Civil Court Jurisdiction Barred Under SARFAESI Act Where Loan Purpose Is Fraudulently Breached and Material Facts Concealed

In brief

The question

1. Whether the civil court has jurisdiction to entertain a suit or grant an injunction in matters where recovery proceedings have been initiated under the SARFAESI Act, 2002

The court held

The High Court answered both issues in the negative, holding that the original suit was barred by Section 34 of the SARFAESI Act and that the appellant’s concealment of facts disentitled them to any relief

It also directed

The appeal was dismissed as lacking merit, and the order of the Civil Judge (Senior Division), Varanasi, was affirmed

01Facts

The appellant, M/s Srijan Hospital, obtained a term loan of Rs. 259.50 lakhs and a cash credit limit of Rs. 25.00 lakhs under the LGSCAS scheme for the construction and equipping of a healthcare facility for Covid-affected sectors

¶ 3

The appellant alleged that recovery proceedings were initiated before the full loan was disbursed and subsequently filed a civil suit

¶ 2

Investigation revealed the appellant had unilaterally converted the project from a hospital to a G+5 storeyed hotel without bank approval

¶ 8

Consequently, the bank initiated recovery under the SARFAESI Act, and the Additional District Magistrate, Varanasi, passed an order for possession on 24.12.2025

¶ 10

The Trial Court (Civil Judge, Senior Division, Varanasi) rejected the appellant’s application for a temporary injunction under Order XXXIX Rules 1 and 2 C.P.C.

¶ 6

02Issues

i.1. Whether the civil court has jurisdiction to entertain a suit or grant an injunction in matters where recovery proceedings have been initiated under the SARFAESI Act, 2002

¶ 4, 13

ii.2. Whether the appellant was entitled to discretionary relief of injunction despite the concealment of material facts and breach of loan conditions

¶ 9, 15

03Law Applied

Section 34 of the SARFAESI Act, 2002, which expressly bars civil courts from exercising jurisdiction or granting injunctions in respect of matters which a Debts Recovery Tribunal is empowered to determine

¶ 4

Section 35 of the SARFAESI Act, which gives the Act overriding effect over inconsistent provisions in other laws

¶ 5

M/S Gujarat Bottling Co. Ltd. & Ors. vs. The Coca Cola Co. & Ors., establishing that a person seeking an injunction must approach the court with clean hands and acts of bona fides

¶ 9

Provisions in the judgment · 3 · Linked ones open on LawLens

Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 Section 34 Section 35 Section 14

04Reasoning

The Court observed that the appellant committed a fundamental breach of contract by repurposing a specialized healthcare loan for a commercial hotel project without authorization

¶ 8, 14

Furthermore, the court found that the appellant had suppressed material facts, specifically the filing of a prior appeal (Memo of Appeal No. 33 of 2026), thus failing the test of "clean hands" required for equitable relief

¶ 12, 15

Legally, the Court determined that since the Bank had already obtained an order for possession under Section 14 of the SARFAESI Act from a competent authority, Section 34 of the Act operated as an absolute bar to the civil suit's maintainability

¶ 11, 13, 14