Translate
Text Highlighter

Bookmark

PDF

Share

Report a problem
AMICUS AI
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Mr. M.C Bhoot for the petitioner.
  • Mr. M.S Singhvi for the respondents.
Judges
  • Mr. Gopal Krishan Vyas
Acts
Are you a practicing lawyer?
Enhance your digital presence and reach by creating a Casemine profile.
Upload pleading to use the new AI search
Click here to upload
Cites
Cited by
Citation Codes
Equivalent Citations
citation codes
Case Number
Advocates
  • Mr. M.C Bhoot for the petitioner.
  • Mr. M.S Singhvi for the respondents.
Judges
  • Mr. Gopal Krishan Vyas
Acts
See more information ...
Smart Summary

Structured Summary of the Opinion — Revision Petition by State Bank of India, Bhilwara

Factual and Procedural Background

The State Bank of India, Bhilwara (petitioner/defendant in the original suit) filed this revision petition challenging the District Judge, Bhilwara's order dated 29.05.2009 in Civil Original Suit No. 126/2009. The trial court had dismissed the bank's application under Order VII Rule 11 of the Code of Civil Procedure (C.P.C.) and, by order dated 30.05.2009, granted a temporary injunction in favour of the plaintiff (a private limited company).

The plaintiff company had instituted a suit for declaration and permanent injunction challenging the bank's action of declaring certain company bank accounts as NPA and making related debit entries. After service, the bank filed an application on 26.05.2009 under Order VII Rule 11 C.P.C. seeking rejection of the plaint on the ground that the suit was barred by statute (the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 — "Act of 2002" — and the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 — "Act of 1993"). The trial court rejected that application and entertained the suit; the bank sought revision of that rejection.

Legal Issues Presented

  1. Whether the plaint, on its face, discloses that the suit is barred by Section 34 of the Act of 2002 and Section 18 of the Act of 1993, such that it should have been rejected under Order VII Rule 11(d), C.P.C.
  2. Whether the respondent company, by its own pleadings (paras 1 and 2 of the plaint), qualifies as a "borrower" and whether the disputed debit entries and recovery action fall within the statutory definition of "debt" under the Acts, thereby ousting civil court jurisdiction.
  3. Whether the limited exception recognized by the Supreme Court (in Mardia Chemicals) for fraud or manifestly untenable claims applies on the pleadings in this case.

Arguments of the Parties

Petitioner Bank's Arguments (Defendant in original suit)

  • The plaint shows on its face that the respondent company availed financial facilities from the bank (including a "forward contract limit" of Rs. 80 crore) and executed forward exchange purchase contracts as security; therefore the company is a "borrower" as defined in Section 2(f) of the Act of 2002.
  • The debit entries and recovery action taken by the bank arise from the financial facility and the forward exchange purchase contracts and thus constitute "debt" under Section 2(ha) of the Act of 2002 read with Section 2(g) of the Act of 1993.
  • Section 34 of the Act of 2002 and Section 18 of the Act of 1993 bar civil courts from entertaining suits in respect of matters for which Debt Recovery Tribunals/Appellate Tribunals have jurisdiction; consequently the plaint is barred by law and should have been rejected under Order VII Rule 11(d), C.P.C.
  • The trial court erred in not considering the statutory definitions (borrower, debt, financial assistance) and the bar contained in the Acts and in failing to follow governing precedent (Mardia Chemicals Ltd.).

Respondent Company's Arguments (Plaintiff in original suit)

  • The suit is for breach of terms and conditions of the forward exchange purchase contracts and is not essentially a debt-recovery action; therefore the Acts of 2002 and 1993 are not attracted to oust civil court jurisdiction.
  • The forward exchange purchase contracts are governed by the norms of the Foreign Exchange Dealers Association of India and do not amount to financial assistance or security that would define the company as a "borrower" under the Acts.
  • The company cancelled certain forward contracts by letters dated 26.02.2008 and 27.06.2008, delivered to the bank; despite this, the bank made debit entries and declared accounts NPA — the action was illegal, mala fide and caused irreparable harm to the company's business and reputation.
  • The limited exception recognized in Mardia Chemicals (fraudulent or manifestly untenable claims) applies here because the bank acted mala fide; hence the civil court properly exercised jurisdiction and granted interim relief.
  • The respondent relied on several precedents (including AIR 1974 SC 1265, (2008) 10 SCC 99, (2008) 12 SCC 661 and Mardia Chemicals (2004) 4 SCC 311 para 51) to support its contentions regarding jurisdiction and exceptions.

