Civil court can hear fraud challenge to property sale deed despite SARFAESI action, Bombay HC rules

Respondent No. 1, owner of Flat Nos. 19 and 26 in Shri Kalavishva Co-operative Housing Society, allegedly executed a Transfer/Sale Deed dated 13 March 2020 in favour of Defendant Nos. 1 and 2 for ₹49,51,000.

Defendant Nos. 1 and 2 obtained housing finance from L&T Finance Ltd. and created security over the flats. Following default, L&T Finance initiated measures under the SARFAESI Act, including proceedings for possession under Section 14.

The Plaintiff subsequently instituted Special Civil Suit No. 91 of 2023 seeking, principally, cancellation of the Sale Deed on the ground that it had been procured by fraud, a declaration that his ownership had not been divested, declarations that the defendants had no rights in the flats, and permanent injunction.

L&T Finance applied under Order VII Rule 11 of the Code of Civil Procedure, 1908, contending that the suit was barred by Section 34 of the SARFAESI Act.

The Civil Judge rejected the application, holding that the Civil Court could examine the allegations of fraud and grant the reliefs claimed.

Whether the suit seeking cancellation of the Sale Deed, declaration of the Plaintiff’s continuing ownership, and consequential injunction was barred by Section 34 of the SARFAESI Act because the dispute related to measures taken by the secured creditor under Section 13(4)?

Whether the Civil Court retained jurisdiction where the plaint contained specific allegations of fraud in the underlying transaction and the principal reliefs sought were beyond the jurisdiction of the DRT under Section 17 of the SARFAESI Act?

Whether the plaint disclosed sufficient particulars of fraud under Order VI Rule 4 CPC to justify a trial, rather than rejection under Order VII Rule 11 CPC?

The Court applied the principle that Civil Courts possess plenary jurisdiction over suits of a civil nature unless their jurisdiction is expressly or impliedly barred.

Section 34 of the SARFAESI Act bars Civil Court jurisdiction only in respect of matters which the DRT or Appellate Tribunal is empowered to determine, principally measures taken under Section 13(4); it does not exclude jurisdiction over every civil dispute connected with a secured asset.

Section 17 provides a remedy to any person aggrieved by a measure under Section 13(4), but the DRT’s jurisdiction remains confined to matters within the statutory framework and does not extend to granting all forms of declaratory or substantive civil relief.

Relying on Mardia Chemicals Ltd. v. Union of India , (2004) 4 SCC 311, and Bank of Baroda v. Gopal Shriram Panda , 2021 SCC OnLine Bom 466, the Court held that Civil Court jurisdiction may survive where fraud is properly pleaded or where the relief claimed is incapable of being granted by the DRT.

The Court also considered Jagdish Singh v. Heeralal , (2014) 1 SCC 479, and Central Bank of India v. Prabha Jain , (2025) 4 SCC 38, which clarify that the DRT’s jurisdiction over SARFAESI measures does not extend to reliefs, such as cancellation of prior instruments or partition, which it has no statutory power to grant.

Under Order VI Rule 4 CPC, allegations of fraud must be pleaded with material particulars, including dates and specific acts.

The Court distinguished between a challenge directly concerning SARFAESI measures and the Plaintiff’s principal challenge to the validity of the underlying Sale Deed.

The suit was founded on allegations that Defendant Nos. 1 to 3 had colluded, made false representations, induced execution of the Sale Deed, and diverted and distributed the consideration amount.

These allegations concerned the antecedent transaction by which title was allegedly transferred, rather than merely the legality of L&T Finance’s subsequent possession proceedings.

The relief seeking cancellation of the registered Sale Deed and declaration of the Plaintiff’s continuing ownership was not a relief that the DRT could grant under Section 17.

The Court further held that the plaint contained more than a bare use of the words “fraud” or “fraudulent.”

It identified the alleged conduct, the parties involved, the diversion and distribution of the consideration, the criminal complaint, the police report, and the dishonoured cheque issued after discovery of the alleged fraud.

These averments satisfied the threshold requirement for particulars and disclosed a triable case.

Since the Court was examining an application under Order VII Rule 11, it was not required to finally determine whether the fraud was proved; it only had to decide whether the plaint disclosed a cause of action and whether the suit was plainly barred.

On that assessment, Section 34 did not mandate rejection of the plaint.

The DRT could examine challenges to measures taken under Section 13(4), but it could not grant the principal relief of cancellation of the Sale Deed and declaration of the Plaintiff’s title, particularly where the plaint disclosed specific and triable allegations of fraud.

Finding no jurisdictional error or material irregularity in the Civil Judge’s refusal to reject the plaint, the Court dismissed the Civil Revision Application.