Civil Court Jurisdiction Not Ousted for Title and Mortgage Disputes Under SARFAESI Act: Supreme Court

Jurisdiction of Civil Courts is Not Barred for Issues Beyond the Powers of DRT under SARFAESI Act - Supreme Court of India addressing the scope of civil court jurisdiction in disputes involving the SARFAESI Act. A Bench comprising Justice J.B. Pardiwala and Justice R. Mahadevan held that "civil courts retain jurisdiction over disputes involving title, ownership, and the validity of sale and mortgage deeds as such matters fall outside the powers of the Debt Recovery Tribunal (DRT) under the SARFAESI Act." The Court dismissed the appeals filed by the Central Bank of India and upheld the decision of the Madhya Pradesh High Court to restore a civil suit challenging a disputed sale deed, mortgage deed, and possession of the property.

The case arose when the trial court rejected the plaintiff’s suit under Order VII Rule 11 of the Code of Civil Procedure, 1908 (CPC) on the ground that Section 34 of the SARFAESI Act barred civil court jurisdiction. However, the Supreme Court ruled otherwise, emphasizing the principle that "jurisdiction of the civil court is not ousted unless expressly or by necessary implication."

The dispute arose out of a civil suit filed by the plaintiff, Smt. Prabha Jain, who claimed that she held a one-third share in a plot of land inherited from her late husband. The suit land had allegedly been sold by her brother-in-law, Sumer Chand Jain, without partition. The purchaser, Parmeshwar Das Prajapati, mortgaged the property to the Central Bank of India to secure a loan. Upon the borrower’s default, the bank took possession of the property under Section 13(4) of the SARFAESI Act and initiated steps to auction the same.

Smt. Prabha Jain filed a civil suit seeking reliefs, including a declaration that the sale deed and mortgage deed were nullities, restoration of possession of the property, and damages. The Central Bank of India moved an application under Order VII Rule 11 CPC, contending that the suit was barred by Section 34 of the SARFAESI Act and that the plaintiff had failed to pay the proper court fee.

The trial court rejected the suit on these grounds. However, the Madhya Pradesh High Court reversed the decision, holding that the reliefs sought in the civil suit concerned issues of title and ownership, which were beyond the jurisdiction of the DRT. The High Court observed, "The jurisdiction of the civil court to decide these matters cannot be held to be ousted under Section 34 of the SARFAESI Act."

The Supreme Court analyzed two key legal issues: (1) the scope of civil court jurisdiction under the SARFAESI Act, and (2) the applicability of Order VII Rule 11 CPC to reject the plaint.

Scope of Civil Court Jurisdiction under SARFAESI Act

The Court clarified that the jurisdiction of the civil court is not ousted for matters involving title disputes or the validity of sale and mortgage deeds. The judgment stated, "Section 34 of the SARFAESI Act bars civil courts from entertaining suits or proceedings in respect of matters that the DRT or the Appellate Tribunal is empowered to determine under the Act. However, the DRT’s jurisdiction is confined to examining whether measures taken under Section 13(4) are in accordance with the Act."

The Court elaborated, "The reliefs sought by the plaintiff in the present case pertain to disputes over ownership and the validity of the sale and mortgage deeds, which are matters that precede the measures taken under Section 13(4). These issues are beyond the jurisdiction of the DRT and squarely fall within the jurisdiction of civil courts."

The judgment relied on the precedent set in Mardia Chemicals Ltd. v. Union of India (2004) 4 SCC 311, which held that "civil courts retain jurisdiction to decide matters involving allegations of fraud, title disputes, and other issues beyond the powers of the DRT under Section 17 of the SARFAESI Act." The Court reaffirmed that statutory provisions barring civil court jurisdiction "must be strictly construed" and cannot be extended to matters not explicitly covered by the legislation.

The Court noted, "The SARFAESI Act is intended to provide a mechanism for the speedy recovery of debts by banks and financial institutions. It is not designed to adjudicate upon disputes involving ownership, title, or the validity of sale deeds and mortgages. The power to grant such declarations is vested in civil courts under Section 9 of the CPC."

Rejection of Plaint under Order VII Rule 11 CPC

The Court rejected the contention that the plaint could be partially rejected under Order VII Rule 11 CPC. It observed, "A plaint cannot be partially rejected. If any relief survives and is not barred by law, the entire plaint must be allowed to proceed to trial."

The Court emphasized that "even if the third relief, concerning possession of the property, were to be barred under Section 34 of the SARFAESI Act, the plaint could not be rejected in its entirety as the first two reliefs, pertaining to the validity of the sale and mortgage deeds, are not barred."

In this context, the Court relied on the principle established in Madhav Prasad Aggarwal v. Axis Bank Ltd. (2019) 7 SCC 158, which held, "Order VII Rule 11 CPC does not permit partial rejection of a plaint. If the suit survives against any of the defendants or for any of the reliefs, it must proceed to trial."

The Supreme Court dismissed the appeals filed by the Central Bank of India and upheld the High Court's decision to restore the civil suit. It concluded, "Civil court jurisdiction is not ousted for issues involving title disputes or the validity of sale and mortgage deeds, as these matters lie outside the purview of the DRT under Section 17 of the SARFAESI Act."

The judgment also issued a cautionary note to banks regarding due diligence in loan transactions. The Court remarked, "Banks should exercise extreme caution in verifying title documents before sanctioning loans. Inadequate title clearance reports can lead to protracted litigation and jeopardize public interest. Standardized guidelines for title search reports should be developed to ensure accountability and quality."

Date of decision : January 9, 2025