Table of Precedents Cited

Precedent Rule or Principle Cited For Application by the Court (how the opinion used it)
Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311 Upheld validity of the Act of 2002; held civil courts have no jurisdiction under Section 34 of Act of 2002; para 50/51 recognise a narrow exception where action of secured creditor is fraudulent or claim is manifestly untenable. The Court relied heavily on Mardia to conclude that the Act of 2002 bars civil suits in matters within DRAT/DRT jurisdiction and that the narrow exception in para 51 did not apply on the pleadings in this case. Mardia formed the core authority for holding the suit barred by Section 34.
AIR 1974 SC 1265 Referenced by respondent; exact proposition from the citation as relied upon by respondent is not elaborated in the opinion. The Court observed that this judgment (as cited by the respondent) is "altogether different" and not applicable to the present facts; it did not form the basis of the Court's decision to allow the revision.
(2008) 10 SCC 97 (also referenced in the opinion as (2008) 10 SCC 99 in parts) Principles concerning pleadings and Order VII Rule 11: a plaint must contain material facts and a plea barring civil court jurisdiction must be considered from the plaint's averments as a whole. The Court applied this principle to hold that the pleadings (paras 1 and 2) disclose facts showing the company availed financial facilities and executed forward exchange purchase contracts as security, thereby attracting the bar under Order VII Rule 11(d).
(2008) 12 SCC 661 Distinction between a plaint disclosing no cause of action and a plaint disclosing a cause of action that is barred by law; guidance that courts at the rejection stage should not go into evidence or disputed facts but may reject where jurisdiction is barred by law. The Court used this authority to support the proposition that where pleadings show the suit is statutorily barred, the plaint should be rejected under Order VII Rule 11(d) without entering into disputed questions of fact or evidence.
Church of North India v. Lavajibhai Ratanjibhai (citation linked in opinion) Support for the rule that plaints must be read as a whole and a plea of bar to jurisdiction is to be considered with reference to the pleadings in entirety. The Court cited this authority (as reproduced within other cited decisions) to reinforce that the court must consider the pleadings in toto when deciding an Order VII Rule 11(d) application.
V. Narasimhachariar (Madras High Court decision, as discussed in Mardia) Illustrative of the limited circumstances where civil courts may enjoin a mortgagee's sale — i.e., where fraud or impropriety in exercise of power of sale is pleaded. Referred to within the Mardia quotation to explain the narrowness of the exception to the statutory bar; the Court found the present pleadings did not fall within that narrow exception.

Court's Reasoning and Analysis

The Court's reasoning proceeded in a stepwise fashion, grounded strictly on the plaint and the legal definitions and statutory bar set out in the Acts:

  1. Statutory Text and Order VII Rule 11(d): The Court recorded the text of Order VII Rule 11(d) and emphasised that rejection of a plaint under that provision depends on whether the suit "appears from the statement in the plaint to be barred by any law." At this stage the court looks at the pleadings alone, not extraneous evidence.
  2. Examination of Pleadings: The Court examined paras 1 and 2 of the plaint which admitted that the plaintiff-company is registered under the Companies Act, 1956, carries on trading/manufacturing and export of yarn, and availed various fund-based and non-fund-based facilities from the bank (detailed limits and account numbers were set out in the plaint).
  3. Forward Exchange Purchase Contracts and Purpose: The plaint itself stated that forward exchange purchase contracts were executed to obtain a forward contract limit sanctioned by the bank (stated in the plaint as Rs. 80 crore). The Court interpreted these contracts as being executed "for sanction of forward contract limit" and effectively as guarantees/security to secure financial assistance.
  4. Definitions in the Act of 2002 / Act of 1993: The Court analysed statutory definitions:
    • Section 2(f) of the Act of 2002 defines "borrower" to include any person granted financial assistance or who has given any guarantee or created security for financial assistance.
    • Section 2(k) of the Act of 2002 defines "financial assistance" broadly (loan, advance, guarantee, letter of credit, or any other credit facility).
    • Section 2(ha) of the Act of 2002 incorporates the meaning of "debt" from Section 2(g) of the Act of 1993, which defines "debt" as any liability claimed as due from any person by a bank or financial institution in the course of its business.
  5. Application of Definitions to Pleadings: Applying these definitions to the plaint, the Court concluded that:
    • The company, by availing the forward contract limit and executing forward exchange purchase contracts, falls squarely within the statutory definition of "borrower."
    • Any liability or debit entries arising from breach/cancellation of those contracts are "debt" as defined in the Acts.
  6. Statutory Bar under Section 34 and Section 18: The Court noted Section 34 (Act of 2002) and Section 18 (Act of 1993), which bar civil courts from entertaining matters within the jurisdiction of the Debt Recovery Tribunal or Appellate Tribunal and prohibit injunctions in respect of actions taken under those Acts. Given the Court's conclusion that the pleadings disclose a borrower/debt relationship, the suit was found to be within the statutory bar.
  7. On Exceptions (Mardia para 51): The Court considered the narrow exception in Mardia (fraud or manifestly untenable claims) and examined the plaint for averments of fraud or such extraordinary facts. The Court concluded the plaint contained ordinary allegations of financial loss, arbitrariness and negligence, not the kind of pleaded fraud or manifestly untenable claim that would fall within Mardia's limited exception. Therefore that exception did not apply.
  8. Critique of Trial Court's Decision: The Court found the trial court's order rejecting the bank's Order VII Rule 11 application to be made "without application of mind" and without properly considering the statutory definitions and the bar under Section 34. The trial court, in the opinion under review, had concluded incorrectly that the relief sought did not fall under the Act of 2002.
  9. Reliance on Precedent Regarding Pleadings/Order 7 Rule 11: The Court invoked the principles from the (2008) SCC authorities that a court must consider the plaint as a whole and that where the pleadings disclose a bar by law, the plaint should be rejected under Order VII Rule 11(d) without entering into evidence or disputed factual inquiries.
  10. Conclusion of Analysis: The Court concluded that, on the face of the plaint, the Act of 2002 and Act of 1993 apply; hence the civil suit is barred and had to be dismissed at the rejection stage under Order VII Rule 11(d).

