Civil Court Can Try Suit Filed By Borrower Against Bank ; But Has No Power To Transfer It To DRT : Supreme Court

The Supreme Court held that a Civil Court has jurisdiction to try a suit filed by a borrower against a Bank or Financial Institution.

Answering the reference made to to it, the three judges bench presided by Justices Sanjay Kishan Kaul observed that an independent suit filed by the borrower against the bank or financial institution cannot be transferred to be tried along with application under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

"It is a matter of option of the defendant in the claim under the RDB Act. However, the proceedings under the RDB Act will not be impeded in any manner by filing of a separate suit before the Civil Court", the bench also comprising of Justices Abhay S. Oka and Vikram Nath clarified.

The bench therefore approved the judgments in Nahar Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation (2009) 8 SCC 646 and Indian Bank v. ABS Marine Products (P) Ltd (2006) 5 SCC 72 except to the extent that they allow the transfer of a suit from the Civil Court to the DRT. The judgments in United Bank of India, Calcutta v. Abhijit Tea Co. Pvt. Ltd. (2000) 7 SCC 357 and State Bank of India vs. Ranjan Chemicals Ltd. (2007) 1 SCC 97 have been overruled.

The Reference

In this case, the Bank of Rajasthan filed an application for recovery of the amounts due from VCK Shares & Stock Broking Services Ltd. (borrower) before the Debts Recovery Tribunal, Kolkata. The borrower entered appearance to defend the proceedings before DRT but also filed a civil suit before the Calcutta High Court and claimed a decree for sale of the pledged shares, recovery of sale proceeds, and an inquiry into the losses suffered by it along with a decree for payment of money. The Division Bench of Calcutta High Court relying on the judgment in Nahar Industrial Enterprises Ltd. (supra), held that a suit filed by a borrower against the bank was not barred before the Civil Court, although a suit filed by the bank against the borrower was barred.  While considering the appeal filed by the Bank against this order, the two judges bench of the Apex Court noticed the conflicting views expressed in the above mentioned judgment. Thus it referred the following issues to larger bench:

(a) Whether an independent suit filed by a borrower against a Bank or Financial Institution, which has applied for recovery of its loan against the plaintiff under the RDB Act, is liable to be transferred and tried along with the application under the RDB Act by the DRT ?

(b) If the answer is in the affirmative, can such transfer be ordered by a court only with the consent of the plaintiff?

(c) Is the jurisdiction of a Civil Court to try a suit filed by a borrower against a Bank or Financial Institution ousted by virtue of the scheme of the RDB Act in relation to the proceedings for recovery of debt by a Bank or Financial Institution?

Civil Court Jurisdiction Not Ousted By RDB Act

The bench referred to the statutory scheme of RDB Act and noted the following

1. A summary remedy is provided in respect of claims of banks and financial institutions so that recovery of the same may not be impeded by the elaborate procedure of the Code. The defendant has a right to defend the claim and file a counterclaim in view of sub-Sections (6) and (8) of Section 19 of the RDB Act.
2. In case of pending proceedings to be transferred to the DRT, Section 31 of the RDB Act took care of the issue of mere transfer of the Bank's claim, albeit without transfer of the counterclaim. Thus, if the debtor desires to institute a counterclaim, that can be filed before the DRT and will be tried along with the case. However, it is subject to a caveat that the bank may move for segregation of that counterclaim to be relegated to a proceeding before a Civil Court under Section 19(11) of the RDB Act, though such determination is to take place along with the determination of the claim for recovery of debt

Having noted this, the bench said:

"We are thus of the view that there is no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted, but it is the matter of choice of that defendant. Such a defendant may file a counterclaim, or may be desirous of availing of the more strenuous procedure established under the Code, and that is a choice which he takes with the consequences thereof."

Civil Court has no power to transfer a suit to the DRT

On the issue of the power of the Civil Court to transfer an independent proceeding instituted by a defendant(borrower) to be tried alongside a recovery proceeding before the DRT, the court said:

"There is gainsay that there is no specific power to transfer a suit to the DRT. A plaint can be returned only under the provisions of Order VII Rule 10 of the Code for the reasons specified therein. In the absence of such reasons, Section 151 of the Code cannot be utilised as a residuary power to achieve the transfer, which is really a consequence of return of the plaint when the grounds under Order VII Rule 10 of the Code are not satisfied. The absence of any legislative power cannot give a power by implication to the Civil Court. We believe that it would not be appropriate to read such power to transfer a suit to a DRT under Section 151 of the Code when the DRT is a creature of a statute and that statute does not provide for such eventuality."

Claim before the DRT under the RDB Act not to be impeded by filing a civil suit.

The court further observed that the process envisaged under the RDB Act be impeded in any manner by filing of a separate suit if a defendant chooses to do so.

"A claim petition before the DRT has to proceed in a particular manner and would so proceed. There can be no question of stay of those proceedings by way of a civil proceeding instituted by a defendant before the Civil Court. The suit would take its own course while a petition before the DRT would take its own course. We appreciate that this may be in the nature of parallel proceedings but then it is the defendant's own option. We see no problem with the same as long as the objective of having expeditious disposal of the claim before the DRT under the RDB Act is not impeded by filing a civil suit. Thus, it is not open to a defendant, who may have taken recourse to the Civil Court, to seek a stay on the decision of the DRT awaiting the verdict of his suit before the Civil Court as it is a matter of his choice"

Case details

Bank of Rajasthan Ltd. vs VCK Shares & Stock Broking Services Ltd. | 2022 LiveLaw (SC) 941 | CA 8972-8973 OF 2014 | 10 Nov 2022 | Justices Sanjay Kishan Kaul, Abhay S. Oka and Vikram Nath

For Appellant(s) Mr. Anand Shankar Jha, AOR Mr. Abhilekh Tiwari, Adv. Mr. Arjun Garg, AOR

For Respondent(s) Mr. Abhinav Mukerji, AOR Mrs. Bihu Sharma, Adv. Ms. Pratishtha Vij, Adv. Mr. Akshay C. Shrivastava, Adv.

Headnotes

Code of Civil Procedure, 1908 ; Section 9 - Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ; Section 17,18,19 - Jurisdiction of a Civil Court to try a suit filed by a borrower against a Bank or Financial Institution is not ousted by virtue of the scheme of the RDB Act in relation to the proceedings for recovery of debt - There is no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted, but it is the matter of choice of that defendant. Such a defendant may file a counterclaim, or may be desirous of availing of the more strenuous procedure established under the Code, and that is a choice which he takes with the consequences thereof. (Para 45, 56) 

Code of Civil Procedure, 1908 ;  Section 151, Order VII Rule 10 - Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ; Section 19, 31 -  An independent suit filed by the borrower against the bank or financial institution cannot be transferred to be tried along with application under the RDB Act, as it is a matter of option of the defendant in the claim under the RDB Act - Since there is no such power,  there is no question of transfer of the suit whether by consent or otherwise - Proceedings under the RDB Act will not be impeded in any manner by filing of a separate suit before the Civil Court - It is not open to a defendant, who may have taken recourse to the Civil Court, to seek a stay on the decision of the DRT awaiting the verdict of his suit before the Civil Court as it is a matter of his choice. (Para 49- 56)

Code of Civil Procedure, 1908 ; Section 9 - Civil Courts to determine all disputes of civil nature unless the same is barred under statute either expressly or by necessary implication and such a bar is not to be readily inferred. The provision seeking to bar jurisdiction of a Civil Court requires strict interpretation and the Court would normally lean in favour of construction which would uphold the jurisdiction of the Civil Court. (Para 43)

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