Section 34 of SARFAESI Act: Bar on Civil Court Jurisdiction

An Exposition of Section 34 of the SARFAESI Act, 2002: The Ouster of Civil Court Jurisdiction in India

Introduction

The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) was enacted with the primary objective of empowering banks and financial institutions to recover non-performing assets (NPAs) expeditiously, without the intervention of courts in the initial stages.[10, 11] A cornerstone of this legislative scheme is Section 34, which imposes a bar on the jurisdiction of civil courts concerning matters that the Debts Recovery Tribunal (DRT) or the Debts Recovery Appellate Tribunal (DRAT) are empowered to determine under the Act. This provision is pivotal in ensuring the swiftness and efficacy of the recovery process envisioned by the SARFAESI Act. However, its application has led to considerable jurisprudential discourse, particularly concerning the extent of the ouster, the availability of alternative remedies, and the narrow circumstances under which civil court jurisdiction might still be invoked. This article undertakes a comprehensive analysis of Section 34, drawing upon statutory provisions and key judicial pronouncements from Indian courts.

The Legislative Mandate of Section 34

Text and Object of Section 34

Section 34 of the SARFAESI Act, 2002, reads as follows:

"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)."[18]

The legislative intent behind this provision is to channel disputes arising from actions taken by secured creditors under the SARFAESI Act to specialized fora, namely the DRT and DRAT, thereby preventing the recovery process from being stalled by protracted civil litigation.[16] The objective is to provide a speedy and exclusive mechanism for the adjudication of such disputes.

"Any Matter" and "Measures under Section 13(4)"

The phrase "in respect of any matter" in Section 34 has been interpreted broadly by the judiciary. The Supreme Court in Jagdish Singh v. Heeralal And Others clarified that this expression encompasses all measures provided under sub-section (4) of Section 13 of the SARFAESI Act.[5, 14] Consequently, any grievance against measures taken by the secured creditor, such as taking possession of secured assets, sale of assets, or appointment of a manager, must be addressed to the DRT or DRAT.[5] The Calcutta High Court in Corporation Limited (HDFC Ltd.) & Anr. v. Dorjee Dolma Bhutia & Ors further observed that the bar applies not only to actions already taken but also to any matter in respect of which action may be taken later by the DRT.[15]

Overriding Effect (Section 35)

The exclusionary effect of Section 34 is further fortified by Section 35 of the SARFAESI Act, which stipulates that the provisions of the 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.[14, 17] This non-obstante clause underscores the supremacy of the SARFAESI Act in its designated field of operation.

Judicial Interpretation of Section 34: The General Rule of Exclusion

Affirmation of the Bar

The judiciary has consistently upheld the bar imposed by Section 34. The Supreme Court in Jagdish Singh unequivocally stated that civil courts lack jurisdiction in such matters.[5] This position was reaffirmed in Electrosteel Castings Limited (S) v. Uv Asset Reconstruction Company Limited And Others (S), where the Court held that the statutory bar under Section 34 restricts civil suits despite ongoing SARFAESI proceedings.[1] Similarly, in Agarwal Tracom Pvt. Ltd. (S) v. Punjab National Bank & Ors. (S), a challenge to the forfeiture of a deposit by an auction purchaser was held to be a matter for the DRT under Section 17, ousting civil court jurisdiction.[4] High Courts have also consistently applied this principle, rejecting plaints and dismissing suits that seek to challenge actions taken under the SARFAESI Act.[13, 27]

Exhaustion of Alternate Remedies: Role of Section 17

The SARFAESI Act provides a specific and efficacious remedy under Section 17 for any person, including the borrower, aggrieved by any of the measures referred to in sub-section (4) of Section 13 taken by the secured creditor. The Supreme Court in United Bank Of India v. Satyawati Tondon And Others strongly deprecated the practice of approaching High Courts under Article 226 of the Constitution without exhausting the statutory remedy available under Section 17.[2, 16] This principle was reiterated in Authorized Officer, State Bank Of Travancore And Another v. Mathew K.C., where the Court set aside a High Court's interim order interfering with SARFAESI proceedings, emphasizing the need to exhaust remedies before the DRT.[6] The expression "any person" in Section 17(1) is of wide import, encompassing not only the borrower but also guarantors or any other person affected by the measures.[16]

Scope of DRT's Jurisdiction under Section 17

The jurisdiction of the DRT under Section 17 is comprehensive. In Authorised Officer, Indian Overseas Bank And Another v. Ashok Saw Mill, the Supreme Court clarified that the DRT's power extends not only to the initial action of taking possession under Section 13(4) but also to subsequent measures, including the sale of secured assets.[7] The DRT is empowered to examine whether the secured creditor's actions are in accordance with the provisions of the Act and the rules made thereunder.

