Bar On Civil Court Jurisdiction U/Sec 34 SARFAESI Applicable Only In A Case Where DRT/DRAT Is Empowered To Decide The Matter: Supreme Court

The Supreme Court observed that the bar on Civil Court jurisdiction under section 34 of the SARFAESI Act shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act.

In this case, the Bank secured a property in exercise of powers under the provisions of the SARFAESI Act. A notice for auction was issued regarding the secured asset admeasuring 54 cents. The plaintiff after inspection of the property submitted the quotation for sale of 54 cents of land and offered Rs.32,05,000/. Thereafter, the plaintiff filed a suit contending that he paid a total sale consideration for 54 cents of the land and even the sale certificate and the sale deed was executed for 54 cents the plaintiff has been handed over the possession of 39.60 cents of the land only and therefore the plaintiff is entitled to the damages/compensation with respect to the 14.40 cents 4 which was less than the area for which the plaintiff paid the amount i.e. 54 cents. This suit was decreed by the Trial Court.

The High Court, allowing the appeal filed by the Bank, set aside the decree on the grounds  (i) That as the fraud has not been established and proved the suit was barred in view of Section 34 of the SARFAESI Act; (ii) That the plaintiff was aware of the fact that the actual area of the secured property put to auction is less 6 than 54 cents and therefore it cannot be said that there was any non­disclosure on the part of the Bank; (iii) that the property was put to auction "as is where is" and "as is what is" basis.

Disagreeing with the finding that the suit was barred in view of Section 34, the bench of Justices MR Shah and Krishna Murari observed:

"At the outset it is required to be noted that the suit was for damages/compensation, with respect to the balance land, which could not have been decided by the DRT or Appellate Tribunal, Section 34 of the SARFAESI Act shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act. The plaintiff was not challenging the sale/sale certificate. The plaintiff claimed the damages/compensation with respect to the less area. Therefore, the High Court has seriously erred in holding that the suit was barred by Section 34 of the SARFAESI Act."

The bench further observed that it was not open for the Bank to contend that though the Bank had handed over the possession of 34.60 cents still the sale consideration recovered would be for 54 cents. It was not open for the financial institution like the Bank to take such a plea, the court said. Allowing the appeal, the court said:

"Rule 8 of the 2002 Rules cast a duty on the authorized officer to take all precautions before putting the secured asset to sell. As per sub­rule 5 of Rule 8 before effecting sale of the immovable property (secured assets) the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor and fix the reserve price of the property and may sell the whole or any part of such immovable secured asset. Therefore, when the reserve price 19 was fixed the same was for 54 cents. Therefore, it can be presumed that the Bank was aware that the actual area of the secured asset is less than 54 cents. As per Section 54 of the Transfer of Property Act the seller was bound to disclose any buyer any material defect in the property of which the buyer is not aware and which the buyer could not ordinarily discover. Under the circumstances also the submission on behalf of the Bank that the property was put to auction on "as is where is" and "as is what is" condition, thereafter the plaintiff shall not be entitled to compensation of the less area cannot be accepted."

Case details

Leelamma Mathew vs Indian Overseas Bank | 2022 LiveLaw (SC) 973 | CA 7128 OF 2022 | 17 Nov 2022 | Justices MR Shah and Krishna Murari

For Appellant(s) Mr. M. T. George, AOR Mr. Suvendra Kumar, Sr. Adv. Mrs. Susy Abraham, Adv. Mr. Johns George, Adv.

For Respondent(s) Mr. Kunal Tandon, Adv. Mr. Surendra Kumar, Adv. Mr. Kush Chaturvedi, AOR Ms. Priyashree Sharma P.H., Adv. Mr. Syed Faraz Alam, Adv. Mr. Atharva Gaur, Adv. 

Headnotes

SARFAESI Act, 2002 ; Section 34 - Section 34 shall be applicable only in a case where the Debt Recovery Tribunal and/or Appellate Tribunal is empowered to decide the matter under the SARFAESI Act. The plaintiff was not challenging the sale/sale certificate. (Para 5.2)

Security Interest (Enforcement) Rules, 2002 ; Rule 8 - Duty of the authorized officer to take all precautions before putting the secured asset to sell - Before effecting sale of the immovable property (secured assets) the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor and fix the reserve price of the property and may sell the whole or any part of such immovable secured asset. As per Section 54 of the Transfer of Property Act the seller was bound to disclose any buyer any material defect in the property of which the buyer is not aware and which the buyer could not ordinarily discover. (Para 5.4)

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