1. Secured creditor initiated recovery under SARFAESI Act; borrower sought specific performance of a settlement agreement and injunction against sale of mortgaged property in civil court. (Para 3 )
Back
Next 
2023 Supreme(SC) 757
SUPREME COURT OF INDIA
B.R. GAVAI, ARAVIND KUMAR, JJ.
Punjab And Sind Bank – Appellant
Versus
Frontline Corporation Ltd. - Respondent
Civil Appeal No. 2924 of 2023 (Arising out of SLP (C) No. 16657 of 2017)
Decided on : 18-04-2023
Section 34 of the SARFAESI Act bars civil court jurisdiction over matters the DRT or Appellate Tribunal can determine, except in limited instances of fraud or absurd claims. Consequently, civil courts cannot grant injunctions against secured creditors acting under the Act unless such narrow exceptions apply.
Headnote:SARFAESI Act - Property Dispute - Section 13, Section 34 Summary:
Fact of the Case:
The appellant, a bank, was in a property dispute with the respondent regarding the sale of a suit property mortgaged as collateral for credit facilities. The respondent sought specific performance of a settlement agreement and an injunction to restrain the appellant from dealing with the property.Finding of the Court:
The Single Judge vacated an interim order based on Section 34 of the SARFAESI Act, but the Division Bench set it aside, invoking promissory estoppel and restraining the bank from selling the property until determination of rights.Issues:
Whether the bank could be restrained from selling the property under SARFAESI Act despite a settlement agreement.Ratio Decidendi:
The court held that civil courts' jurisdiction is barred in matters within DRT's purview under Section 34. It also emphasized limited scope for maintaining civil suits under SARFAESI Act and principles governing appellate interference with trial court discretion.Final Decision:
The appeal was allowed, setting aside the Division Bench's judgment and upholding the Single Judge's order.Legal Category Hierarchy
Table of Contents
2. Appellant contended civil court jurisdiction is barred under Section 34, SARFAESI Act; Respondent argued the suit for specific performance is maintainable and the Bank is estopped from sale. (Para 5 , 6 )
3. The court found no evidence of fraud or untenable claims to bypass the statutory bar under Section 34, SARFAESI Act, and the Division Bench erred in interfering. (Para 10 , 11 , 12 , 13 , 14 , 15 , 18 )
4. Section 34, SARFAESI Act bars civil court jurisdiction except in cases of fraud or absurd claims; appellate courts should not substitute their discretion in interlocutory injunctions. (Para 12 , 13 , 14 , 16 , 17 )
5. Appeal allowed; judgment of the Division Bench set aside and order of the Single Judge upholding the statutory bar is restored. (Para 19 )
6. Does Section 34 of the SARFAESI Act bar the jurisdiction of civil courts?
Yes, the jurisdiction of civil courts is barred regarding matters that the Debts Recovery Tribunal or Appellate Tribunal is empowered to determine, including actions taken or to be taken in pursuance of any power conferred under the Act. (Para 12 , 13 )
7. Under what limited circumstances can a civil court exercise jurisdiction despite the bar under Section 34 of the SARFAESI Act?
Civil court jurisdiction may be invoked in very limited cases where the secured creditor's action is alleged to be fraudulent or the claim is so absurd and untenable that it requires no probe whatsoever. (Para 12 , 14 )
8. When can an appellate court interfere with a trial court's exercise of discretion regarding interlocutory injunctions?
An appellate court will not substitute its own discretion unless the trial court's decision was arbitrary, capricious, perverse, or ignored settled legal principles regulating the grant or refusal of interlocutory injunctions. (Para 16 , 17 )
JUDGMENT :
B.R. GAVAI, J.
1. Leave granted.
2. The present appeal assails the judgment and order dated 30th January 2017, passed by the Division Bench of the High Court of Judicature at Calcutta (hereinafter referred to as “High Court”) in A.P.O.T. No.411 of 2016, thereby setting aside the order of the Single Judge dated 2nd November 2016, vide which an earlier interim order of the Single Judge dated 15th July 2013, directing the appellant herein to take steps to sell the suit property but not to pass final orders on the sale, had been vacated.
3. The facts, in brief, giving rise to the present appeal are as under:
3.1 The appellant-Punjab & Sind Bank, was inducted as a tenant in the ground floor of premises No.8, Old Court House Street, Kolkata, 700001, now known as 28, Hemant Basu Sarani, Kolkata, 700001 (hereinafter referred to as the “suit property”) in the year 1972 by one M/s Bharat Chamber of Commerce. In the year 2003, M/s Bharat Chamber of Commerce preferred an ejectment suit bearing No. 2 of 2003 against the appellant before the City Civil Court, Calcutta.
3.2 During the pendency of the aforesaid ejectment suit, the respondent -M/s Frontline Corporation Ltd. purchased the suit property from M/s Bharat Chamber of Commerce, vide sale deed dated 17th February 2005. Thereafter, the respondent availed various credit facilities from the appellant to the tune of Rs.42.74 crore by mortgaging, inter alia, the suit property as collateral.
3.3 Subsequently, in furtherance of the terms of a purported settlement agreement, dated 29th November 2010, filed in the aforementioned ejectment suit before the City Civil Court, Calcutta, a lease deed dated 11th February 2011 was executed between the parties, thereby demising the suit property in favour of the appellant for a period of 21 years. It is pertinent to note that no consent decree was actually passed by the City Civil Court, Calcutta.
3.4 Owing to the financial defaults committed by the respondent, the appellant was constrained to classify the credit facilities availed by the respondent as Non-Performing Assets (for short, “NPA”) on 31st March 2012. Soon afterwards, a demand notice dated 13th June 2012 was also issued by the appellant under sub-section (2) of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred as ‘SARFAESI Act’) for recovery of outstanding dues of approximately Rs.44.89 crore, with interest, from the respondent. The demand remained unmet, and so the appellant issued a possession notice under sub-section (4) of Section 13 of the SARFAESI Act, declaring therein that it had taken possession of the suit property.
3.5 Aggrieved thereby, the respondent preferred a securitization application, being S.A. No. 19 of 2013, before the learned Debt Recovery Tribunal-I, Calcutta (for short, “DRT”). Simultaneously, a civil suit, being C.S. No. 217 of 2013, was also instituted before the High Court, inter alia, for specific performance of the purported settlement agreement entered into between the parties, as well as the consequent lease deed. The respondent claimed therein that, as per the terms of the purported settlement agreement, the fulfilment of the obligations on part of the appellant, which involved the temporary vacation of the appellant from the suit property so as to enable the respondent to reconstruct the suit property and, thereafter, to hand over possession of the ground floor of the suit property back to the appellant, would enable the outstanding dues to be set off and adjusted from the amounts receivable from the creation of third party interests in the newly constructed building. An injunction application, being G.A. No. 1884 of 2013, was also moved by the respondent in the suit to restrain the appellant from dealing with, disposing of or encumbering any part or portion of the suit property.
3.6 The learned Single Judge, vide interim order dated 15th July 2013, allowed the aforesa
