Punjab and Sind Bank v. Frontline Corporation Ltd.

Facts of the Case

In the Civil Court of Calcutta (henceforth, , an ejectment suit was filed by the Bharat Chamber of Commerce (henceforth, the Chamber), against its tenant (and appellant, in the present case),  Punjab and Sind Bank. While the suit was still pending, Frontline Corporation Ltd. (respondent, in the present case), acquired ownership of the suit property (henceforth, property), from the Chamber. Subsequently, the respondent obtained multiple credit facilities from the appellant bank, by mortgaging, among other assets, the suit property as collateral.

In a lease deed executed between the parties in the case, the property was granted in favour of the appellant, for a period of 21 years. Owing to defaults made by the respondent, all the credit facilities, obtained by him, were classifies as Non-performing Assets, by the appellant. A demand notice, for the recovery of unsettled dues with interest was also issued, under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (henceforth, SARFAESI Act)[1]. The demands having remained unmet and non-complied with, the appellant issued a notice of possession[2], stating that now, it officially assumed control of the property in question.

Aggrieved, the respondent moved the Debt Recovery Tribunal (henceforth, DRT). Also, a civil suit was filed in the HC for the specific performance of the lease deed, as per which, the appellant was to temporarily vacate the suit property, allowing the respondent to reconstruct it. Upon completion, the ground floor would be returned to the appellant. This would offset and adjust the outstanding dues against amounts generated from third-party interests in the newly constructed building. The application was allowed by the Single judge bench, and the interim order that the property should not be sold for the next 6 weeks, was also passed.

To get the interim order annulled, an application was filed by the appellant, which was upheld the Single judge bench, who noted that the appellant, as a secured creditor, could not be prohibited from taking necessary actions concerning his property, particularly considering the explicit restriction on the jurisdiction of the civil court outlined in Section 34 of the SARFAESI Act[3]. Further, a cost of Rs. 5, 00, 000/- was also imposed on the respondent. This was again contended by the respondent who filed an appeal, and the order of the Single judge bench was set aside by the Division bench.

In light of the above mentioned facts, the appellant has now moved the SC against the revised order of the Single judge bench.

Issues Dealt by the SC

1. Whether or not does Section 34 of the SARFAESI Act impose restrictions on the jurisdiction of the Civil Court?
2. Whether or not is the appeal filed by Punjab and Sind Bank, maintainable?

Arguments on Behalf of the Appellant

The counsel of the appellant submitted that the Division Bench made a significant mistake by overturning the carefully considered decision of the Single bench judge, which is why, the revised judgment and order should be annulled, and the Single bench judge’s order should be reinstated.

Arguments on Behalf of the Respondent

In contrast, the counsel of the respondent argued that if the Single bench judge had already determined the suit’s maintainability for specific performance of the settlement terms in the eviction suit, the previously granted interim relief should not have been revoked by the Division bench.

Adjudication by the SC

It was observed by the SC that it cannot be asserted that the appellant is engaged in fraudulent activity or that its claim is so irrational or baseless as to warrant no investigation as the SARFAESI Act offers remedies to any aggrieved party, as outlined in its Sections 17 and 18.

To decide on the issue of bar in jurisdiction imposed by the SARFAESI Act, the SC referred to paragraphs 50, 51 of Mardia Chemicals Ltd. v. Union of India[4], and paragraph 22 of Adams v. Scott[5]. It was noted that the Appellate Court would refrain from overturning the first-instance court’s discretion unless there’s evidence of arbitrary, capricious, or perverse exercise, or a disregard for the established legal principles governing the granting or denial of interlocutory injunctions. Appeals against discretion are considered appeals on principle. The Appellate Court, in line with this, does not re-evaluate the evidence to reach a different conclusion unless the lower court’s decision was unreasonably made. If the trial court exercised its discretion reasonably and judiciously, even if the appellate court might have had a different perspective, it does not justify interfering with the trial court’s discretion. With these observations, the SC stated that the scope in which a civil suit is maintainable is extremely limited, and the present case, would absolutely not fall under its purview.

Thus, it was held that the appeal is maintainable. Further, Division bench had erred in its decision, and the Single bench judge’s order should be upheld.

Written by Aarya Dubey an intern under legal vidhiya.

[1] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, § 13, cl. 2, Acts of Parliament, 2002 (India).

[2] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, § 13, cl. 4, Acts of Parliament, 2002 (India).

[3] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, § 34, Acts of Parliament, 2002 (India).

[4] Mardia Chemicals Ltd. v. Union of India, (2004) 4 SCC 311.

[5] Adams v. Scott, (1859) 7 WR 213, 249.

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