2010 (3) TMI 1055 - HC - Companies Law

Issues Involved:
1. Rejection of plaint under Order VII, Rule 11, CPC.
2. Jurisdiction of Civil Court under Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
3. Allegations of fraud and collusion.
4. Limitation period for filing the suit.
5. Suppression of facts and unclean hands.
6. Competence of the Debts Recovery Tribunal (DRT) to decide the issues.
7. Impact of criminal proceedings and custody of title deeds with CBI.

Detailed Analysis:

1. Rejection of plaint under Order VII, Rule 11, CPC:
The first defendant (Punjab National Bank) and the 10th defendant (auction purchaser) filed applications seeking rejection of the plaint under Order VII, Rule 11, CPC. The court examined whether the plaint disclosed a cause of action and whether it fell under any of the categories enumerated in Clauses (a) to (d) of Rule 11 of Order VII, CPC.

2. Jurisdiction of Civil Court under Section 18 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993:
The primary question was whether the averments in the plaint were sufficient to overcome the bar of jurisdiction under Section 18. The court acknowledged that fraud vitiates all solemn acts and that the jurisdiction of Civil Courts is not barred when serious allegations of fraud are made. However, the court also noted that it has a duty to see if such allegations of fraud are thrown just for the purpose of maintaining a suit and ousting the jurisdiction of the Tribunal.

3. Allegations of fraud and collusion:
The plaintiffs alleged that the defendants 4 and 5 (borrowers) perpetrated fraud and collusion with the officials of the banks. However, the court found that the allegations of collusion between defendants 4 and 5 and the officials of the banks were made in such general and vague terms that no credibility could be attached to them. The court emphasized that parties pleading fraud must set forth full particulars, and general allegations are insufficient.

4. Limitation period for filing the suit:
The court noted that the plaintiffs had admitted in the writ petitions filed in March 2005 that they had knowledge of the proceedings initiated by the first defendant-bank before the DRT. Yet, they chose to file the present suit only in August 2009. Therefore, the suit was barred by limitation even on admitted facts.

5. Suppression of facts and unclean hands:
The plaintiffs completely suppressed in the plaint the fact that they had filed writ petitions in 2005. This suppression was made to enable them to take a stand that they were not aware of the proceedings before the DRT. The court held that the plaintiffs came to court with unclean hands and were guilty of abuse of the process of court.

6. Competence of the Debts Recovery Tribunal (DRT) to decide the issues:
The court stated that the DRT is competent to decide questions relating to non-execution of documents or letters of guarantee. The plaintiffs, who were made parties to the original application before the DRT, ought to have agitated all these issues before the Tribunal. The court cited the Apex Court's decision in Authorised Officer, Indian Overseas Bank vs. Ashok Saw Mill, which clarified that the Tribunal has the power to set aside a transaction, including sale, and to restore possession to the borrower in appropriate cases.

7. Impact of criminal proceedings and custody of title deeds with CBI:
The plaintiffs argued that the original title deeds were with the CBI, and therefore, no valid equitable mortgage was created. However, the court found that the charge sheet filed by the CBI did not allege that the signatures of the plaintiffs were forged. The court concluded that the custody of the documents with the CBI could not save the plaintiffs from their liability, and the criminal case initiated by the CBI did not negate the validity of the mortgage.

Conclusion:
The court allowed the applications for rejection of the plaint, holding that the suit was an abuse of the process of law. The plaint was rejected for being barred by limitation, for suppression of material facts, and for attempting to oust the jurisdiction of the DRT by making unsubstantiated allegations of fraud and collusion. The court emphasized the need for judicial forums to be vigilant against frivolous and cantankerous litigations that delay justice and tarnish the judicial system's reputation.

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