S.17 (1A) SARFAESI Act | Jurisdiction Of DRTs Can't Be Solely Decided Based On Location Of Asset: Allahabad High Court Clarifies

The Allahabad High Court has held that jurisdiction of the Debt Recovery Tribunal to entertain application under Section 17 of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be based solely on the location of the secured asset.

The bench comprising of Justice Jaspreet Singh and Justice Manish Mathur held that the DRT in whose jurisdiction part cause of action has arisen shall also have jurisdiction over applications under Section 17 of the SARFAESI Act.

The Court held that the insertion of Section 17(1-A) of the SARFAESI Act has an overriding effect over Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act 1993 which empowers the Central Government to notify Debt Recovery Tribunals and their respective jurisdictions.

Relevant Legal Provisions

Section 13 of the SARFAESI Act provides for the enforcement of security interests. Sub-section (2) provides that in case of default, the creditor may issue notice to the borrower and failing discharge of liabilities in 60 days, the borrower may proceed under sub-section (4) of Section 13. Section 13(4) provides for actions that can be taken by the creditor against the borrower. Such actions are challengeable under Section 17 of the SARFAESI Act.

Section 17(1A) of the SARFAESI Act provides that an application can be filed before the Debts Recovery Tribunal within the local limits of whose jurisdiction (a) cause of action arose in whole or part; (b) where the secured asset is located; or (c) the branch where the account in which debt is claimed in maintained.

Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 empowers the Central Government to establish Debt Recovery Tribunals and by way of notifications notify their territorial jurisdictions.

Section 19 of the 1993 Act is similar to Section 17 of the SARFAESI Act, except that application under Section 19 can also be made to a DRT within the local limits of whose jurisdiction the defendant, or each of the defendants where there are more than one, at the time of making the application, actually and voluntarily resides, or carries on business, or personally works for gain. Section 19 does not include the location where the secured asset is located.

Case Background

UCO Bank, respondent, granted a loan facility to the petitioner from its Amethi Branch against the property at Amethi. When the borrower and guarantor defaulted in payment, notices were issued from the zonal office in Lucknow. Petitioner filed a securitization application before the Debts Recovery Tribunal, Lucknow.

The respondent bank raised a preliminary objection regarding the jurisdiction of the DRT Lucknow. It stated that the jurisdiction of district Amethi lies with DRT Allahabad. This objection of the Bank was rejected. Appeal filed by the Bank was allowed and the proceedings were transferred to DRT Allahabad which was challenged before the Lucknow Bench of the Allahabad High Court.

Since the Single Judge had a difference of opinion from the earlier judgment of the High Court in Saurabh Gupta v. Union of India and another, the questions of law were referred to a larger bench. Relying on Sections 13 and 17 of the SARFAESI Act, the Single Judge concluded that since part cause of action arose within the territorial jurisdiction of Lucknow, DRT Lucknow will have jurisdiction over the securitization application. However, the decision in Saurabh Gupta was based on a notification dated 15.02.2017 issued under Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 and had held that exclusive jurisdiction shall vest with DRT Allahabad.

High Court Verdict

The Court observed in the unamended Section 17, jurisdiction before which Tribunal the application was not specified which led to litigation pertaining to jurisdiction. Accordingly, in 2016, sub-section (1A) was added in Section 17 to remedy the anomaly and to facilitate expeditious disposal of recovery applications.

Applying the concept of ejusdem generis, the Court held that clauses (a), (b) and (c) of Section 17(1A) are disjunctive in nature as they do not have anything in common.

“If we apply the concept of ejusdem generis, it is evident that none of the three clauses indicate any common genus or similarity where the preceeding words would indicate a limitation on the subsequent words of a provision. On the contrary, it is evident that all the three clauses of clause (1-A) of Section 17 of the Act operate in different and separate fields and therefore are clearly disjunctive. Although the three clauses may appear to be overlapping in nature but in the considered opinion of this Court, actually indicate the place where a representation/appeal can be filed.”

The Court also held that the SARFAESI Act has an overriding effect over the Debt Recovery Tribunals Act by virtue of Section 35.

The Court observed that 'cause of action' includes all material facts on which a right to sue is based and is not solely dependent on the relief prayed for. The Court held that notice under Section 13(2) precedes notice under Section 13(4) and therefore forms a part of the continuing cause of action.

The Court observed that the e-auction notice under Section 13(2) was issued by the office at Lucknow and thereafter, an auction under Section 13(4) was also conducted by the authorized officer at Lucknow. Therefore, the Court held that part cause of action under Section 17(1A) would arise at Lucknow and the application was maintainable before DRT Lucknow.

The Court held that the Tribunal had misapplied the judgment of the Calcutta High Court in Ramsay Exim and Technology Private Limited and others v. ICICI Bank Limited and another and the decision of Delhi High Court in Amish Jain & others v. ICICI Bank Limited. In both cases, Courts have held that clauses (a), (b) and (c) of Section 17(1A) are disjunctive and jurisdiction cannot be restricted solely based on the location of asset.

The Court held that by virtue of Section 35 of the SARFAESI Act, Section 3 of the 1993 Act and the notifications issued by the Central Government thereunder, notifying the jurisdiction of the Debt Recovery Tribunals shall remain subject to the provisions of the SARFAESI Act.

The Court held that the judgment of the Allahabad High Court in Saurabh Gupta v. Union of India and another is bad in law as it ignored Section 13 and Section 17 of the SARFAESI Act and relied solely on the notification issued under Section 3 of the Act of 1993. The Court in Saurabh Gupta had relied on the statement of the Additional Solicitor General of India who stated that the power to confer jurisdiction on DRT rests solely with the Central Government. It is on this basis that the Single Judge had held that DRT Allahabad has exclusive jurisdiction over 55 districts in Uttar Pradesh.

Accordingly, the reference was answered and the case was directed to be placed before the Single Judge.

Case Title: Ram Pal Soni And Another v. State Of U.P. Thru. Prin.Secy. Finance And Ors. 2024 LiveLaw (AB) 237 [WRIT - C No. - 13556 of 2021]

Citation: 2024 LiveLaw (AB) 237

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