Holding and Implications

Holding:

The revision petition is allowed. The impugned order dated 29.05.2009 is quashed and set aside. The application filed by the petitioner Bank under Order VII Rule 11, C.P.C. is allowed, and the suit filed by the respondent company is dismissed as barred by law.

Implications:

  • Direct effect on the parties: The dismissal of the suit removes the civil court forum for the plaintiff-company's claims in Civil Original Suit No. 126/2009; the remedy (if any) lies under the statutory framework provided by the Acts (e.g., before the Debt Recovery Tribunal or under the procedural provisions of the Act of 2002 such as Section 13 and Section 17), as indicated by the Court's reliance on the statutory bar.
  • On precedent and broader law: The Court based its decision on existing statutory provisions and on binding authority (notably Mardia Chemicals Ltd.). The opinion does not purport to lay down a novel legal principle but applies established definitions and precedent to the pleaded facts to hold the suit barred. The Court explicitly stated that the judgment cited by the respondent (AIR 1974 SC 1265) was not applicable to these facts.
  • No broader new precedent was announced by this opinion; the decision applies existing statutory definitions and authoritative guidance to the pleadings in this particular case.
Show full summary ...

    State Bank Of India, Bhilwara v. M/S Sharda Spuntex Pvt. Ltd.

    BY THE COURT:

    In this revision petition, the petitioner State Bank of India, Bhilwara is challenging order dated 29.05.2009 passed by the District Judge, Bhilwara in Civil Original Suit No. 126/2009, by which, the learned District Judge dismissed the application filed by the petitioner Bank under Order VII Rule 11, C.P.C

    Facts of the case indicate that plaintiff-respondent filed suit for declaration and permanent injunction against the action of the Bank for declaring company's bank accounts as NPA and making debit entries. Along with the said suit, application for temporary injunction was filed. Upon service of summonses/notices issued in the said suit, petitioner Bank filed application under Reportable Order VII Rule 11, C.P.C on 26.05.2009 in the suit as well as miscellaneous application filed by the respondent-plaintiff. Learned trial Court rejected the said application by order dated 29.05.2009 which is under challenge in this miscellaneous appeal. Learned trial Court rejected the application filed by the petitioner Bank under Order VII Rule 11, C.P.C and vide order dated 30.05.2009 allowed the application for temporary injunction.

    In the application filed under Order VII Rule 11, C.P.C, it is stated by the petitioner Bank that the original suit itself is barred by provisions of Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter, in short, to be called “the Act of 2002”), so also, by Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter, in short, to be called “the Act of 1993”), therefore, learned trial Court has no jurisdiction to entertain the suit but the trial Court rejected the said plea of the petitioner Bank and entertained the suit while rejection the application filed by the Bank under Order VII Rule 11, C.P.C

    Learned counsel for the petitioner Bank vehemently contended that after enactment of the Act of 2002, the Debt Recovery Tribunal has jurisdiction to adjudicate the matter and no civil Court can entertain such disputes. Learned counsel for the petitioner invited my attention towards an important material fact of the case that admittedly the respondent-plaintiff is a Private Ltd. company registered under the Companies Act, 1956 and pursuing business since 1994 of production and trade of yarn while availing financial facilities from the petitioner State Bank of India, Bhilwara. This fact itself is pleaded in the suit.