The Limited Exceptions to the Bar of Section 34

The Mardia Chemicals Dictum

Despite the wide exclusionary language of Section 34, the Supreme Court in the landmark case of Mardia Chemicals Ltd. And Others v. Union Of India And Others carved out a narrow exception. The Court observed:

"However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or their claim is so absurd and untenable which may not require any probe whatsoever or to say precisely to the extent the scope is permissible to bring an action in a civil court in the cases of English mortgages."[3] (as cited in Ref 26, para 51 of Mardia Chemicals)

This dictum acknowledges that an absolute bar, without any recourse to civil courts even in exceptional circumstances, could lead to injustice. However, the scope for such intervention is "very limited."[3, 15]

Allegations of Fraud

One of the recognized, albeit narrow, grounds for invoking civil court jurisdiction is an allegation of fraud. However, the Supreme Court in Electrosteel Castings Limited has clarified that mere, vague, or general allegations of fraud are insufficient to bypass the statutory bar of Section 34.[1] To maintain a civil suit on the ground of fraud, the plaintiff must plead specific and material particulars of the alleged fraud, in compliance with Order VI Rule 4 of the Civil Procedure Code, 1908.[1] If the allegations are not substantiated with precise details, the suit will be barred, and the appropriate forum remains the DRT.

Tenancy Rights and SARFAESI

The interplay between SARFAESI proceedings and pre-existing tenancy rights protected under state rent control legislations presents a complex scenario. While the SARFAESI Act empowers secured creditors to take possession and sell secured assets,[11] the rights of bona fide tenants existing prior to the creation of the mortgage or notice under Section 13(2) may require adjudication beyond the typical scope of DRT proceedings. The Punjab & Haryana High Court in SHAKTI TRADING CO. v. KAILASHWANTI & ANR noted arguments concerning a tenancy predating the loan.[18] The Supreme Court in Vishal N. Kalsaria v. Bank Of India And Others (though the provided excerpt only quotes Sec 13) has dealt with the protection of tenants under rent control laws vis-à-vis SARFAESI actions, suggesting that SARFAESI may not automatically override tenant protections under specific state laws. This remains an area where civil courts might, in limited and specific circumstances focusing on the tenancy rights per se, exercise jurisdiction.

Partition Suits

Another area where the jurisdiction of civil courts might be contended is in suits for partition, especially where co-parceners or co-owners claim that their share in the property is not liable for the secured debt. In Indian Bank v. B. Venkataraman, the Madras High Court considered the maintainability of a suit converted into a partition suit, given that partition is an inherent civil right typically adjudicated by civil courts.[23] The determination often hinges on whether the challenge is fundamentally to the SARFAESI measures (barred) or to establish pre-existing, independent civil rights (potentially maintainable).

Section 34 and Other Fora

Consumer Protection Fora

A consistent line of decisions from Consumer Disputes Redressal Commissions, including the National Commission, holds that Section 34 of the SARFAESI Act ousts the jurisdiction of consumer fora in matters relating to actions taken by financial institutions under the Act.[19, 20, 21, 22, 24, 25] It has been held that when proceedings under SARFAESI have been initiated, consumer fora cannot interfere or arrogate to themselves the right to make decisions on such matters.[19, 21]

High Courts' Writ Jurisdiction (Article 226)

While Section 34 directly bars civil courts, the writ jurisdiction of High Courts under Article 226 of the Constitution is a constitutional remedy. However, as established in United Bank Of India v. Satyawati Tondon and Authorized Officer, State Bank Of Travancore v. Mathew K.C., High Courts should exercise restraint and not entertain writ petitions challenging SARFAESI actions if an efficacious alternative remedy under Section 17 is available and has not been exhausted, save in exceptional circumstances such as lack of jurisdiction or violation of principles of natural justice.[2, 6]

Procedural Aspects and Implications

Trigger for SARFAESI Action and Bar

The recovery process under the SARFAESI Act, and consequently the applicability of the bar under Section 34, is typically triggered by a notice issued by the secured creditor under Section 13(2) of the Act.[9, 12] This notice requires the borrower to discharge liabilities within sixty days, failing which the secured creditor can take measures under Section 13(4).[10, 11] Once such notice is served, Section 13(13) restricts the borrower from creating any encumbrance on the property.[9]

"Clever Drafting" to Circumvent the Bar

Courts are wary of attempts to circumvent the statutory bar of Section 34 through "clever drafting" of plaints. The Supreme Court in Electrosteel Castings Limited deprecated such strategies, emphasizing that the substance of the claim, rather than its form, determines jurisdiction.[1] If the relief sought effectively challenges the measures taken or to be taken under the SARFAESI Act, the suit will be barred, irrespective of the phraseology used.[16]

