PUNJAB AND SIND BANK Vs. FRONTLINE CORPORATION Ltd.

{Civil Appeal No. 2924 of 2023}

FACTS OF THE CASE:

In the aforementioned case, the appellant i.e., the Punjab and Sind Bank was inducted as a tenant in the ground floor of the suit property in Calcutta by M/S Bharat Chamber of Commerce in the year of 1972, who in the year of 2003 filed an ejectment suit against the appellant before the City Civil Court, Kolkata. While this ejectment case was pending before the City Civil Court, M/S Bharat Chamber of Commerce sold this property via sale deed to M/S Frontline Corporation Ltd. (Respondent in the impugned case), who thereafter took a credit of Rs.42.74 crore from the appellant, giving the suit property as a collateral.

In a settlement to the ejectment suit, a lease deed was signed between the parties wherein the suit property was demised in favor of the appellant for 21 years. However, it is pertinent to note that no consent decree has been passed by the court in this respect.

The appellant, owing to the financial defaults committed by the respondent, issued a Demand notice under Section 13(2) of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for the recovery of the outstanding dues of Rs. 44.89 crore, with interest from the respondent. On receiving no response towards the notice, the appellant issued a possession notice under Section 13(4) of SARFAESI Act, declaring therein the possession of the appellant over the suit property.

To this the respondent filed a suit before the Debt Recovery Tribunal 1, Kolkata as well as before the High Court of Kolkata, demanding from the court to impose injunctions, so as to restrain the appellant from dealing with, disposing of or encumbering any part or portion of the suit property. Asserting that the appellant, as per the purported settlement agreement, must vacate the property temporarily, so that it could be reconstructed, after which the possession of the ground floor would be given back to the appellant and it would also enable him to pay off the outstanding dues from the creations receivable from the third party interest. Relying on this, interim order was passed under the directions “no final orders of sale be passed for a period of 6 weeks”, which in the later proceedings was set aside since the ejectment suit was dismissed and the purported settlement agreement had not fructified in a consent decree, thus extending no obligations on the appellant.

The respondent then approached the Division Bench challenging the aforesaid order, wherein the Division Bench revived the interim order as well as asked the appellant i.e., Punjab & Sind Bank to vacate the suit property temporarily and accept Rs.5,00,000 as the shifting charges.

The impugned case was then brought before the Hon’ble Supreme Court of India by the appellant i.e., Punjab and Sind Bank.

ISSUE:

The following issue was brought before the Apex Court:

Whether the Division Bench was correct in interfering with the discretion exercised by the Single Judge, and thus reversing its judgement and order dated 2^nd November, 2023?

ARGUMENTS:

Appellant’s Argument: The Learned Counsel appearing on the behalf of the appellant contended that the Division Bench has grossly erred in reversing the judgement and order passed by the Single Judge, who found it to be mischievous and thus denied to grant the relief under Order XXXIX Rules 1 and 2 of the Civil Procedure Code, 1908 (for short, “CPC”). 

Thus, prayed before the Apex Court to set aside the impugned judgment and order dated 30^th January, 2017 and revive the order of the Single Judge dated 2^nd November, 2016.

Respondent’s Argument: The Learned Counsel appearing on the behalf of the respondent submitted that since it has been held by the single judge that the suit is for the specific performance of the terms of the settlement filed in the eviction suit, therefore the earlier granted interim relief could not be vacated.

JUDGEMENT:

The Apex Court keenly observed the facts and arguments presented by both the learned counsels appearing before the court on behalf of their clients and stated that the as per the Section 34 of the SARFAESI Act, 2002, the Division Bench was not correct in interfering with the decision of the Single Judge.

The bench in an explanation as to the scope of Section 34 cited the case of Mardia Chemical Limited & Others Vs. Union of India & Others, wherein it was observed by the three-judge bench that as per Section 34 the jurisdiction of Civil Court is barred in respect of matters which a Debt Recovery Tribunal or an Appellate Tribunal is empowered to determine in respect of any action taken or to be taken in pursuance of any power conferred under this Act.

Additionally, the court also asserted that despite of the bar as mentioned under Section 34, the jurisdiction of Civil Court can be invoked if the action of the secured creditor is alleged to be fraudulent or his claims may be so absurd and indefensible which may not require any probe whatsoever. However, in the impugned case it could not said that the action of the creditor was not correct and is fraudulent in any manner. The bench also highlighted the case of Union of India Vs. Narasimhachariar, wherein it was observed as under:

“22. The remedies of a mortgagor against the mortgagee who is acting in violation of the rights, duties and obligations are twofold in character. The mortgagor can come to the court before sale with an injunction for staying the sale if there are materials to show that the power of sale is being exercised in a fraudulent or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought: Adams v. Scott [(1859) 7 WR 213, 249] .

I need not point out that this restraint on the exercise of the power of sale will be exercised by courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages rely. (See Ghose, Rashbehary: Law of Mortgages, Vol. II, 4th Edn., p. 784.)”

Relying on the judgements and observations of this court in various cases the bench stated that the interference of the Division Bench with the discretion of the Single Judge was not maintainable within the limited scope of jurisdiction of the Civil Courts as per the Section 34 of the SARFAESI Act,2002. Thereby, quashing the judgement and order dated 30^th January, 2017 passed by the Division Bench and upholding the judgement and order 2^nd November, 2016 passed by the Learned Single Judge. 

REFERENCES:

https://www.advocatekhoj.com/library/judgments/announcement.php?WID=16367

This article is written by Agrima Singh of University of Lucknow, intern at Legal Vidhiya.

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