Supreme Court Upholds DRT Decree, Dismisses Civil Suits Challenging it: Canara Bank vs. P. Selathal (2020)

Date of the Judgment: 28 February 2020
Citation: (2020) INSC 123
Judges: Uday Umesh Lalit, Indira Banerjee, M.R. Shah
Can a civil court entertain a suit challenging a decree passed by the Debt Recovery Tribunal (DRT)? The Supreme Court of India addressed this critical question in a case involving Canara Bank and various respondents. The core issue revolved around whether civil courts have the jurisdiction to hear cases that essentially challenge orders passed by the DRT, especially when the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) provides a specific appellate mechanism. The Supreme Court, in a judgment authored by Justice M.R. Shah, with Justices Uday Umesh Lalit and Indira Banerjee on the bench, ruled against the maintainability of such suits, emphasizing the special nature of the RDDBFI Act and the bar on civil court jurisdiction.

Case Background

In 1995, Canara Bank granted a term loan of Rs. 49,50,000 to M/s Coimbatore Hatcheries, a partnership firm. The loan was secured by mortgaging properties belonging to the firm and land owned by the guarantor, M.C. Kallikutty. When the firm defaulted, Canara Bank initiated recovery proceedings before the DRT in 1997. The DRT passed an ex-parte decree against the borrower and the guarantor in 2003 for Rs. 57,35,770 with 18% annual interest. A recovery certificate was issued. The guarantor, M.C. Kallikutty, later filed a writ petition in the High Court of Madras, denying his guarantee and alleging fraud, which led to a criminal investigation. In 2007, the bank recovered Rs. 38 lakhs by auctioning the borrower’s properties. In 2008, Kallikutty filed an application to set aside the ex-parte decree, which was dismissed by the DRT. Subsequently, in 2010 and 2011, the respondents, who claimed to have purchased the mortgaged properties, filed civil suits challenging the DRT decree, alleging fraud and claiming that the mortgage was not valid.

Timeline

Course of Proceedings

The trial court dismissed the bank’s applications to reject the plaints. The High Court of Judicature at Madras also dismissed the bank’s revision applications, upholding the trial court’s decision, stating that the issue of fraud and the validity of the mortgage needed to be adjudicated in civil suits and criminal proceedings. The bank then appealed to the Supreme Court.

Legal Framework

The case primarily revolves around the interpretation of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act), specifically:

• Section 18 of the RDDBFI Act: This section bars the jurisdiction of any court or authority, except the Supreme Court and a High Court exercising writ jurisdiction, in respect of matters which the DRT or the DRAT is empowered to determine.
• Section 20(1) of the RDDBFI Act: This section provides for an appeal to the Debt Recovery Appellate Tribunal (DRAT) against any order made by a DRT.

Arguments

Appellant (Canara Bank)’s Arguments:

• The civil suits are an attempt to challenge the decree passed by the DRT, which is not maintainable under the RDDBFI Act.
• The RDDBFI Act provides a specific remedy of appeal to the DRAT against any order of the DRT.
• The civil court lacks jurisdiction due to the specific bar under Sections 18 and 20 of the RDDBFI Act.
• The allegations of fraud are not related to the guarantee deed but to the partnership deed, making the suits frivolous and an abuse of the legal process.
• Relied on Punjab National Bank v. O.C. Krishnan (2001) 6 SCC 569, which held that even petitions under Articles 226 and 227 of the Constitution are not maintainable against DRT orders without exhausting the remedy of appeal.
• Relied on M/s Cambridge Solutions Limited, Bangalore v. Global Software Limited, Chennai, 2016-5-L.W. 45, where the Madras High Court held that a suit challenging a Recovery Officer’s order, despite allegations of fraud, is not maintainable.
• Relied on T. Arivandandam v. T.V. Satyapal (1977) 4 SCC 467, A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies (1989) 2 SCC 163, Sopan Sukhdeo Sable v. Assistant Charity Commissioner (2004) 3 SCC 137, and Madanuri Sri Rama Chandra Murthy v. Syed Jalal (2017) 13 SCC 174, to argue that the plaints should be rejected as they are vexatious and an abuse of process.

Respondents (Original Plaintiffs)’ Arguments:

• They are bona fide purchasers of the suit properties, which were allegedly mortgaged fraudulently.
• The fraud committed by the bank and the borrowers can only be proved in a civil forum.
• They are third parties and cannot approach the DRT or the DRAT.
• The criminal proceedings initiated by the guarantor support their claim of fraud.
• The trial court and the High Court correctly refused to reject the plaints under Order 7 Rule 11(d) of the Code of Civil Procedure (CPC).

Reply by Appellant (Canara Bank):

• The bank was not a party to the criminal proceedings, so the findings of the Magistrate do not bind the bank.
• The criminal proceedings were related to the partnership deed, not the guarantee deed.
• The allegations of fraud in the plaints are illusory and the suits are vexatious.

