"Once Proceedings Under SARFAESI Begin, Civil or Cooperative Courts Lose Jurisdiction Over

Secured Assets" — Bombay High Court Sets Aside Recovery Decrees Passed Against Auction Purchaser  
Any Dispute Ignoring SARFAESI Action and Without Joining Bank or Auction Purchaser Is a Nullity in Law  — In a landmark ruling dated 20 March 2025, the Aurangabad Bench of the Bombay High Court allowed a batch of writ petitions filed by Aayan Multi Trade LLP, holding that the Cooperative Court lacked jurisdiction to entertain and decide recovery disputes filed by depositors against a sugar factory whose assets had already been taken over and sold by a secured creditor under the 
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).  
Justice Kishore C. Sant emphatically held,  
“In view of the fact that the action was already initiated and possession was already handed over pursuant to action under the Securitisation Act, this Court holds that the dispute was not maintainable before the Cooperative Court.”   
 “The judgment of the Cooperative Court was bad for non-joinder of the parties... It was necessary to add the MCS Bank and Astoria as party to the dispute, which was not done.”   
Factory Sold to Petitioner Under SARFAESI, Yet Recovery Proceedings Continued Before Cooperative Forum Without Joining Secured Parties  
The facts were rooted in a default by Pushpadanteshwar Sahakari Sakhar Karkhana Ltd., a cooperative sugar factory, which had failed to repay loans advanced by the Maharashtra State Cooperative Bank (MCS Bank). The Bank invoked SARFAESI and took possession of the factory on 21 June 2010, much before any civil action by depositors.  
Despite this, a depositor filed dispute proceedings before the Cooperative Court on 16 July 2010, and the factory disclosed in its reply dated 30 July 2010 that its assets had been taken over by MCS Bank. 
However, neither the bank nor the purchaser Astoria Agro and Allied Industries Pvt. Ltd. — who acquired the factory in a public auction on 30 August 2011 — was made a party to the dispute.  
The Court noted: 
 “From the say it was clear to the depositors and the Cooperative Court that the property is not in the possession of the factory and was in possession of the MCS Bank pursuant to proceedings under the Securitisation Act.”   
“It was therefore very much necessary for the respondent depositor to add the MCS Bank and Astoria as parties.”  
The auction purchaser Aayan Multi Trade LLP, who acquired the factory from Astoria in 2018, was dragged into execution proceedings initiated on decrees passed in their absence, prompting the present writ petitions. 
SARFAESI Will Override MCS Act — Cooperative Court Had No Jurisdiction Once Bank Took Action Under the Act 
 Referring to Sections 34, 35, and 37 of the SARFAESI Act, the High Court reiterated the statutory bar on jurisdiction of civil courts once proceedings are initiated under SARFAESI. 
 The Court underscored, 
 “Once action under the Securitisation Act is initiated or to be initiated, no Civil Court or any other Court gets jurisdiction to deal with the properties or other claims.” 
  
 Rejecting the respondent-depositor’s argument that their dispute predated the auction notice, the 
Court emphasized that the key date is the date of possession taken by the bank, which was prior even to the filing of the dispute. 
 “The material date is the date on which MCS Bank initiated proceedings under the Act.” 
  The High Court also relied on previous precedents including Asha Oil Foods Pvt. Ltd. v. Jalgaon Janta Sahakari Bank Ltd. and Marathwada Gramin Bank v. Maharashtra State Cooperative Bank Ltd., which had held that SARFAESI, being a central law, will prevail over state laws including the Maharashtra Cooperative Societies Act, 1960. 
 
Court Finds Non-Joinder of Secured Creditor and Auction Purchaser Fatal — Declares Cooperative Court Decree Void 
 
The judgment concluded with categorical findings that the Cooperative Appellate Court failed to consider the lack of jurisdiction and the impact of non-joinder. As observed: 
 
“This Court finds that the judgment of the Cooperative Court was bad for non-joinder of the parties. The learned Appellate Court also failed to consider the same.”   
 Further adding, 
 “It was necessary for the Appellate Court to consider that the MCS Bank had already initiated action under the Securitisation Act and had taken possession.” 
  Ultimately, the Court held that all the recovery decrees and proceedings based thereon were non-est in the eyes of law. 
  Writ Petitions Allowed, Decrees Quashed 
 Justice Kishore C. Sant ruled: 
 “The learned Member, Cooperative Appellate Court erred in dismissing the appeals. For the reasons discussed above, the petitions stand allowed.” 
 The Court allowed all connected writ petitions and disposed of the pending civil application, granting full relief to Aayan Multi Trade LLP, while effectively insulating SARFAESI proceedings and auction purchases from parallel civil recovery processes. 
  This ruling affirms the exclusive jurisdiction of SARFAESI tribunals and DRTs in matters involving recovery of secured assets. It sends a strong judicial message that secured creditors and their transferees must not be subjected to collateral litigation in civil or cooperative courts, especially when possession has already been taken and statutory sale effected. 
 In Justice Sant’s clear words: 
 “The provisions of the Securitisation Act being Central Act, will predominate and will have overriding effect over the provisions of the MCS Act.” 
 
Date of Decision: 20 March 2025