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Aditendra Singh and Livie Jain †
This article seeks to address concerns as to the extent of the jurisdiction of the DRT, in the backdrop of the Supreme Court judgment in Authorised Officer, State Bank Of India v M/S Allwyn Alloys, wherein the DRT was empowered to adjudicate upon issues relating to even the title of a mortgage property.
In 2018, the Supreme Court delivered its judgment in Authorized Officer, State Bank Of India v M/S Allwyn Alloys Pvt. Ltd. (Allwyn Alloys). The Court exponentially expanded the scope of bar upon the jurisdiction of civil courts thereby expanding the jurisdiction of the Debt Recovery Tribunals (DRT) as provided under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act). It held that the DRT is empowered to decide upon the title of the mortgage property, implying that DRT could adjudicate upon civil rights issues. This raises concerns as to the extent and scope of the powers of DRT, which this article attempts to address.
The article travels through the extent of the jurisdiction of DRT by resorting to both literal and purposive interpretation. An attempt is made to resolve the apparent inconsistency between jurisdictions of DRT and civil courts. It concludes by suggesting that the Supreme Court must reconsider this issue in the light of Bombay High Court’s judgment in Bank of Baroda, Through Branch Manager v Gopal Shriram Panda (Panda) which is clearer and in line with the scheme of the SARFAESI Act. It is suggested that the correct approach will be to limit the jurisdiction of DRT unless the statutes are amended to include the same.
The Turbulence: After-effects of the Case
In Allwyn Alloys, a plea was filed in the DRT by certain individuals against the mortgagee bank’s action of taking possession of the mortgaged property. It was contended that they, and not the mortgagors, were the original owners of that property. DRT, and subsequently Debt Recovery Appellate Tribunal (DRAT), adjudicated on the question of title and decided against these individuals. Consequently, an appeal titled Meherangiz J. Rangoonwala v Authorised Officer, SBI (Meherangiz) was filed in the Bombay High Court questioning the jurisdiction of DRT and DRAT to adjudicate title disputes.
The court held that the issues of title over a property require a full-fledged trial as there are nuanced questions of facts to be gone into. This implied that there is no bar upon the civil courts to try cases concerning title-disputes. Later on, the Supreme Court, while reversing the finding of the High Court in appeal, lost sight of the scheme of the SARFAESI Act. Even though in this case one of the main factors before the apex court was that the issue of title was already settled by the DRT, it is argued that this exercise of power by the tribunal is itself not warranted in the first place. The fact that DRT has already engaged with this issue does not justify the adjudicatory overreach on its part.
Delineating the Territory: of DRT and Civil Courts
The term ‘jurisdiction’ as defined in Nusli Neville Wadia v Ivory Properties (2020) refers to the authority and power to accept, entertain, hear and decide cases as per the limits defined by the statutes that grants jurisdiction to the said court or tribunal.
The jurisdiction of civil courts is laid down under Section 9 of the Code of Civil Procedure. It must be noted that the widest possible jurisdiction has been granted to the civil courts, conferring inherent powers to deal with all claims of civil nature without exception. A civil court’s jurisdiction is “plenary and omnipotent” unlike the jurisdiction of tribunals which must be expressly conferred upon by the statutes. Thus, any bar upon the jurisdiction of the civil courts in favour of any tribunal must be expressly mentioned or implied in the said statute and can never be assumed.
In order to test whether the language of a statute indicates such a bar, the constitutional bench of the Supreme Court in Dhulabhai v State of Madhya Pradesh (1969) laid down certain criteria. In cases where the bar is not expressly mentioned, the scheme of the statute must be examined to judge the adequacy of remedies available with the tribunal in question. Another important factor enunciated by the Supreme Court in State of Tamil Nadu v Ramalinga Samigal Madam (1985) was whether the tribunal is solely empowered to entertain all kinds of issues arising out of the rights and liabilities given under the statute i.e., whether the tribunal is granted all the powers of the civil court. If these criteria are satisfied, only then civil courts’ jurisdiction will be deemed to be ousted.
