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2010 (4) TMI 620 - HC - Companies LawWhether the action proposed in the notice under section 13(2) of the Act by the defendant-bank in respect of the aforesaid property, is fraudulent? Held that - The bank has initiated action as contemplated by provisions section 13(2) of the Act, to enforce the security interest created in favour of the defendant-bank, by the plaintiff. Hence, the defendant-bank, under section 13(1) of the Act is entitled to enforce its security interest, as a matter of right in accordance with section 13 of the Act that too, without intervention of the court or tribunal. The issuance of notice under section 13(2) of the said Act is the initial step to enforce the security interest of the bank, which will ultimately culminate in the sale of property as contemplated by section 13(4) of the Act, to realise the outstanding dues. Thus, the intervention of civil court at the stage of notice under section 13(2) of the Act, is not contemplated.
Issues Involved: Jurisdiction of Civil Court, Fraud Allegations, Applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, and the Role of Debts Recovery Tribunal (DRT).
Detailed Analysis: Jurisdiction of Civil Court: The primary issue is whether the civil court has jurisdiction to entertain the suit filed by the plaintiff challenging the notice issued under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("the Act"). The defendant-bank argued that the civil court's jurisdiction is barred under section 34 of the Act, which states that no civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a DRT or the Appellate Tribunal is empowered to determine. The trial court initially dismissed the suit, holding that the jurisdiction of the civil court is barred, and the plaintiff has adequate remedy under the Act before the DRT and the Appellate Tribunal. Fraud Allegations: The plaintiff alleged that the defendant-bank fraudulently claimed that the property belonging to the plaintiff's father was kept as security. The appellate court held that the civil court has jurisdiction to entertain the suit based on these allegations of fraud, as the DRT does not have the jurisdiction to decide questions of fraud. The plaintiff argued that the civil court should have jurisdiction to inquire into the question of fraud, citing the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India, which allows for limited civil court jurisdiction in cases of fraud. Applicability of the Act: The defendant-bank issued a notice under section 13(2) of the Act, claiming that the plaintiff owed Rs. 7,46,729. The plaintiff disputed this amount and alleged that the bank's claim was fraudulent. The trial court found that the allegations of fraud were vague and unspecific and that the plaintiff had not made a case for fraud either in the pleadings or by placing any material on record. The appellate court, however, found that specific allegations of fraud were made in the plaint, which conferred jurisdiction upon the civil court. Role of Debts Recovery Tribunal (DRT): The defendant-bank contended that the DRT is the appropriate forum to decide the dispute, as provided under section 17 of the Act. The plaintiff argued that the jurisdiction of the civil court is not ousted because the suit was filed immediately after the issuance of the notice under section 13(2) and before any measures were taken under section 13(4) of the Act. The Supreme Court in Mardia Chemicals Ltd. v. Union of India clarified that the bar of jurisdiction under section 34 of the Act applies even before measures under section 13(4) are taken, covering matters that the DRT is empowered to determine. Final Judgment: The High Court quashed and set aside the appellate court's judgment, restoring the trial court's order dismissing the suit. The High Court held that the jurisdiction of the civil court is barred under section 34 of the Act, as the matter falls within the purview of the DRT. The court also noted that the plaintiff's suit for a permanent injunction was barred by law under Order VII, Rule 11(d) of the Code of Civil Procedure, 1908, as it sought to restrain the bank from taking measures under section 13(4) of the Act. The High Court concluded that the appellate court erred in holding that the civil court had jurisdiction based on the allegations of fraud.
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