In CIVIL APPEAL Nos.8972-8973 of 2014-SC-Jurisdiction of Civil Court to try suit filed by borrower against Bank or Financial Institution not ousted by virtue of Debt Recovery Act; It is not open to defendant to seek stay on DRT’s decision while awaiting verdict of his suit before Civil Court: SC
Justices Sanjay Kishan Kaul,Abhay S. Oka & Vikram Nath [10-11-2022]

Read Judgment: BANK OF RAJASTHAN LTD Vs. VCK SHARES & STOCK BROKING SERVICES LTD

New Delhi, November 12, 2022: The Supreme Court has clarified that there is no provision in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) by which the remedy of a civil suit by a defendant in a claim by the bank is ousted, but it is the matter of choice of that defendant. Such a defendant may file a counterclaim, or may be desirous of availing of the more strenuous procedure established under the CPC.

On the issue whether  consent is required for the transfer of a suit, the 3-Judge Bench of Justice Sanjay Kishan Kaul, Justice Abhay S. Oka and Justice Vikram Nath said, “We do believe that once we have opined that there is no power of transfer in the Civil Court, the consent or absence of it is not something which would lend such power to the Civil Court. The option before the defendant, who has instituted the suit, is clear - either he could file a counterclaim before the DRT or he could institute separate civil proceedings.”

The appellant-Bank of Rajasthan Ltd. sanctioned a term loan to the respondent company with a limit of Rs 1.50 crore at interest repayable in twelve quarterly installments. In order to secure the loan, the guarantors including the respondent,offered title deeds of immovable properties as security. By mutual agreement, a further credit overdraft facility up to a limit of Rs 5 crore. The respondent did not adhere to financial discipline, resulting in the appellant issuing a notice calling upon the respondent to settle the term loan account and overdraft facility account within three days of the receipt of the notice.

When the respondent failed to make the payment, the appellant filed an application for recovery of the amounts due u/s 19 of the RDB Act before the Debts Recovery Tribunal, Kolkata ( DRT). In 1998, the appellant sold the pledged shares of BFL Software Ltd. to adjust the amounts against the dues in view of the authorisation available with them as a part of the loan transaction. The respondent, as a sequitur, filed Civil Suit before the High Court of Calcutta. 

The appellant, in those proceedings, filed applications, seeking rejection of the plaint and dismissal of the suits filed by the respondent and the Single Judge allowed both the applications of the appellant. The Division Bench allowed the appeals filed by the respondent against the orders of the Single Judge, and it was the decision in the two appeals permitting continuation of suits which had been assailed before the Apex Court.

In the proceedings before the  DRT, it was held that the respondent was entitled to recover Rs 6.88 lakh from the appellant within four weeks of the order. The respondent was also granted liberty to file appropriate proceedings for recovery of dividends on the pledged shares except the sum of Rs 20.11 lakh  for which set off was allowed in the proceedings.

The appellant filed an appeal before the Debts Recovery Appellate Tribunal which was dismissed with the observation that the appellant should have sold the shares in 1996 and, thus was not entitled to claim interest. The appellant approached the Kolkata High Court but the prayer of the appellant stood dismissed.

At the outset, the Bench opined that there are no restrictions on the power of a Civil Court under Section 9 of the Code unless expressly or impliedly excluded. Noting that under the RDB Act, a summary remedy is provided in respect of claims of banks and financial institutions so that recovery of the same may not be impeded by the elaborate procedure of the Code, the Bench opined that the defendant has a right to defend the claim and file a counterclaim in view of sub-Sections (6) and (8) of Section 19 of the RDB Act. 

The Bench was of the view that  the jurisdiction of a Civil Court to try a suit filed by a borrower against a Bank or Financial Institution is not ousted by virtue of the scheme of the RDB Act in relation to the proceedings for recovery of debt by a Bank or Financial Institution.

“In the absence of any such power existing in the Civil Court, an independent suit filed by the borrower against the bank or financial institution cannot be transferred to be tried along with application under the RDB Act, as it is a matter of option of the defendant in the claim under the RDB Act. However, the proceedings under the RDB Act will not be impeded in any manner by filing of a separate suit before the Civil Court”, the Bench held.

Noting that the proceedings under the RDB Act in any case had reached a culmination with satisfaction of the claim, the Bench made it clear that no proceedings instituted by the appellant were pending before the DRT. 

As for the suit, there was no question of a counterclaim or a transfer or any other manner other than trial of the suit instituted by the respondent. In fact, some part of the claim of the bank was not even allowed and some adjustments were directed to be made, the Bench added.

Noticing the fact that the DRT by an earlier order of 2005, had permitted the respondent to pursue the remedy in accordance with law - which could only mean the civil proceedings, the Top Court observed that the suit was liable to proceed accordingly.

Thus, the Bench dismissed the appeals.