    Further, it is pleaded in the suit that mostly the company is doing business of export and getting payment in foreign currency, therefore, the company has executed Forward Exchange Purchase Contract with the Bank to get “Forward Contract Limit” of 80 crore rupees; meaning thereby, admittedly, the Bank is providing financial assistance to the respondent-plaintiff company and, for the purpose of granting forward-contract limit by the Bank, plaintiff company and petitioner Bank have executed Forward Exchange Purchase Contract. Therefore, for all purposes, the respondent-plaintiff company is “borrower” of the petitioner Bank as defined in the Acts of 2002 and 1993, as such, obviously, when the respondent-plaintiff company is borrower while seeking and availing financial assistance from the petitioner Bank including credit facility, then, for all purposes, the plaintiff-respondent company is borrower and financial facility is being availed by the company with the financial assistance of the petitioner Bank, therefore, any credit liability in connection with the said financial assistance does fall under the definition of “debt” as provided under Section 2(ha) of the Act of 2002 and Section 2(g) of the Act of 1993 and, as per Section 34 of the Act of 2002 the civil suit itself is barred by law because as per Section 34 no civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter for which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the Act of 2002 to determine and no injunction can 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 the Act of 2002 or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. Further, it is pointed out that as per Section 18 of the Act of 1993 there is complete bar upon the civil Court to entertain civil suit.

    It is further submitted that in Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311, the Hon'ble Supreme Court while upholding the validity of the provisions of the Act of 2002 held that civil Court has no jurisdiction to entertain such disputes arising out in between the Bank and borrower as per Section 34 of the Act of 2002, in which, complete bar has been imposed. Learned counsel for the petitioner invited my attention towards para 50 of the said judgment rendered in Mardia Chemicals' case (supra).

    Learned counsel for the petitioner further argued that as per Order VII Rule 11(d), C.P.C at the time of deciding application the trial Court is required to take into consideration the pleadings in the plaint and plaint only and no other material can be taken into consideration and, in this case, admittedly, in para 1 and 2 of the plaint itself, it is admitted by the plaintiff company that the company is pursuing business and, for the purpose of business, availing financial facilities from the petitioner Bank including “forward contract limit”, for which, forward exchange purchase contracts were executed by the company and the Bank, therefore, if any action has been taken by the Bank with regard to declaring bank-accounts of the company as NPA to recovery the amount for violation of terms and conditions of the contract, no civil suit can be entertained by the civil Court because the company falls within the definition of “borrower” as defined under the Act of 2002 and so called “forward exchange purchase contracts” are instruments towards guarantee for the repayment of the forward contract limit of eighty crore rupees which is sanctioned by the Bank in favour of the company. Therefore, in the event any dispute arises between the plaintiff-respondent company and petitioner Bank, the Bank has all jurisdiction to take action under the Act of 2002 and if the company is aggrieved by the action of the Bank, then, the company is required to take recourse to the remedy provided under Section 17 of the Act of 2002 because there is complete bar to entertain civil suit.

    While inviting attention of the Court towards other facts of the case, it is contended by learned counsel for the petitioner that admittedly certain forward exchange purchase contracts mentioned in para 2 of the plaint were signed by the Bank and respondent company and, as per the company, letter dated 26.02.2008 was sent to the Bank by the company, by which, out of contracts No. 1 to 11, some of the contracts partly and some of the contracts as a whole were cancelled; but, ignoring this fact, the Bank has taken action against the company, whereby, company's bank-accounts have been declared NPA and order has been made for recovery while making the debt entries.

    It is contended that as per provisions of the Act of 2002, the Bank has rightly taken action against the company but suit is barred against said action because there is complete bar imposed under Section 34 of the Act of 2002 and this fact was brought to the notice of the learned trial Court but the trial Court rejected the application filed by the petitioner company under Order VII Rule 11, C.P.C and entertained the suit. Learned counsel for the petitioner invited my attention towards the judgment of the Hon'ble Supreme Court in Mardia Chemicals' case (supra) and submitted that in view of the said adjudication made by the Hon'ble apex Court, civil suit is completely barred and upon perusal of the plaint itself it is apparently clear that suit is barred by law, therefore, in view of the provisions of Order VII Rule 11(d), C.P.C learned trial Court has committed error while entertaining the suit. Therefore, while quashing impugned order dated 29.05.2009 the application filed by the defendant-petitioner Bank under Order VII Rule 11(d) of the Code of Civil Procedure may be allowed and suit may be dismissed as barred by law.