Further, the Supreme Court in State of Karnataka v Vishwabharathi House Building Co-op. Society (2003) observed that a bar on civil courts concerning only a few of the issues in the case cannot be extended to infer bar upon all the issues in that case. Also, in dealing with the questions of exclusion of jurisdiction, the presumption is always in favour of the jurisdiction of the civil courts.
Not so sweeping jurisdiction of DRT: A literal reading
The provisions under Section 17 of the Recovery of Debts Due to Banks and Financial Institutions Act 1993 (DRT Act) clearly point out that only banks and other financial institutions can approach the DRT or the Appellate Tribunal, and only for recovery of the debts due to them. Section 18 bars the jurisdiction of civil courts for matters concerning Section 17 and nothing beyond that. Notably, these provisions are procedural in nature for regulating exercise of rights as provided under the SARFAESI Act.
A perusal of the sections under Chapter III of the SARFAESI Act indicates that the rights available to the secured creditor, i.e. the bank, are for the sole purpose of enforcement of ‘security interest’ including title, rights or other interests upon property created in the favour of the secured creditor (s 2.zf SARFAESI Act). Section 17 of the SARFAESI Act also confers power upon the DRT to assess whether the actions under Section 13 are in conformity with and within the limits of the provisions of the SARFAESI Act. This is the limited extent of powers of the DRT and DRAT, as rightfully recognized in Panda.
Further, in Indian Bank v Abs Marine Product (2006), the apex court observed that Sections 17 and 18 of the DRT Act bar the jurisdiction of civil courts only with respect to the application by banks or financial institutions for recovery of their debts. Moreover, there has been no conferment of jurisdiction upon the DRT to try independent proceedings initiated by the borrowers or any other person against banks or financial institutions. Hence, there is no bar on the civil courts with respect to individual and independent claims by any person.
Now, Section 34 of the SARFAESI Act recognizes a bar upon the jurisdiction of the civil courts in favour of the DRT and DRAT. A literal interpretation of the words under this section reveals, yet again, that the jurisdiction of civil courts is not absolutely barred. As observed in the prominent case of Mardia Chemicals v Union of India (2004), the jurisdiction of civil courts is barred only to the extent the DRT or the appellate tribunal is allowed to operate, i.e., regarding those matters that the tribunals have express authority to adjudicate. Section 34 of the SARFAESI Act itself uses the words “in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine”. Here, though the words ‘in respect of any matter’ indicate wider interpretation, its extent is limited by the qualifying words ‘under this Act’.
Furthermore, the phrase ‘any action taken in pursuance of any power conferred by or under this Act’ under Section 34 is not boundless and its scope is considered to be limited by various judgments. In Mardia Chemicals it was held that if the actions of secured creditors are untenable, fraudulent or apparently absurd, then the jurisdiction of civil courts can be invoked. Thus, DRT can only deal with issues that are remotely incidental or connected to recovery of debts due to banks. Now, while this might include issues concerning, for example, the validity of the mortgage, the DRT by the aforementioned interpretation cannot adjudicate the questions of title of the property that was mortgaged. This is because it becomes a matter of individual/ independent claim.
Jurisdiction of DRT and Civil courts: not Overlapping but Adjacent
Taking the argument forward, as perceived in Meherangiz, the title disputes require a full-fledged trial which is not within the powers of the DRT. This observation was based upon the acknowledged fact that tribunals are not equivalent to civil courts. Hence, their jurisdictions do not overlap.
Further, it was appositely noted in Panda by the Bombay High Court that the jurisdiction of a tribunal must be confined by the legislature by necessary implication and cannot be over-broadened like the civil courts. Panda also stated that Allwyn Alloys did not concern itself with the extent of jurisdiction of DRT in the true sense. However, in actuality when the apex court allowed the DRT to adjudicate the title dispute between the parties, it erroneously overlapped its jurisdiction with that of the civil courts.
The difference between civil courts and the DRT was observed in Nahar Industries Enterprises Ltd. v HSBC (2009). The DRT and DRAT cannot be approached by individuals unless the first action is taken by banks, which is clear from the jurisdictional provisions of the SARFAESI Act. Further, the DRT is not empowered to pass decrees and it cannot pass interim orders without circumspection. Lastly, the procedures of the Evidence Act and the Civil Procedure Code like cross examination, discovery of documents, detailed examination etc., are not to be mandatorily followed in proceedings before DRT - in line with its purpose of a speedy trial. These differences make it indispensable to refer the important independent matters, like title disputes, to the civil courts where proper trial can be carried on.
