Jurisdiction of Civil Courts in Property Disputes Despite SARFAESI Act Restrictions

SARFAESI

Introduction

In Central Bank of India & Anr. v. Smt. Prabha Jain & Ors., Civil Appeal No. 1876 of 2016 (judgment dated 09.01.2025), the Supreme Court of India delivered a significant ruling clarifying the scope of civil court jurisdiction in disputes involving immovable property transactions where subsequent mortgage and SARFAESI proceedings were initiated. The judgment reinforces the constitutional and statutory limits of jurisdictional bars under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), particularly Section 34, and delineates the civil courts’ authority in disputes concerning title, validity of sale deeds, and possession.

1. Factual Background and Procedural History

The dispute originated from a civil suit (No. 25A/2011) filed by Smt. Prabha Jain against several defendants including Central Bank of India, challenging the validity of a sale deed and a mortgage deed. The plaintiff claimed part-ownership of a parcel of land inherited from her deceased husband. Her brother-in-law, Sumer Chand Jain, allegedly sold a portion of the undivided property to a third party (Parmeshwar Das Prajapati) without any partition. The buyer subsequently mortgaged the plot with the appellant Bank, which initiated proceedings under the SARFAESI Act following default.

The Bank filed an application under Order VII Rule 11 CPC to reject the plaint, arguing the bar of jurisdiction under Section 34 of the SARFAESI Act and inadequate court fees. The trial court accepted this plea and rejected the plaint. The High Court, on appeal, reversed the decision, restored the suit, and held that the civil court had jurisdiction. The Bank challenged this order before the Supreme Court.

2. Identification of Legal Issues

The Supreme Court addressed the following central issues:

  1. Whether the civil court’s jurisdiction is barred under Section 34 of the SARFAESI Act when a third party seeks declaration regarding ownership and invalidity of sale/mortgage deeds.
  2. Whether the plaintiff is entitled to seek possession through a civil suit despite SARFAESI proceedings being invoked.
  3. Whether proper court fees were paid and whether non-payment could justify rejection under Order VII Rule 11 CPC.
  4. Whether partial rejection of plaint is permissible under Order VII Rule 11 CPC.

3. Arguments of the Parties

Appellant – Central Bank of India:

  • Asserted that the civil court lacked jurisdiction under Section 34 of the SARFAESI Act since the matter related to enforcement of security interest.
  • Argued that the plaintiff could approach the Debts Recovery Tribunal (DRT) under Section 17 SARFAESI.
  • Claimed insufficient court fees for declaratory and consequential reliefs.

Respondent – Smt. Prabha Jain:

  • Contended that the sale deed was void ab initio as the seller had no title, and thus, the mortgage was also invalid.
  • Argued that her claims predated any SARFAESI action and involved fundamental questions of title—outside DRT’s jurisdiction.
  • Submitted that she was not a party to the disputed documents and had correctly valued and paid the appropriate court fee.

4. Court’s Analysis and Reasoning

On Jurisdiction under Section 34 SARFAESI:

The Court conducted a detailed examination of Section 34 and held that civil court jurisdiction is barred only in respect of matters which DRT or DRAT are empowered to determine. It held that:

  • DRT has no power to decide questions of title or validity of ownership, particularly where the plaintiff’s claim is independent and adverse to that of the borrower.
  • The reliefs sought by the plaintiff—declaration of invalidity of the sale and mortgage deeds and possession—are not actions under Section 13(4) SARFAESI, and hence not within DRT’s purview under Section 17.
  • SARFAESI is designed to provide a mechanism for recovery, not for adjudicating title or declaratory reliefs.

On Possession and Section 17(3):

  • The Court emphasized that the pre-2016 SARFAESI regime (applicable to the 2011 suit) allowed DRT only to “restore” possession to the borrower—not to hand over possession to a third party with an adverse claim.
  • Since the plaintiff was never in possession, and claimed title independent of the borrower, she could not seek possession through DRT.
  • Thus, the relief of possession could not be granted by DRT and must be sought in civil court.

On Court Fees:

  • The Court upheld the High Court’s reasoning that since the plaintiff was not a signatory to the disputed documents, she was not required to seek cancellation but only a declaration, for which the court fee paid was adequate.

On Order VII Rule 11 CPC:

  • Reaffirmed that partial rejection of plaint is impermissible under Order VII Rule 11.
  • If any part of the claim is maintainable, the plaint as a whole must be retained.

Reliance on Precedents:

The judgment distinguishes the ruling in Jagdish Singh v. Heeralal [(2014) 1 SCC 479], clarifying that it did not consider the limited powers of the DRT under Section 17(3) in depth. It also cites and affirms the interpretation in Mardia Chemicals Ltd. v. Union of India [(2004) 4 SCC 311] and Robust Hotels (2017) 1 SCC 622 for jurisdictional principles.

5. Final Conclusion and Holding

The Supreme Court upheld the High Court’s decision, holding that:

  • The civil court has jurisdiction to try suits involving declaration of title, invalidity of sale and mortgage deeds, and possession where the DRT lacks statutory competence.
  • The suit was not barred by Section 34 of the SARFAESI Act.
  • The plaint could not be rejected under Order VII Rule 11 CPC.

This judgment affirms and reiterates the distinction between statutory remedies under SARFAESI and substantive civil rights enforceable only through civil courts.

FAQs:

1. Can a civil court decide ownership disputes when SARFAESI proceedings are pending?

Yes, civil courts retain jurisdiction over title and ownership disputes, especially when the claim arises independently of the borrower’s rights and is not covered by Section 17 of the SARFAESI Act.

2. What is the scope of Section 34 of the SARFAESI Act?

Section 34 bars civil court jurisdiction only in matters that the Debts Recovery Tribunal or Appellate Tribunal can decide under the SARFAESI Act, such as measures taken under Section 13(4), but not title or declaration suits.

3. Is a borrower’s family member affected by a mortgage entitled to file a civil suit?

Yes, if the family member’s claim is independent of the borrower (e.g., inherited ownership), they may approach a civil court for relief such as declaration of title or possession.

4. Can DRT grant possession to someone other than the borrower?

No, under unamended Section 17(3), DRT can only “restore” possession to the borrower or someone acting through them, not to a third party claiming independent title.

5. Can a court reject part of a plaint under Order VII Rule 11 CPC?

No, courts cannot partially reject a plaint. If any part of the suit is maintainable, the entire plaint must be allowed to proceed.

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