2024 (10) TMI 793 - HC - Indian Laws

Suit is barred by law u/s 34 of SARFAESI Act or not - petitioner is not having locus to file such proceedings since the petitioner is merely a shareholder - fraud and collusion between respondent no. 1, 3 and 4 - locus standi to challenge the actions of secured creditors - HELD THAT - The contention of the learned counsel for the respondent that pleadings regarding fraud are inter se only between plaintiff and defendant nos. 3 and 4, cannot be accepted for simple reason that there are specific instances and allegations of collusion and fraud even played by bank/defendant no. 1 while sanctioning the loan and that too without any proper resolution passed by the Board of Directors of the company. Therefore, averments in the plaint are supported by document i.e order passed by NCLT would clearly go to show that prima facie there was mismanagement of the affairs of the defendant no. 2 and also obtaining of a loan thereby securing assets in favour of the bank, without following due process of law. With these averments in the plaint, contentions raised by the respondents needs to be rejected outright - it is clear from the record and more specifically the prayer, the suit is clearly maintainable as far as relief is concerned and that too when there are specific pleadings with regard to fraud and collusion between the bank and defendant nos. 3 and 4. The question of fraud and collusion and the relief claimed in the suit of declaration that the loan facility and the mortgage created in favour of defendant no. 1 is a nullity, is certainly not coming within the jurisdiction of DRT or under the SARFAESI Act. Such declaration is only permissible under the Specific Relief Act. The Court is duty bound to consider only the plaint and the documents relied therein. No document relied upon by the defendant could be looked into. The contention of Mr Kantak that the First Appellate Court in paragraph 25 relied upon the document produced by the defendants appears to be correct. A careful reading of the plaint and list of documents would go to show that such documents cannot be considered as contrary to the pleadings. Plaintiff/petitioner was thrown out as having no locus to challenge the action of the secured creditors under Section 17 of the SARFAESI Act. Now by the impugned order plaintiff/petitioner is thrown out at the initial stage by a Civil Court thereby practically preventing the plaintiff from having any remedy available to him against the action of the secured creditors. Having concluded that the plaint cannot be rejected and bar created under Section 34 of the SARFAESI Act cannot be applied to the averments in the plaint, option available to this Court is to quash and set aside both the orders of the trial Court thereby restoring the plaint to the file of Commercial Court to be decided in accordance with law. Both the impugned orders are hereby quashed and set aside, plaint in Commercial Suit is restored.

Summary

Issues Involved:
1. Whether the suit is barred by Section 34 of the SARFAESI Act.
2. Whether there are sufficient pleadings of fraud and collusion to maintain the suit in a Civil Court.
3. Whether the plaintiff has locus standi to challenge the actions of the secured creditors.
4. Whether the orders of the lower courts rejecting the plaint were justified.

Issue-wise Detailed Analysis:

1. Bar under Section 34 of the SARFAESI Act:
The primary contention was whether the suit is barred by Section 34 of the SARFAESI Act, which precludes Civil Courts from entertaining suits in matters that fall under the jurisdiction of the Debts Recovery Tribunal (DRT). The petitioner argued that the suit was not barred because it involved allegations of fraud and collusion, which are outside the purview of the DRT. The court referred to the case of Mardia Chemicals Ltd, which allows for limited civil jurisdiction in cases of fraud. The court found that the relief sought, including the declaration that the loan facility and mortgage were fraudulent, was not within the jurisdiction of the DRT and thus, the bar under Section 34 was not absolute.

2. Pleadings of Fraud and Collusion:
The petitioner alleged that the loan was sanctioned without proper authorization and that there was collusion between the bank and certain directors of the company. The court noted that specific instances of fraud and collusion were detailed in the plaint, including the sanctioning of a loan without a board resolution. The court disagreed with the lower courts' findings that the allegations were insufficient, emphasizing that the plaint contained specific and sufficient averments of fraud and collusion, thus making the suit maintainable in a Civil Court.

3. Locus Standi of the Plaintiff:
The lower courts had ruled that the plaintiff, being merely a shareholder, lacked the locus standi to challenge the actions of the secured creditors. However, the court found this reasoning flawed, as the plaintiff had detailed allegations of fraud and collusion involving the bank, which warranted a judicial inquiry. The court held that the plaintiff's position as a director and shareholder with specific allegations of fraud gave him the standing to bring the suit.

4. Justification of Lower Courts' Orders:
The court found the lower courts' orders to be perverse, as they failed to adequately consider the specific allegations of fraud and collusion. The orders were based solely on the perceived bar under Section 34 of the SARFAESI Act, without properly assessing the content of the plaint. The court emphasized that the plaint should not have been rejected without a thorough examination of the allegations of fraud, which were sufficient to bypass the bar under Section 34.

Conclusion:
The court quashed the orders of the lower courts and restored the plaint for adjudication on merits. It concluded that the allegations of fraud and collusion were sufficient to maintain the suit in a Civil Court, and the bar under Section 34 of the SARFAESI Act did not apply in this context. The court underscored the need for a judicial inquiry into the allegations, thereby ensuring that the plaintiff was not left without a remedy.