Civil Court Can Cancel Registered Sale Deed Despite SARFAESI Bar: Delhi High Court

The Delhi High Court has clarified a significant jurisdictional nuance at the intersection of civil law and financial regulations, ruling that the bar under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) does not prevent a civil court from adjudicating a suit for the cancellation of a registered sale deed.

The judgment, delivered by a Division Bench comprising Hon'ble Mr. Justice Anil Kshetarpal and Hon'ble Mr. Justice Harish Vaidyanathan Shankar, serves as a vital precedent for property owners facing complex legal challenges under the garb of financial default.

The Genesis of the Dispute

The matter involved a property located in Pitampura, New Delhi, belonging to the Appellant, Rajiv Sareen. The dispute originated from a "friendly loan" transaction involving the Appellant and Respondent No. 2, Mr. Pankaj Sharma. Following the execution of an MoU in 2017, the Appellant alleged that he was coerced and threatened—including threats to his children—into executing a registered sale deed in favor of Respondent No. 1.

Subsequently, the Appellant discovered that the respondents had used the property’s title documents to secure a loan from the now-merged Oriental Bank of Commerce (Punjab National Bank), which later turned into a Non-Performing Asset (NPA). Faced with e-auction proceedings by the bank, the Appellant sought a decree from the court to declare the sale deed null and void. A Single Judge initially dismissed the suit, citing Section 34 of the SARFAESI Act, which generally bars civil courts from interfering with measures taken by secured creditors.

Court's Legal Reasoning

The Division Bench dismantled the lower court’s reliance on the statutory bar, emphasizing that the Debt Recovery Tribunal (DRT) operates with limited, specialized jurisdiction and is not equipped to handle the general claim of cancelling a registered sale deed based on fundamental defects of consent.

The court reiterated that allegations of coercion and lack of free consent—as stipulated under the Indian Contract Act, 1872—are matters of fact that necessitate a trial. The Division Bench stressed that a court cannot reject a plaint under Order VII Rule 11 of the Code of Civil Procedure simply because there is a "remote" chance of failure or because no criminal complaint (FIR) was lodged.

Key Observations

Highlighting the court’s rigorous approach to the maintainability of such suits, the Bench noted:

> "The jurisdiction to cancel or set aside a registered conveyance is not vested in the DRT, which is a statutory forum of limited jurisdiction."

Regarding the application of Order VII Rule 11, the court clarified:

> "It is settled law that even if the Court is of the opinion that the likelihood of success in the suit is remote or minimal, such a view cannot justify rejection of the plaint under Order VII Rule 11 of the CPC."

Further reinforcing the necessity of evidence, the Bench observed:

> "It is therefore wholly erroneous to presume that the absence of an FIR or criminal proceedings negates the plea of coercion or misrepresentation. These are questions of fact which can only be examined on the basis of evidence at trial."

The Final Decision

Allowing the appeal, the Delhi High Court set aside the Impugned Judgment and ordered the restoration of the suit to its original number. The court explicitly noted that the ruling in Central Bank of India & Anr. v. Smt. Prabha Jain & Ors. (2025) supports the stance that the DRT lacks the inherent jurisdiction to adjudicate upon the validity of registered sale deeds.

This decision grants relief to property owners who may find themselves victimized by fraudulent transactions that are later used as collateral in financial disputes. The court has directed the parties to appear before the Roster Bench on November 19, 2025, to continue the proceedings uninfluenced by previous observations regarding the merits of the case.