    On the other hand, learned counsel for the respondent urged that the learned trial Court has rightly rejected the application filed under Order VII Rule 11, C.P.C because the suit is filed by the company for alleged breach of terms and conditions of contract and it is specifically pleaded in the plaint that it is a case of breach of contract Further, it is submitted that the company is doing export business of yarn and, for the purpose of said business, respondent-plaintiff company is availing financial assistance from the petitioner Bank but forward exchange purchase contract has nothing to do with financial assistance provided by the Bank. More so, these contracts which were executed are governed under the norms of Foreign Exchange Dealers Association of India independently and contracts No. 1 to 11, as mentioned in para 2 of the plaint, were cancelled by the company while sending letter dated 26.02.2008 and said letter was delivered to the Bank and receipt was obtained and, later on, one more letter dated 27.06.2008 was delivered to the Bank, by which, other contracts were cancelled and, in response to that, the Bank informed vide letter dated 20.11.2008 that forward exchange purchase contract No. FP 0000246 dated 06.02.2008 Rs. 42,51,704/- have been debited in the company's account on the basis of cost of Rs. 53/- per US dollor. Just after receiving letter dated 20.11.2008, the plaintiff company sent a protest letter to the Bank and along with that letter, letter dated 26.02.2008 was also sent; but, the Bank has completely ignored the letter dated 26.02.2008 and no reply whatsoever given by the Bank for taking action in pursuance of letter dated 26.02.2008

    As per learned counsel for the respondent-plaintiff company, the Bank has illegally acted upon and taken action whereby it has declared the company's bank accounts NPA and all dispute has arisen out in between company and the Bank as a consequence of cancellation of forward exchange purchase contract and the same has nothing to do with the financial facility availed by the company as borrower of the Bank. The learned civil Court has jurisdiction to entertain civil suit filed the company for breach of terms and conditions of the forward exchange purchase contract. Therefore, the Act of 2002 is not applicable, so also, the bar imposed under Section 34 of the Act of 2002 and Section 18 of the Act of 1993 will not come in to play to restrict the civil Court's jurisdiction to entertain the suit because due to the action of the petitioner Bank the plaintiff company will suffer in its business substantially. At the time of filing the suit, it was prayed that the Bank may be restrained from declaring the bank account of the company NPA and, it was further prayed that if such action will be taken by the Bank, then, the company's reputation will suffer irreparable loss and business of the company will come to an end and the company will not be able to run its business and with that problem for employment of the employees will also arise, therefore, the Bank may be restrained from taking any action and, further, it may be declared that all the forward exchange purchase contracts shall be treated to be cancelled from the date 26.02.2008 and 27.06.2008 respectively from the said date. It is further prayed that it may be declared that the Bank has no power to make debit entries arising out of cancellation of the forward exchange purchase contracts and the Bank may be restrained from declaring the company's bank accounts as NPA. Learned counsel for the respondent vehemently submitted that the action of the petitioner Bank is totally malafide, therefore, judgment rendered in Mardia Chemicals' case (supra) will not come in the way for entertaining the suit by the civil Court. So also, learned trial Court has rightly entertained the suit and granted temporary injunction in favour of the plaintiff company. Learned counsel for the respondent company invited my attention towards following judgments:

    (1) AIR 1974 SC 1265,

    (2) (2008) 10 SCC 99,

    (3) (2008) 12 SCC 661, and

    (4) (2004) 4 SCC 311, para 51.

    While inviting attention towards para 51 of the judgment rendered in Mardia Chemicals' case (supra), it is submitted by learned counsel for the respondent company that Hon'ble Supreme Court has held in the said judgment that where the action of the secured creditor is alleged to be fraudulent or his claim may be 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 the civil court in the cases of English mortgages.

    Learned counsel for the respondent company has vehemently argued that admittedly the dispute arise out of cancellation of forward exchange purchase contracts because the suit has been filed for breach of terms and conditions of the forward exchange purchase contracts which has nothing to do with the debt and, for the purpose of the said contracts the company cannot be defined as “borrower”, so also, no presumption on the basis of the said forward exchange purchase contract can be drawn that respondent-plaintiff company is borrower, therefore, this revision petition may be dismissed with cost because the conduct of the petitioner Bank is not fair in view of the fact that till today interim order passed by the trial Court is not complied with. On this ground also the petitioner Bank is not entitled to be heard, therefore, this revision petition may be dismissed and impugned order passed by the trial Court may be maintained.

