Pending Mortgage Suit Savings Limitation for SARFAESI Measures Under Section 36 of the Act.

The Petitioner Bank instituted a mortgage suit (Title Suit No. 116 of 1992) under Order XXXIV of the CPC in 1992 based on an acknowledgment of debt signed by the defendant in 1990.

Upon the enactment of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, the suit was transferred to the Debts Recovery Tribunal (DRT) as T.A. No. 25 of 1996.

In 2010, the Bank issued notices under Section 13(2) and 13(4) of the SARFAESI Act, 2002.

The DRT and the Debts Recovery Appellate Tribunal (DRAT) set aside the sale, holding that the claim was time-barred under Article 62 of the Limitation Act, 1963, as the SARFAESI measures were initiated more than 12 years after the debt became a Non-Performing Asset (NPA) in 1991.

The Bank challenged these orders before the High Court.

1. Whether the institution of a suit for enforcement of mortgage under Order XXXIV of the CPC stops the clock of limitation for the purpose of Section 36 of the SARFAESI Act.

2. Whether a mortgage suit transferred to the DRT under Section 31 of the 1993 Act loses its character as a mortgage suit and becomes a simple money claim.

3. Whether the secured creditor is entitled to take measures under Section 13(4) of the SARFAESI Act if a claim in respect of the financial asset was lodged within the limitation period via a mortgage suit.

Section 36 of the SARFAESI Act, 2002, which prohibits measures under Section 13(4) unless the claim is made within the period prescribed by the Limitation Act, 1963.

Article 62 of the Limitation Act, which prescribes a 12-year period for enforcing a mortgage.

Section 31 of the 1993 Act regarding the transfer of pending suits to the DRT.

The principle from Somnath Manocha v. Punjab and Sind Bank, holding that a pending mortgage suit preserves the "claim in respect of financial assets" for SARFAESI purposes.

The Court reasoned that the Bank’s 1992 suit was a mortgage suit under Order XXXIV CPC, filed within the 12-year limitation period triggered by the 1990 acknowledgment.

It rejected the Respondent’s argument that transfer of the suit under Section 31 of the 1993 Act converted it into a simple money recovery suit, clarifying that the DRT merely acts as a specialized forum while the substantive mortgage rights remain intact.

Consequently, because a valid claim regarding the "financial asset" (the mortgage) was lodged in 1992 and remained pending, the embargo under Section 36 of the SARFAESI Act did not apply.

The Court distinguished previous precedents by noting that in those cases, no mortgage suit had been filed within the limitation period, whereas here, the Bank’s right to the security was subsisting and judicially recognized through the pending litigation.

The High Court set aside the orders of the DRT and DRAT, declared the sale and conveyance deed in favor of the auction purchaser valid, and ruled that the Bank is not required to refund the sale price. The petition was allowed.