimed Vis-a-Vis Security Interest Which Are Outside Sec 13/17 SARFAESI : Bombay High Court

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