    After hearing both the parties and perusing the plaint as well as application filed under Order VII Rule 11, C.P.C, first of all, the language of Order VII Rule 11(d), C.P.C may be seen which is as follows:

    “11. Rejection of plaint.-The plaint shall be rejected in the following cases:-

    (a) ……. ……. …….

    (b) ……. ……. …….

    (c) ……. ……. …….

    (d) where the suit appears from the statement in the plaint to be barred by any law;”

    From perusal of the above provision, it is abundantly clear that at the time of deciding application filed under Order VII Rule 11(d), C.P.C, the pleadings of the plaint are required to be seen and if after perusal of the plaint it emerges that relief sought is barred by law by the civil Court and suit is not maintainable, then and there, upon the said application the suit is required to be dismissed.

    Section 34 of the Act of 2002 and Section 18 of the Act of 1993 read as under:

    “34. Civil court not to have jurisdiction.-No civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any matter for which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under the Act of 2002 to determine and no injunction can 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 the Act of 2002 or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).”

    “18. Bar of Jurisdiction.-On and from the appointed day, no court or other authority shall have, or be entitled to exercise, any jurisdiction, powers or authority (except the Supreme Court, and a High Court exercising jurisdiction under articles 226 and 227 of the Constitution) in relation to the matter specified in section 17.”

    Now, coming to the facts of the present case, pleadings are required to be seen. In para 1 and 2 of the plaint, it is admitted by the plaintiff-respondent company that their company is registered under the Companies Act, 1956 and is doing business of trading and manufacturing yarn and exporting the same. Further, it is admitted in the suit that for the purpose of business they are getting financial facilities from the petitioner Bank. Details have been given in para 1(kha) of the plaint; meaning thereby, the respondent company is getting financial facilities from the petitioner Bank. In para 1 and relevant portion of para 2 of the plaint, following assertion has been made:

    Fund Based Limit (in Crore rupees)

    Cash credit (Hypof stock & Book debts) 6.25

    EPC/PCFC 4.00

    FBD/FBP 20.75

    TOTAL FBWC 31.00

    Term Loan - I 0.68

    Term Loan - II 2.26

    Total FB 33.94

    Non fund Based

    Letter of Credit 31.00

    Bank guarantee 0.25

    Total NFB 31.25

    Stand by limit 3.50

    Total (FB + NFB + SLC) 68.69

    (i) Cash Credit A/c 10385818376

    (ii) EPC A/c 10385818795

    (iii) Bill Discount A/c 30361882862

    (iv) Bill Discount A/c 30425937027

    (v) Term Loan A/c 10385821783

    (vi) Term Loan A/c 30118740202

    YEAR SALES (RS. IN CRORES RUPEES TOTAL

    DOMESTIC EXPORTS

    2005-2006 61.02 32.37 99.39

    2006-2007 88.55 79.13 167.68

    2007-2008 129.49 74.29 203.78

    Upon perusal of para 2, it is abundantly clear that the company has executed forward exchange purchase contracts for the purpose of getting forward contract limit from the petitioner Bank and it has been sanctioned by the Bank; meaning thereby, for securing the financial assistance of eighty crore rupees of forward contract limit these contracts were got executed by the Bank and if any contravention is made, then, of course, the Bank can take action for securing the balance of limit. For the purpose of adjudicating the contention of learned counsel for the respondent-plaintiff that they are not borrower, the definition of borrower provided under Section 2(f) of the Act of 2002 is required to be perused which runs as under:

    “2(f).-“borrower” means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance;”

    Upon perusal of the above definition, it is abundantly clear that borrower means any person who has been granted financial assistance by the Bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any Bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any Bank or financial institution in relation to such financial assistance.

    Here, in this case, para 2 of the plaint itself speaks that forward exchange purchase contracts were executed for the purpose of sanction of forward contract limit; meaning thereby, as per pleading itself the case of the respondent-plaintiff company falls within the definition of borrower because the company has given guarantee to get forward contract limit by way of executing forward exchange purchase contracts. Therefore, the company falls within the definition of borrower.