Conclusion

Section 34 of the SARFAESI Act, 2002, stands as a robust legislative provision designed to insulate the debt recovery process by financial institutions from the delays inherent in traditional civil litigation. The judiciary, by and large, has interpreted this section strictly, affirming the ouster of civil court jurisdiction and directing aggrieved parties to the specialized remedies available under Section 17 before the Debts Recovery Tribunal. The exceptions to this bar, primarily stemming from the Mardia Chemicals dictum, are narrowly construed and typically require specific pleadings of fraud or relate to complex questions of pre-existing rights that fall outside the conventional scope of the DRT's inquiry. The consistent stance across various judicial fora, including the preclusion of consumer courts and cautious exercise of writ jurisdiction by High Courts, underscores the legislative intent to make the SARFAESI framework a self-contained and efficient mechanism for the enforcement of security interests. The overarching principle remains the balance between facilitating speedy recovery of public money and ensuring that fundamental tenets of justice are not unduly compromised.

References

  1. Electrosteel Castings Limited (S) v. Uv Asset Reconstruction Company Limited And Others (S). (2021 INSC 794, Supreme Court Of India, 2021)
  2. United Bank Of India v. Satyawati Tondon And Others (2010 SCC 8 110, Supreme Court Of India, 2010)
  3. Mardia Chemicals Ltd. And Others v. Union Of India And Others (2004 SCC 4 311, Supreme Court Of India, 2004)
  4. Agarwal Tracom Pvt. Ltd. (S) v. Punjab National Bank & Ors. (S) (2017 SCC ONLINE SC 1368, Supreme Court Of India, 2017)
  5. Jagdish Singh v. Heeralal And Others (2014 SCC 1 479, Supreme Court Of India, 2013)
  6. Authorized Officer, State Bank Of Travancore And Another v. Mathew K.C. . (2018 SCC 3 85, Supreme Court Of India, 2018)
  7. Authorised Officer, Indian Overseas Bank And Another v. Ashok Saw Mill . (2009 SCC 8 366, Supreme Court Of India, 2009)
  8. Transcore v. Union Of India And Another (2008 SCC 1 125, Supreme Court Of India, 2006)
  9. Bajarang Shyamsunder Agarwal v. Central Bank Of India And Another (Supreme Court Of India, 2019)
  10. Punjab National Bank v. Union Of India And Others (Supreme Court Of India, 2022)
  11. Vishal N. Kalsaria v. Bank Of India And Others (Supreme Court Of India, 2016)
  12. Urmila Kumari Petitioner v. Om Prakash Jangra And Ors. S (Delhi High Court, 2015)
  13. Authorised Officer v. Brahmo Construction Pvt. Ltd. (Bombay High Court, 2015)
  14. Indusind Bank Ltd. v. Smt. Sunita Gauli (Madhya Pradesh High Court, 2018)
  15. Corporation Limited (HDFC Ltd.) & Anr. v. Dorjee Dolma Bhutia & Ors; (Calcutta High Court, 2015)
  16. Manager, State Bank Of India v. Md. Jahir (Calcutta High Court, 2020)
  17. Housing Development Finance Corporation Limited (Hdfc Ltd.) & Anr. v. Dorjee Dolma Bhutia & Ors (Calcutta High Court, 2015)
  18. SHAKTI TRADING CO. v. KAILASHWANTI & ANR (Punjab & Haryana High Court, 2018)
  19. Jitendra Sahoo. v. Canara Bank,D.P.Code No-3364,Duburi Branch. (District Consumer Disputes Redressal Commission, 2023)
  20. Ganeswar Sahoo v. Canara Bank,D.P.Code No-3364,Duburi Branch. (District Consumer Disputes Redressal Commission, 2023)
  21. Yankappa S/o Sayappa v. The Manager Canara Bank Branch (District Consumer Disputes Redressal Commission, 2024)
  22. Mallamma W/o Shivsharnappa v. Manager Canara Bank (District Consumer Disputes Redressal Commission, 2022)
  23. Indian Bank v. B. Venkataraman (2014 SCC ONLINE MAD 1070, Madras High Court, 2014)
  24. Ganeswar Sahoo v. Canara Bank,D.P.Code No-3364,Duburi Branch. (District Consumer Disputes Redressal Commission, 2023) [Duplicate reference, content similar to 20]
  25. Ganeswar Sahoo v. Canara Bank,D.P.Code No-3364,Duburi Branch. (District Consumer Disputes Redressal Commission, 2023) [Duplicate reference, content similar to 20]
  26. ALLAHABAD BANK v. MS KALI COKE BRIQUTTE (Debts Recovery Tribunal, 2020)
  27. The Authorized Officer, Corporation Bank V. Koottu Road, Sheep Farm Post, Attur Taluk, Salem District v. Minor Sathiya Others (Madras High Court, 2007)