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Rules Cannot Re-Litigate SARFAESI Grievance After Adverse DRT Order
In a significant ruling reinforcing the finality of orders under the SARFAESI Act, the on held that a lessee who has already invoked the statutory remedy before the DRT and suffered an adverse order cannot subsequently maintain a civil suit raising the same grievance. The decision underscores the principle of and the legislative intent behind , which bars civil courts from entertaining matters that fall within the jurisdiction of the DRT.
Justice Easwaran, presiding over the single-judge bench, allowed a petition filed by and set aside the order of the , which had refused to reject a suit filed by , the lessee of the mortgaged property. The High Court observed that the suit was an and hit by Section 35 of the SARFAESI Act, as well as barred by the principles of .
Background of the Dispute
The case arose from a mortgage created by Abdul Rasheed over his property in favour of . During the subsistence of the mortgage, Rasheed executed a registered nine-year lease in favour of on . IFCI contended that the lease was contrary to , which sets out the conditions under which a mortgagor in possession can create a lease binding on the mortgagee.
When IFCI initiated proceedings under the SARFAESI Act to enforce its security interest, approached the DRT by filing a securitisation application (S.A. No.174/2020). The DRT dismissed that application, effectively holding that the lease was not binding on IFCI and that the lessee had no right to obstruct the enforcement measures.
Undeterred, filed a civil suit before the , seeking an injunction restraining IFCI from taking further measures under the SARFAESI Act, including eviction. IFCI responded by filing an application under , seeking rejection of the plaint on the grounds that the suit was not maintainable. The Sub Court dismissed that application, observing that the mortgage deed did not contain any clause prohibiting the creation of a lease in favour of third parties. This led IFCI to approach the High Court.
High Court’s Analysis: Section 65A and the Binding Nature of Leases
The held that the Sub Court had failed to appreciate the effect of Section 65A of the Transfer of Property Act. Justice Easwaran noted that even if the mortgage deed does not contain a clause prohibiting the borrower from creating a further interest in the mortgaged property, a lease created in contravention of Section 65A is not binding upon the mortgagee. The Court reiterated:
“Once the lease by a mortgagor in possession of the mortgage property is governed by the provisions of Section 65A, even if the mortgage deed does not contain a clause prohibiting the borrower from creating a further interest in the mortgaged property, a lease in contravention of is not binding upon the mortgagee. It is exactly what the Debt Recovery Tribunal has held in the order passed in S.A No.174/2020.”
Thus, the High Court affirmed that the DRT’s finding—that the lease did not bind IFCI—was legally sound and could not be in a civil suit.
and the Bar Under Section 17(4A) and Section 35
The High Court further examined the interplay between the SARFAESI Act and civil court jurisdiction. It noted that provides a statutory remedy to a person claiming to be a tenant or lessee. Since had invoked that remedy and failed, it could not relitigate the same issue before a civil court.
The Court observed that the suit was clearly barred by the principle of , as the issue of the lease’s validity had already been adjudicated by the DRT. Additionally, Section 35 of the SARFAESI Act expressly bars the jurisdiction of civil courts in matters that the DRT or the appellate tribunal is empowered to determine.
Justice Easwaran stated:
“Therefore, the irresistible conclusion is that the filing of a suit was clearly an abuse of the process of law and hit by Section 35 of the SARFAESI Act and also barred by the principles of , in view of the dismissal of S.A. No.174/2020.”
The Court also expressed dismay at the Sub Court’s failure to consider the DRT’s order, noting:
“In the present case, when the order of the Tribunal was mentioned in the application, this Court is completely at loss, as to how the trial court could ignore the orders passed by the Tribunal and proceed to dismiss the application.”
Implications for Lenders and Lessees
This judgment sends a clear message to lessees and occupiers of mortgaged property: the SARFAESI Act provides a comprehensive statutory framework for challenging enforcement actions, and once that remedy is exhausted—especially if the outcome is adverse—a separate civil suit on the same grounds will not be entertained. The ruling reinforces the principle that the DRT is the primary forum for resolving disputes relating to securitisation and debt recovery.
For lenders like IFCI, the decision provides much-needed finality. It prevents borrowers or lessees from engaging in by first approaching the DRT and then, after an unfavourable ruling, moving a civil court to obstruct the enforcement process. The High Court’s reliance on the doctrine of ensures that the DRT’s findings are binding on the parties and cannot be re-agitated in a different forum.
Legal practitioners advising tenants or lessees in SARFAESI matters should take note of the strict approach adopted by the . The judgment underscores the importance of raising all relevant grounds before the DRT at the first instance, as a subsequent civil suit will likely be dismissed as an .
Conclusion
By allowing IFCI’s petition and directing the rejection of ’s plaint, the has affirmed the primacy of the SARFAESI Act’s remedy structure. The decision is a robust application of and the legislative bar on civil court jurisdiction under Section 35. It also clarifies that Section 65A of the Transfer of Property Act operates independently of any express prohibition in the mortgage deed, thereby protecting mortgagees from unauthorised leases created by mortgagors.
The case serves as a valuable precedent for banking and finance law practitioners, particularly in debt recovery and securitisation matters. It reiterates that the SARFAESI Act was designed to be a , and parties cannot circumvent its provisions by resorting to parallel civil proceedings.
