Civil Courts Can Examine SARFAESI Actions Alleged to be Void: Bombay High Court

The Bombay High Court, Nagpur Bench, has stayed a possession order against M/s. B. Himmatlal Agrawal, issued by the District Magistrate under the SARFAESI Act. The court underscored the significance of procedural adherence, particularly in the context of assessing applications under Order 7 Rule 11 of the Civil Procedure Code (CPC), highlighting an arguable case based on a "No Dues" certificate issued by HDFC Bank.

M/s. B. Himmatlal Agrawal (the petitioner) sought the return of its title deed from HDFC Bank, asserting that the loan amount had been fully repaid, as evidenced by a "No Dues" certificate. Despite this, the District Magistrate issued a possession order in 2019 under the SARFAESI Act, prompting the petitioner to file a civil suit for an injunction against this order. The trial court initially granted the injunction but later rejected the plaint under Order 7 Rule 11 CPC, stating that the suit was barred by jurisdiction as the plaintiff failed to provide documentary evidence of loan repayment.

Procedural Adherence under Order 7 Rule 11:

The petitioner contended that the trial court overstepped its jurisdiction by evaluating the merits of the case while deciding the application under Order 7 Rule 11 CPC. Senior Counsel Mr. M. G. Bhangde, representing the petitioner, cited the Supreme Court ruling in P. V. Guru Raj Reddy vs. P. Neeradha Reddy to assert that at the stage of Order 7 Rule 11, the court must accept the plaint's averments as true without delving into the merits.

The High Court observed, "The trial court has exceeded its jurisdiction by making observations on the merits, which is contrary to the principles established by the Supreme Court." The court emphasized that the trial court should have only assessed whether the plaint disclosed a cause of action or was barred by law, without examining the evidentiary aspects.

Validity of the "No Dues" Certificate:

The petitioner argued that the "No Dues" certificate had not been invalidated by any competent authority, and thus, prima facie, the claim of loan repayment stood substantiated. The court acknowledged the validity of this certificate, noting that any challenge to its authenticity must be adjudicated on merits during the trial.

"The certificate issued by the respondents remains valid until proven otherwise by a competent authority. This creates a prima facie arguable case for the petitioner," stated the court.

Jurisdictional Limits under SARFAESI Act:

The court also addressed the jurisdictional limitations imposed by Section 34 of the SARFAESI Act, which bars civil courts from entertaining disputes related to measures taken under the Act. However, it noted that the bar does not apply where the plea goes to the root of the matter, potentially rendering the impugned order a nullity.

"The civil court retains jurisdiction to examine the validity of actions taken under the SARFAESI Act when such actions are alleged to be void ab initio," the court remarked.

Justice Mrs. Vrushali V. Joshi noted, "The trial court has exceeded its jurisdiction by making observations on the merits while deciding the application under Order 7 Rule 11. Such an approach is against the principles laid down by the Supreme Court."

The Bombay High Court's decision to stay the possession order underscores the importance of procedural correctness in adjudicating applications under Order 7 Rule 11 CPC. By recognizing the validity of the "No Dues" certificate and emphasizing the jurisdictional nuances under the SARFAESI Act, the court has provided interim relief to M/s. B. Himmatlal Agrawal. This ruling is expected to influence future cases involving loan disputes and procedural adherence under the SARFAESI Act.

Date of Decision: 15 May 2024

M/s. B. Himmatlal Agrawal vs. HDFC Bank and Ors.