2005 (9) TMI 316 - HC - Companies Law

Summary

Issues:
- Rejection of plaints by Trial Courts under order 7, rule 11 of the CPC
- Bar under section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- Right of parties to claim partition of properties mortgaged to the Bank
- Constitutional validity of the provisions of the Act
- Jurisdiction of Civil Court in partition suits involving joint family properties

Analysis:
The High Court of Karnataka heard two appeals against Trial Courts' orders rejecting plaints under order 7, rule 11 of the CPC based on the bank's application under section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The bank had mortgaged properties due to loan defaults, leading to the plaintiffs filing partition suits for joint family properties, including those mortgaged. The bank's application sought rejection of plaints under section 34 of the Act, which the Trial Court granted, resulting in the appeals.

The main contention revolved around whether the suits for partition were barred under section 34 of the Act. The appellants argued that the Civil Court should determine the parties' rights based on evidence, citing precedents emphasizing the Civil Court's jurisdiction in such matters. On the other hand, the bank justified the Trial Court's decision, citing the Act's provisions allowing enforcement of security interests and disputing the plaintiffs' right to seek partition of mortgaged properties.

The Court considered the nature of the properties, the rights of the parties, and the constitutional validity of the Act's provisions. It emphasized that the Civil Court retains jurisdiction over partition suits involving joint family properties, despite the bank's security interests. The Court referred to a Madras High Court decision and upheld the view that the Civil Court could adjudicate claims related to civil rights, including partition suits, even when security interests were involved.

Ultimately, the appeals were allowed, setting aside the Trial Courts' judgments and decrees. The Court ruled that the bank could proceed with recovery steps regarding the mortgaged properties, but the plaintiffs' right to claim partition should not be deprived. The status quo order was dissolved, and the bank was advised to consider settlement options if the partnership firm proposed a one-time payment, subject to RBI guidelines.