    I have carefully perused the order passed by the learned trial Court under Order VII Rule 11, C.P.C upon the application filed by the petitioner Bank. It is required to be said that while deciding the said application although the contentions with regard to falling of respondent-plaintiff company within the definition of “borrower” was mentioned in the application, so also, it was specifically pleaded that financial assistance by way of granting forward credit limit is given by the Bank, it does fall under the definition of “debt”, therefore, the Act of 2002 is applicable, in which, there is complete bar for entertaining civil suit for the action taken by the Bank for recovery of debt; but, learned trial Court has not even considered or even perused the definition of “borrower” or “debt” provided under the Act of 2002.

    Likewise, the ground of bar upon entertaining civil suit under Section 34 is not taken into consideration by the learned trial Court. The finding given by the trial Court for dismissing the aforesaid application is totally without application of mind and without considering the relevant provisions of law. In para 9 of the order impugned, it has observed that as per contentions mentioned in the original suit and temporary injunction application the relief sought for is not covered under the Act of 2002, therefore, such finding is totally without considering the relevant provisions of law.

    Further, as per Section 2(k), wherein the definition of financial assistance is provided, it is provided that financial assistance means any loan or advance granted or any debentures or bonds subscribed or any guarantees given or letters of credit established or any other credit facility extended by any Bank or financial institution. In the instant case, as per para 1 and 2 of the plaint, it is admitted position of the case that the company is getting financial facility from the petitioner Bank and, for the purpose of forward contract limit of eighty crore rupees, the company executed forward exchange purchase contracts; meaning thereby, financial assistance has been granted by the petitioner Bank to the respondent-plaintiff company.

    Therefore, the Act of 2002 is applicable.

    Whether the debit entries made by the Bank while declaring the company's bank accounts as NPA can be defined debt or not, for the said purpose, the definition of debt provided under Section 2(ha) may be seen which provides that “debt” shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 which is as follows:

    “2(g).- “Debt” means any liability (inclusive of interest) which is claimed as due from any person by a bank or a financial institution or by a consortium of banks or financial institutions during the course of any business activity undertaken by the bank or the financial institution or the consortium under any law for the time being in force, in cash or otherwise, whether secured or unsecured, or assigned, or whether payable under a decree or order of any civil court or any arbitration award or otherwise or under a mortgage and subsisting on, and legally recoverable on, the date of the application.”

    Upon perusal of the above definition, it emerges that debt means liability which is claimed as due from any person by a bank or a financial institution during the course of any business activity undertaken by the Bank or financial institution. Here, in this case, for the purpose of getting financial assistance by way of forward contract limit, the forward exchange purchase contracts were signed as guarantee. Therefore, if any liability arises due to breach of said contracts it certainly falls within the definition of debt provided under Section 2(g) of the Act of 1993 and 2(ha) of the Act of 2002.

    The legislature has specially enacted the Act of 2002 to regulate securitisation and re-construction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The Act enables the Bank to realise long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. The Act of 2002 further provides for setting up of securitisation companies which are empowered to take possession of the secured assets of the borrowers by way of sale, lease or assignment and take over the management of the business. Validity of the provisions of the Act of 2002 is upheld by the Hon'ble Supreme Court in the case of Mardia Chemicals (supra).

    Therefore, in view of the judgment of the Hon'ble Supreme Court and to discourage the borrowers to postpone the repayment of their dues and also for the speedy recovery of the debts, the Act was enacted and, in that Act, procedure has been provided under Section 13, so also, remedy is also provided under Section 17 of the Act of 2002 if any action is taken by the Bank. Further, proviso to Section 13(3A) was inserted vide notification dated 11.11.2004, by which, a right was given to the borrower to make representation and take objection to the Bank's action and secured creditor shall consider such representation or objection when such representation is filed and under Section 34 it is specifically provided that no civil Court shall have jurisdiction to entertain any suit or proceedings in respect of any matter which a Debt Recovery Tribunal or Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any civil Court.

    In this case, the above discussion clearly shows that the company is availing financial facility, so also, as is admitted in para 2 of the plaint, for availing forward contract limit the company executed forward exchange purchase contracts which is a guarantee to the Bank for sanction of the limit, therefore, in my opinion, the respondent company very much falls within the definition of “borrower”, so also, if any debit entries are made by the Bank arising out as a consequence of cancellation of forward exchange purchase contract, it falls within the definition of “debt” and the Act of 2002 and Act of 1993 are applicable in this case which is upheld by the apex Court in Merdia Chemicals' case (supra), therefore, Section 34 of the Act of 2002 is applicable and civil suit is barred.

