High Court Upholds Jurisdictional Bar of Civil Courts in SARFAESI Act Cases: Limited Scope for Civil Court Intervention in Secured Asset Disputes

The High Court of Punjab and Haryana has delivered a significant ruling in CR-7563-2019, reinforcing the limited scope of civil court intervention in cases involving the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act). Justice Vikram Aggarwal, in a landmark judgment, upheld the lower courts’ decision to reject a plaint, emphasizing the jurisdictional limitations imposed on civil courts by the SARFAESI Act.

The case, involving Kunal Sharma as the petitioner against Hero Fincorp Ltd. And others, was pivotal in defining the contours of the civil court’s jurisdiction in loan transaction disputes. The petitioner challenged the orders of the lower courts, which had rejected his plaint under Order 7 Rule 11 of the CPC, arguing that the civil court lacked jurisdiction in light of the SARFAESI Act.

In his ruling, Justice Aggarwal quoted, “To a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or his claim may be so absurd and untenable which may not require any probe whatsoever.” This statement underscores the High Court’s recognition of the SARFAESI Act’s role in limiting civil court involvement in secured asset disputes.

The judgment also clarified that while allegations of fraud in loan transactions might arise, these issues are predominantly within the purview of the Debts Recovery Tribunal as per the SARFAESI Act. The court noted that accepting such contentions in civil courts could undermine the efficacy of the SARFAESI Act, leading to its provisions being defeated in cases involving loans and guarantees.

The dismissal of the revision petition by the High Court has set a clear precedent that disputes related to enforcement of security interests under the SARFAESI Act fall outside the jurisdiction of civil courts. This decision is expected to streamline the process of loan recovery and enforcement of security interests, reinforcing the authority of the Debts Recovery Tribunal in such matters.

Date of Decision: 28.11.2023

Kunal Sharma VS Hero Fincorp Ltd. and others