Read Order: M/S . REACTIVE CHEMICALS AND SOLVENTS AND ORS VS. INDIAN OVERSEAS BANK AND ORS. 

LE Correspondent

Chennai, June 14, 2022:While referring to Section 34 of the SARFAESI Act and Section 11 of the Commercial Courts Act, the Madras High Court has opined that a commercial court or commercial division is prohibited from entertaining a suit or proceeding in respect of matters which falls within the jurisdictional DRT or DRAT.

The Bench of Justice Senthilkumar Ramamoorthy asserted, “The SARFAESI Act is a legislation enacted with a view to enable a bank or financial institution to recover its dues by calling on and enforcing the security interest created in its favour by a borrower or a guarantor.”

Factual matrix of the case was such that the plaintiffs availed the credit facilities from the Bank by creating a mortgage on an immovable property. On account of default in payment in discharging the loan, the Bank initiated the proceedings under the Securities and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. By placing reliance on the procedure laid down under the SARFAESI Act, the mortgaged property was put to sale by the Bank and the sum of Rs. 60,20,000 was realized. 

However, the plaintiffs contended that the amount payable by them was around Rs.28,01,850  as on the date of auction sale. Consequently, after clearing the debt amount, the plaintiffs stated that the Bank was supposed to reimburse the surplus amount to the plaintiffs. However, the same was not refunded as requested by the plaintiffs. In pursuance of the same, the plaintiffs asserted that they were entitled to interest compounded annually at 9 % per annum on the principal amount.However, the defendants denied all the claims raised against them. 

On the issue of maintainability of the present suit with respect to Section 34 of the SARFAESI Act read with Section 11 of the Commercial Courts Act, 2015. , the Court opined that the prime issue for consideration was whether the jurisdictional power of DRT or DRAT was vested with jurisdiction under the SARFAESI Act to determine the matters in respect of which the suit was filed. If so, this Court is prohibited from exercising jurisdiction. If not, this Court is entitled to exercise jurisdiction, added the Bench.

Consequently, with respect to the claim of pre- deposit by the plaintiffs for consideration of the appeal presented before the DRAT, the Court observed that non- adherence with the direction of DRAT was certainly a matter within the jurisdictional realm of the petitioner.  In order to realize the dues from the sale proceeds, it is necessary to crystallize the amount due and payable to the Bank, the Court noted. In relation to the same, the Court stated that the amount due and payable to the Bank was a matter within the jurisdictional limits of DRT. Thus, the Court opined that the claims raised by the plaintiffs were within the jurisdiction of DRT under the SARFAESI Act, observed the Bench. 

The Court pertinently noted that the security interest in the instant case was in the form of immovable property. The said property was brought to sale by initiating measures under Section 13(4) of the SARFAESI Act. Such measures were challenged by the borrowers by initiating proceedings under Section 17 of the SARFAESI Act. Pursuant thereto, the auction sale was conducted under the supervision of the jurisdictional DRT. Therefore, the Court held that same was a matter which the jurisdictional DRT was authorized to determine while exercising powers under the SARFAESI Act. In view of the aforesaid observations, the Court decided all the issues in favour of the defendants and against the plaintiffs.

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