2022 (11) TMI 1325 - SC - Indian Laws

Recovery of loan - legal right of the borrower to initiate proceedings before a Civil Court against the bank or financial institution - HELD THAT - Section 17 of the RDB Act bars the jurisdiction of the Civil Court only in respect of applications filed by the bank or financial institution. This provision did not bar the jurisdiction of the Civil Court to try a suit filed by the borrower. There was also an absence of provisions in the Act for transfer of suits and proceedings except Section 31 which relates to pending suit proceedings by a bank or financial institution for recovery of debt. It was noticed that the significant aspect of Sections 17 and 18 of the RDB Act was that even after establishment of the DRT no jurisdiction had been conferred on it to try independent suits or proceedings initiated by the borrower or others against banks/financial institutions. What has been permitted is only a cross-action in the form of a counterclaim by a defendant in the pending application to facilitate a unified proceeding - The borrower was not precluded from filing a separate suit or proceeding before a Civil Court or other appropriate forum. Not only that even the bank in whose application a counterclaim is made has the option to apply to the DRT to exclude the counterclaim of the defendant while considering its application. If the DRT were to find in the bank s favour the defendant would have to approach the Civil Court in respect of such excluded counterclaim as the DRT does not have jurisdiction to try an independent claim against the bank/financial institution. There is no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted but it is the matter of choice of that defendant. Such a defendant may file a counterclaim or may be desirous of availing of the more strenuous procedure established under the Code and that is a choice which he takes with the consequences thereof - The Legislature did not at any stage make any further amendment for excluding the jurisdiction of the Civil Court in respect of a claim of a defendant in such a proceeding being filed along with the suit. The Legislature in its wisdom has also not considered it appropriate to bring any amendment to enhance the powers of the DRT in this respect. The fact is that the proceedings under the RDB Act in any case have reached a culmination with satisfaction of the claim and thus no proceedings instituted by the appellant are pending before the DRT. As for the suit there is no question of a counterclaim or a transfer or any other manner other than trial of the suit instituted by the respondent. In fact some part of the claim of the bank was not even allowed and some adjustments were directed to be made. Even thereafter so far as any other claims of the respondent are concerned the DRT in terms of the order dated 19.05.2003 permitted the respondent to pursue the remedy in accordance with law - which can only mean the civil proceedings. Appeal dismissed.

Summary

Issues Involved:
1. Jurisdiction of Civil Courts versus Debts Recovery Tribunals (DRTs).
2. Transfer of independent suits filed by borrowers against banks to DRTs.
3. Requirement of consent for transferring suits.
4. Legislative scheme and powers of DRTs under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act).

Detailed Analysis:

Jurisdiction of Civil Courts versus DRTs:
The primary issue was whether the jurisdiction of Civil Courts is ousted by the RDB Act in relation to suits filed by borrowers against banks. The court concluded that the jurisdiction of Civil Courts is not ousted by the RDB Act. The RDB Act bars the jurisdiction of Civil Courts only in respect of applications filed by banks or financial institutions for recovery of debts. Borrowers retain the option to file independent suits in Civil Courts, and such suits are not automatically transferred to DRTs.

Transfer of Independent Suits:
The court examined whether independent suits filed by borrowers against banks should be transferred to DRTs to be tried along with the bank's application under the RDB Act. It was determined that there is no provision in the RDB Act that allows for the transfer of such suits to the DRT. The court emphasized that the decision to file a counterclaim before the DRT or an independent suit in a Civil Court is a matter of choice for the borrower. The proceedings under the RDB Act will continue independently and expeditiously, irrespective of any separate civil suits filed by the borrower.

Requirement of Consent for Transferring Suits:
The court addressed whether the transfer of suits to DRTs could be ordered with the consent of the plaintiff. It was concluded that since there is no power vested in Civil Courts to transfer suits to DRTs, the question of requiring consent does not arise. The court clarified that the absence of legislative power to transfer suits cannot be supplemented by the inherent powers of the Civil Court under Section 151 of the Code of Civil Procedure.

Legislative Scheme and Powers of DRTs:
The court analyzed the legislative scheme of the RDB Act, which provides a summary procedure for the recovery of debts by banks and financial institutions. The RDB Act includes provisions for counterclaims and set-offs to be filed before the DRT. However, the court noted that the DRT does not have the jurisdiction to try independent suits filed by borrowers against banks. The legislative amendments to the RDB Act over the years have not extended the powers of the DRT to include such independent suits, reaffirming the jurisdiction of Civil Courts in these matters.

Conclusion:
The Supreme Court answered the referred questions as follows:
1. The jurisdiction of Civil Courts to try suits filed by borrowers against banks is not ousted by the RDB Act.
2. Independent suits filed by borrowers cannot be transferred to DRTs to be tried along with the bank's application under the RDB Act.
3. Since there is no power to transfer suits, the question of requiring consent for such transfer does not arise.

The court affirmed the judgments in Indian Bank and Nahar Industrial Enterprises, except for the aspect that allowed the transfer of suits from Civil Courts to DRTs. The judgments in Abhijit Tea Co. and Ranjan Chemicals were held not to lay down the correct legal proposition. The appeals were dismissed, and the suit filed by the respondent was allowed to proceed in the Civil Court.