Civil Suit Barred Under Section 34 of SARFAESI Act Against Measures Taken by Secured Creditor.

The Respondent (Plaintiff) availed of two loans (OLCC and OSL term loans) from the Petitioner (Defendant Bank) in 2012 by mortgaging the suit property.

Alleging defaults, the Bank initiated recovery proceedings under the SARFAESI Act, issued a Section 13(2) notice on March 21, 2014, and subsequently assigned the debt to M/s. Reliance Asset Reconstruction Company Ltd. via an Assignment Agreement dated May 19, 2014.

The Plaintiff filed a suit for permanent injunction in the City Civil Court, Chennai, to restrain the Bank from interfering with the property, alleging harassment by agents and attempted illegal alienation.

The Bank filed an Interlocutory Application (I.A. No. 3 of 2019) under Order VII Rule 11(d) of the CPC to reject the plaint, citing the statutory bar under Section 34 of the SARFAESI Act.

The Trial Court dismissed the I.A. on March 19, 2020, leading to this Revision Petition.

1. Whether a Civil Court has jurisdiction to entertain a suit for injunction regarding a property where proceedings under the SARFAESI Act have been initiated.

2. Whether the plaint in O.S. No. 3556 of 2018 is liable to be rejected under Order VII Rule 11 of the CPC for lack of cause of action and statutory bar.

The court primarily applied Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), which expressly bars Civil Courts from entertaining any suit or proceeding in respect of any matter which a Debt Recovery Tribunal (DRT) or Appellate Tribunal is empowered to determine.

It further relied on Order VII Rule 11(d) of the Code of Civil Procedure (CPC), 1908, which mandates the rejection of a plaint where the suit appears from the statement in the plaint to be barred by any law.

The High Court found that the Plaintiff had categorically admitted to the loan transaction and the subsequent transfer of liability to the Asset Reconstruction Company.

The Court reasoned that since the Bank had already initiated proceedings under the SARFAESI Act by issuing a Section 13(2) notice and taking symbolic possession, the Plaintiff’s remedy lay exclusively with the forum prescribed under the SARFAESI Act (the DRT) and not the Civil Court.

The Court determined that the suit was a "clear abuse of process of law" filed solely to drag on the recovery proceedings.

It held that the Trial Court committed a jurisdictional error by failing to apply Section 34 of the SARFAESI Act and neglecting to read the plaint in a meaningful manner to identify the lack of a valid cause of action.

The Court held that the suit was barred by Section 34 of the SARFAESI Act and that the Petitioner made out a clear case for rejection of the plaint under Order VII Rule 11 of the CPC.

Consequently, I.A. No. 3 of 2019 was allowed, and the plaint in O.S. No. 3556 of 2018 was rejected.

The miscellaneous petition for substitution filed by the Asset Reconstruction Company (CMP No. 5764 of 2024) was dismissed as they were not a party to the original suit.