More importantly, this authority of civil courts for deciding the rights of parties as individual claims does not present itself as contrary or alternative to the remedy provided through the DRT. Instead, it operates as a different part of a single remedy where the rights and entitlements are decided by the civil courts as the first step and thereafter the reconstruction or enforcement proceedings are carried on in the DRT.
Even so, the apex court in Transcore v. Union of India 2006 held that the doctrine of election which requires choosing one remedy over the other applies only in case of inconsistent or repugnant remedies. Therefore, since the civil courts and the DRT can operate side by side, there is no case of one’s jurisdiction being turned down to uphold that of the other.
A Purposive Scrutiny of the Provisions
Nonetheless, Panda also highlighted that, in any case, the boundaries of the jurisdiction of a tribunal is always guarded and controlled by its purpose. Further, it is a settled position of law that in situations where purposive interpretation is resorted to, the courts should not rewrite the provisions or read something inconsistent with the objective of the statute.
The DRT and DRAT were established after the recommendation of the Tiwari Committee and the Committee on the Financial System headed by Shri M. Narasimham. These committees suggested that recovery procedure of debts by the banks was very cumbersome in the ordinary fora, i.e., civil courts, and hence, a specialized tribunal was required to expedite the adjudicatory/recovery proceedings. This led to the enactment of Recovery of Debts Due to Banks and Financial Institutions Act 1993 (DRT Act), establishing the Debt Recovery Tribunals and framing the scope of their powers and jurisdiction. The purpose of DRT and DRAT is lucidly enshrined in the preamble of the DRT Act. Its fundamental objective is to expeditiously adjudicate the claims of banks concerning the legally recoverable dues.
Though the preamble, through the phrase for matters connected therewith or incidental thereto, hints at expanding the extent of jurisdiction of DRT, it is not sufficient to assume an absolute usurpation of civil courts’ powers. It merely allows a considerable area of operation to the DRT, permitting fulfillment of its objectives. The words incidental and connected are read as ‘inextricably connected with’ the issues before the DRT, welcoming the involvement of civil courts in adjudication of independent civil rights issues. Thus, even a purposive reading of the texts would not permit the DRT to decide title disputes as was permitted by the apex court in Allwyn Alloys.
A Balanced Approach
It is duly necessary to bestow a meaningful interpretation to Section 34 of the SARFAESI Act which pays regards to the objectives and aims of the Act. However, it is also ineluctable to ensure that the protection offered to civil rights is not brushed off in that process. The bar under Section 34 of the SARFAESI Act was visualized as a mechanism to ensure the recovery of public money in a speedy manner and thus, must be considered in light of the language of the section. It is pointed out that the jurisdiction of the DRT and DRAT is evidently limited to the adjudication of the secured creditor’s actions as under Section 13 and other rights under Section 17 of the SARFAESI Act. It cannot be extended to allow engagement with all kinds of civil rights claims as was permitted by the Supreme Court in Allwyn Alloys while supporting the determination of title dispute by the DRT and DRAT.
Even a purposive reading of the DRT Act and the SARFAESI Act would reveal that it was meant to speed up the process of recovery of amounts due to banks, i.e., the secured creditors. However, such a reading cannot be stretched to confer jurisdiction upon the DRT to the extent that it impedes access to meaningful remedies offered by civil courts.
A balance must be struck between the jurisdiction of civil courts and the tribunal in a way that the protection offered by the civil courts is not left redundant. It is shown that the jurisdiction of civil courts and the DRT/ DRAT do not exist in contravention of each other and can be reconciled. As recognized by the Bombay High Court in Panda, the title disputes, being independent civil rights claims, are to be decided by the civil courts and thereafter the exclusive jurisdiction of DRT begins. Thus, the apex court in Allwyn Alloys undesirably expanded the jurisdiction of the DRT and DRAT, which needs to be reappraised by a larger bench of the Supreme Court in future.
†Aditendra Singh and Livie Jain are 4th year, B.A. LL.B. (Hons.) students at National Law University, Delhi