Submissions by Parties

Issues Framed by the Supreme Court

The main issue before the Supreme Court was:

1. Whether the suits filed by the plaintiffs were liable to be rejected in exercise of powers under Order 7 Rule 11(d) of the CPC or not?

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

How each authority was viewed by the Court

The Supreme Court relied heavily on Punjab National Bank v. O.C. Krishnan [CITATION], which established that the RDDBFI Act provides a complete mechanism for debt recovery, including an appellate process. The court emphasized that civil suits cannot be used to bypass this mechanism. The Court also followed M/s Cambridge Solutions Limited v. Global Software Limited [CITATION], where the Madras High Court had dismissed a suit challenging a Recovery Officer’s order despite allegations of fraud, holding that such suits are not maintainable. The court also used T. Arivandandam v. T.V. Satyapal [CITATION] to support its view that vexatious and meritless suits should be rejected at the outset, and A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies [CITATION] to define the meaning of “cause of action.” The court also relied on Sopan Sukhdeo Sable v. Assistant Charity Commissioner [CITATION] to reiterate that illusory causes of action should be rejected, and Madanuri Sri Rama Chandra Murthy v. Syed Jalal [CITATION] to state that the power to reject a plaint should be exercised when the suit is barred by law or does not disclose a cause of action. Finally, the court relied on Ram Singh v. Gram Panchayat Mehal Kalan [CITATION] to emphasize that plaintiffs cannot circumvent the law of limitation by clever drafting.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the need to uphold the special mechanism created by the RDDBFI Act for debt recovery. The Court emphasized that the Act provides a comprehensive framework, including an appellate process, and that civil courts should not interfere with this process. The Court also found that the allegations of fraud were not substantiated and were merely an attempt to circumvent the DRT decree. The court also considered the fact that the suits were filed after a long delay, and that the respondents had not disclosed their interest in the property earlier.

Sentiment Analysis of Reasons

Fact:Law Ratio

Logical Reasoning

Judgment

The Supreme Court allowed the appeals, setting aside the High Court’s judgment and the trial court’s orders. The court held that the suits filed by the original plaintiffs were not maintainable and were an abuse of the process of law. The plaints were rejected under Order 7 Rule 11(d) of the CPC. The court emphasized that the RDDBFI Act provides a specific mechanism for debt recovery, and civil courts cannot interfere with this process. The court also noted that the allegations of fraud were not substantiated and were merely an attempt to circumvent the DRT decree. The court also considered the fact that the suits were filed after a long delay, and that the respondents had not disclosed their interest in the property earlier.

The court quoted:

“The Act has been enacted with a view to provide a special procedure for recovery of debts due to the banks and the financial institutions.”

“The trial Court must remember that if on a meaningful and not formal reading of the plaint it is manifestly vexatious and meritless in the sense of not disclosing a clear right to sue, it should exercise the power under Order 7 Rule 11 of the Code…”

“If clever drafting of the plaint has created the illusion of a cause of action, the court will nip it in the bud at the earliest so that bogus litigation will end at the earlier stage.”

There were no dissenting opinions.

Key Takeaways

• Civil courts cannot entertain suits that challenge decrees passed by the Debt Recovery Tribunal (DRT).
• The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDBFI Act) provides a specific appellate mechanism that must be followed.
• Allegations of fraud must be substantiated with specific details and not be merely an attempt to circumvent legal processes.
• Vexatious and frivolous suits that are an abuse of the process of law can be rejected at the outset under Order 7 Rule 11 of the Code of Civil Procedure (CPC).
• Parties cannot circumvent the law of limitation by making vague averments.

Directions

The Supreme Court directed that the plaints filed by the original plaintiffs, being O.S. No. 1269/2010 and O.S. No. 233/2011, pending in the Court of Additional Subordinate Court, Coimbatore, are rejected.

Development of Law

The ratio decidendi of this case is that civil courts do not have jurisdiction to entertain suits challenging the orders or decrees passed by the Debt Recovery Tribunal (DRT). The Supreme Court reiterated the principle that the RDDBFI Act provides a special mechanism for debt recovery, and the appellate process under the Act must be followed. This decision reinforces the bar on civil court jurisdiction in matters that fall under the purview of the DRT and DRAT, as established in previous judgments like Punjab National Bank v. O.C. Krishnan. There is no change in the previous position of law, but it reinforces the existing position.

Conclusion

The Supreme Court’s judgment in Canara Bank vs. P. Selathal reaffirms the principle that civil courts cannot entertain suits challenging decrees passed by the DRT. The Court emphasized the importance of the special mechanism provided by the RDDBFI Act for debt recovery and rejected the suits as an abuse of the process of law. This decision reinforces the jurisdictional bar on civil courts in matters that fall under the purview of the DRT and DRAT.