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Ram Kumar & Anr v. Ravinder Kumar Gulati & Anr
Factual and Procedural Background
The appellants purchased a ground floor property measuring approximately 87 square yards at No. 11/4-A(1) Tilak Nagar from respondent No. 1 for Rs. 2,80,000/-, based on assurances that the property was free from encumbrances. An agreement was executed accordingly. Subsequently, it was revealed on 19.4.2005 that respondent No. 1 had taken a loan from Citj Bank (respondent No. 2) by hypothecating the suit property. The bank stated that respondent No. 1 had taken a loan of Rs. 29,00,000/- in March 2002 against the entire property and had failed to repay, leading to legal action. The appellants, claiming to be bona fide purchasers, filed suit seeking permanent injunction against the bank to prevent attachment or dispossession of the property. Both the Trial Court and the first Appellate Court ruled that the Civil Court lacked jurisdiction to entertain the suit, prompting the present appeal.
Legal Issues Presented
- Whether the Civil Court has jurisdiction to entertain a suit relating to a property hypothecated to a bank under the Securitisation and Reconstruction of Financial Assets and Enforcement of Interest Act, 2002 (the Act).
- Whether a bona fide purchaser, not privy to the loan agreement, can seek relief in Civil Court against the bank's action under the Act.
- Whether the appellants can challenge the bank's possession or enforcement action through the Civil Court or must approach the Debts Recovery Tribunal (D.R.T.) under the Act.
Arguments of the Parties
Appellant's Arguments
- The appellants contended that as third parties, they cannot approach the D.R.T. since they are neither borrowers nor parties to the bank's loan agreement.
- They asserted their status as bona fide purchasers of the property.
- They argued that the loan was taken by respondent No. 1 alone and not by them, implying they should not be affected by the bank's claim.
- The appellants' counsel did not cite any legal provision to support their position.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The Court recognized that Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Interest Act (the Act) provides a special mechanism for enforcement of security interest, allowing creditors to take possession of mortgaged property upon borrower default. The appellants did not dispute this legal position. Section 17 of the Act allows any person, including bona fide purchasers, to approach the Debts Recovery Tribunal (D.R.T.) to ventilate grievances, meaning there is no legal bar to such persons seeking relief before the D.R.T.
However, Section 34 of the Act explicitly bars Civil Courts from entertaining suits or proceedings concerning matters within the jurisdiction of the D.R.T. or Appellate Tribunal under the Act, and prohibits granting injunctions against actions taken under the Act or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
The Court noted that respondent No. 1 had entered into the loan agreement with the bank prior to the appellants' purchase, and had already deposited title documents with the bank. The appellants failed to verify ownership status before entering into the agreement. The Court held that the appellants could seek redress by filing a recovery suit against respondent No. 1 or through criminal proceedings, but the Civil Court cannot encroach upon the jurisdiction of the D.R.T.
Accordingly, the second appeal was dismissed in limine for lack of merit.
Holding and Implications
The Court's final decision is DISMISSED IN LIMINE the second appeal for lack of merit.
The direct effect of this decision is that the Civil Court has no jurisdiction to entertain suits relating to enforcement of security interests under the Securitisation and Reconstruction of Financial Assets and Enforcement of Interest Act, 2002, and such matters must be taken to the Debts Recovery Tribunal. The appellants, as bona fide purchasers, must seek relief through the D.R.T. or other appropriate legal remedies against respondent No. 1. No new precedent was established by this ruling.
J.M Malik, J.—
CM 16122/2006 (u/s 5 of the Limitation Act)
The delay in filing the present appeal is condoned and the application stands disposed of.
FAO 377-78/2006
1. Both the Trial Court and the first Appellate Court have handed down a verdict that Civil Court has no jurisdiction to entertain this suit. Adumberated in brief, the case of the appellants is this. Appellants purchased a property comprising of ground floor measuring 87 square yards approximately, bearing No. 11/4-A(1) Tilak Nagar, for a consideration of Rs. 2,80,000/- from respondent No. 1 after appellant was assured that the property is free from all encumbrances or charges etc. The agreement was also executed in this regard. In the meantime, it transpired on 19.4.2005 that respondent No. 1 had taken loan from Citj Bank, respondent No. 2 against the hypothecation of suit property. In their written statement the bank, respondent No. 2 made the following averments. The respondent No. 1 entered into a loan agreement with the respondent No. 2 bank in the month of March 2002 and took loan in the sum of Rs. 29,00,000/- against the entire property No. 11/4-A(1) Tilak Nagar, Delhi. The said borrower undertook to repay the said loan in 84 MMRS of Rs. 56778/- each and handed over the title deed of the said property to the bank. The respondent No. 1 did not adhere to the financial discipline towards the repayment of the said loan and hence the legal action was initiated against him.
2. It is averred that the plaintiffs/appellants are bonafide purchasers of the suit property and have sought the relief of permanent injunction against respondent No. 2, restraining respondent No. 2 or their officials from attaching the suit property of the appellants or from dispossessing them from the suit property.
3. I have heard counsel for the appellants. He did not pick up a conflict with the fact that the suit property was mortgaged with Giti Bank, respondent No. 2 for the loan granted to respondent No. 1. The argument raised by the learned counsel for the appellants has three prongs. Firstly, the appellants are a third party and cannot approach the D.R.T because they are neither the borrowers nor have concern with the bank. Again, they are not privy to contract with the bank. Secondly, they are bonafide purchasers. Lastly they did not receive the loan and loan was received by respondent No. 1. The learned counsel for the appellant could not draw the attention of the Court to any provision which may come to the rescue of the appellants.
4. I clap no significance to these arguments. Section 13 of Securitisation and Reconstruction of Financial Assets and Enforcement of Interest Act (to be called as Act henceforth) lays down a special mechanism for the enforcement of security interest. The Act envisages that in case borrower makes any default in repayment, it entitles the creditor to take over the possession of the mortgaged property. Learned counsel for the appellant did not dispute this legal position.
5. Again, Section 17 of the above said Act provides a remedy for ‘any person’ including the borrower. It has wide connotation. There lies no legal impediment for the person who claims to be bonafide purchaser to approach the D.R.T and ventilate his grievance.
6. However, there lies a rub in filing the suit before a Civil Court as provided in Section 34 of the above said Act which is re-produced as under:
“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)”.
7. The facts of this case speak for themselves. Respondent No. 1 entered into agreement with the Bank prior to his agreement with the appellants. Respondent No. 1 had already deposited his documents with the Bank. The startling factor in this case is as to how did the appellants enter into agreement with the respondent No. 1 without verifying their ownership deed. It is clear that the appellants did not make inquiries to find out that respondent No. 1 owns the disputed property free and clear. However, the appellants can redress their grievance by filing a suit for recovery of their amount against respondent No. 1 and by initiating criminal proceedings. Succinctly stated, the Civil Court cannot poach into the jurisdiction of the D.R.T as it is not armed with that power. The second appeal is without merit and is dismissed in limine.
CM 16123/2006
8. In view of the dismissal of the Appeal, no further orders are required to be passed in the application and the same is dismissed.
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