    Learned counsel for the respondent company has invited my attention towards para 51 of the judgment in Merdia Chemicals' case, in which, following observations were made by the Hon'ble Supreme Court:

    “51. 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 his claim may be 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 the civil court in the cases of English mortgages. We find such a scope having been recognized in the two decision of the Madras High Court which have been relied upon heavily by the learned Attorney General as well appearing for the Union of India, namely, V. Narasimhachariar, AIR at pp. 141 and 144, a judgment of the learned Single Judge where it is observed as follows in para 22: (AIR p.143)

    “22. The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are twofold in character. The mortgagor can come to the court before sale with an injunction for staying the sale if there are materials to whow that the power of sale is being exercised in a fraudulent or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought: Adam v. Scott11. I need not point out that this restraint on the exercise of the power of sale will be exercised by courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the ded to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely. (See Ghose, Rashbehary: Law of Mortgages, Vol II, 4th Edn., p.784)”

    For the said purpose, I have perused the plaint itself. In the plaint, while using the words and financial loss and arbitrariness and negligence of the officers of the Bank the suit has been filed. It does not fall under the said exception which is made by Hon'ble Supreme Court in para 51 of the judgment in Merdia Chemicals' case because, in the above discussion, it is abundantly clear that respondent-plaintiff company is pursuing business while availing the financial facilities from the petitioner Bank and forward exchange purchase contract which is said to be executed for the purpose of availing forward contract limit, therefore, the respondent-plaintiff company certainly falls within the definition of “borrower” and, for the same, there is complete bar under Section 34 of the Act of 2002 and as per Order VII Rule 11(d), C.P.C the Court is required to see the plaint and if it is found that suit is barred by law, then, it is the duty of the Court to reject the suit then and there.

    Even in the judgments cited by the respondent company, reported in (2008) 10 SCC 97 and (2008) 12 SCC 661, the following adjudication has been made by the Hon'ble apex Court:

    (2008) 10 SCC 97:

    “19. It is trite that the rule of pleadings postulates that a plaint must contain material facts. When the plaint read as a whole does not disclose material facts giving rise to a cause of action which can be entertained by a civil court, it may be rejected in terms of Order 7 Rule 11 of the Code. Similarly, a plea of bar to jurisdiction of a civil court has to be considered having regard to the contentions raised in the plaint. For the said purpose, averments disclosing cause of action and the reliefs sought for therein must be considered in their entirety and the court would not be justified in determining the question, one way or the other, only having regard to the reliefs claimed dehors the factual averments made in the plaint. (See Church of North India v. Lavajibhai Ratanjibhai.)”

    (2008) 12 SCC 661:

    “24. It is one thing to say that the averments made in the plaint on their face discloses no cause of action, but it is another thing to say that although the same discloses a cause of action, the same is barred by a law.

    25. The decisions rendered by this Court as also by various High Courts are not uniform in this behalf. But, then the broad principle which can be culled out therefrom is that the court at that stage would not consider any evidence or enter into a disputed question of fact or law. In the event, the jurisdiction of the court is found to be barred by any law, meaning thereby, the subject-matter thereof, the application for rejection of plaint should be entertained.”

    The crux of the adjudication made by the Hon'ble Supreme Court is that under Order VII Rule 11, C.P.C for rejection of the plaint, clause (d) specifically lays down that where the suit appears from the statement of the plaint to be barred by any law, the civil Court is required to dismiss the suit. Here, in the instant case, from the discussion made hereinabove and pleadings of the plaint, it is crystal clear that the Act of 2002 applies and financial facility is provided by way of granting forward contract limit, for which, forward exchange purchase contracts have been signed. Therefore, the company is borrower of the Bank and recovery proceedings, if any, is to be undertaken by the Bank against the company, it walls within the definition of debt arising out of cancellation of said contracts.

    The judgment cited by learned counsel for the respondent Company, reported in AIR 1974 SC 1265 is altogether different and is not applicable upon the present set of facts.

    As a result, this revision petition is allowed. Order impugned dated 29.05.2009 passed by the District Judge, Bhilwara in Civil Original Suit No. 126/2009 upon the application filed by the petitioner Bank under order VII Rule 11(d) is hereby quashed and set aside. Application filed by the petitioner Bank under Order VII Rule 11, C.P.C is allowed and the suit filed by the respondent Company is hereby ordered to be dismissed as barred by law.

    Use AI to get other relevant cases.
    Try AI Pro free for 7 days Upgrade to AI Pro

    Comments

    State Bank Of India, Bhilwara v. M/S Sharda Spuntex Pvt. Ltd.
    (Oct 22, 2009)