Author: Kanak kumari, symbiosis law school nagpur
Bench: – Uday Umesh Lalit, Indira Banerjee and M.R. Shah, JJ
To the Point
Recently, the Supreme Court in the case of Canara Bank v. P. Selathal & Ors. (2020) made it clear that Debt Recovery Tribunals (DRTs) alone are competent to hear the proceedings under the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI Act). The Court cautioned that civil litigation with the ends to shake up the determinations of DRT, particularly those that allege fraud in the post-default period, is an abuse of the process and need to be granted dismissal under Order 7 Rule 11 (d) of the Code of civil procedure, 1908. The case is a reinforcement of judicial effectiveness and enhances security of specialized debt-collections.
Abstract
The case originated after Coimbatore hatcheries, M/s, failed to repay a loan based on which Shri M.C. Kallikutty was to repay as a guarantor. Canara bank was able to obtain DRT decree against the guarantor. The question before the Supreme Court was whether the civil suits could be maintained in the light of the fact that the RDDBFI Act excluded the jurisdiction, and whether any material had been shown in support of allegation of a fraud. The Court found that the civil courts lacked jurisdiction, the fraud claims were illusory and only a clever drafting gimmick to seek abuse of the process of law and that the suits were barred by limitation.
The Legal Jargon
Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDDBFI Act):
Section 18: Bar of Jurisdiction: Nothing in the scope of the reach of DRT can be conducted in civil courts. This removes separate proceedings out of the way and prevents forum shopping. The intention is fast and effective repayment of the government revenue, which would be abused in case the civil courts that were slow could challenge the orders of DRT.
Section 19: Application to the Tribunal: This part demonstrates the way banks and other financial institutions initiate DRT proceedings.
Section 20: Appeal to the Appellate Tribunal: In this section, it provides dissatisfied parties to a DRT order the right of appeal to the Debt Recovery Appellate Tribunal (DRAT). It reveals that they have an opportunity to undergo special internal review process without turning to general civil courts.
Code of Civil Procedure, 1908 (CPC):
Order 7 Rule 11: Rejection of Plaint: The rule allows the court systems to close off futile or legally weak disputes at an early stage and save on time consumption and overload of court dockets. It makes the system honest by dismissing claims that do not conform with minimum legal or procedural requirements.
Order 7 Rule 11(d): Where the suit appears from the statement in the plaint to be barred by any law: A plaint on its own competence is bound to be rejected by a court, whether the plaint falls foul of the express limitation in a statute (as a jurisdictional bar under the RDDBFI Act), or is out of time under the Limitation Act. The judge makes his or her decisions based on what plaint says and does not examine any external evidence.
Case Laws
Punjab National Bank v. O.C. Krishnan and others (2001) 6 SCC 569: In this historic case, the Supreme Court held that the RDDBFI Act provides a speedy recovery process and this cannot be evaded by either approaching the Court of a writ petition under articles 226 and 227 or instead by petitioning a normal civil suit. According to the Court a judge should not listen to a case where there is special law with an alternative procedure legislated.
T. Arivandandam v. T.V. Satyapal (1977) 4 SCC 467: During this case, a general principle behind Order 7 Rule 11 CPC is established. The Supreme Court held that when a plaint is obviously vexatious and without a right to recover at all, or when clever drafting has given rise to a false idea of a cause of action, it ought to be nipped in the bud at the trial time. It applauds an activist Judge in the process of ensuring that a litigant does not misuse the court machinery through presenting frivolous and vexatious cases.
A.B.C. Laminart Pvt. Ltd. v. A.P. Agencies (1989) 2 SCC 163: Originally the case was on jurisdiction clauses in contracts, but was quoted in Canara Bank v. P. Selathal in the wider context of Order 7 Rule 11(d) CPC, in the rejection of plaints in being frivolous or an abuse of the process of law. It is relevant because the law states that a court can look into the maintainability of a suit at the first instance even though the main content of the suit is dissimilar.
Sopan Sukhdeo Sable v. Assistant Charity Commissioner (2004) 3 SCC 137: This decision also identified the interpretation of Order 7 Rule 11 CPC where it was made clear that a plaint must be construed wholly to establish its real meaning. On the one hand it declared that in accordance with the maxim, no pedantic method should be adopted in order to lose justice on technicalities, and that bona fide claims might possibly be separated under this rule, whereas on the other hand it clearly declared that the court was, under the doctrine, entitled to strike out some frivolous or vexatious portions of pleadings.
The proof
A firm took loan of Rs. 49,50,000/- at a bank where the property of the partnership firm was given as mortgage. One of the partners, M.C. Kallikutty secured the bank courtesy of providing fair mortgage- in other words, he secured his own title deed with the bank. The Guarantor failed to appear and at such, the court moved ex-parte against him on October 31, 2001. The case was thereafter transfers to DRT, Coimbatore, and revamped to T.A. No. 822/2002. 18 per cent interest per annum against both the principal debtor and the Guarantor. A Recovery Certificate is issued on 16th September 2003 and a demand Notice (1,55,75,443/-) on 11th November 2003. The Guarantor disputed the claim of the bank over the Recovery Certificate by presenting a case of declaration in High Court of Chennai. The High Court, in its turn, used Order 7 Rule 11(d) of the Code of Civil Procedure (CPC) according to which a suit goes down in case it is statutorily barred that is quite clear to realise by time. On this rule, the suit was dismissed by the High Court. The Guarantor made an appeal to the Supreme court, which upheld the decision of the High Court. The Supreme Court held that no cause of action had been disclosed by the suit inasmuch as the liability of the Guarantor had been determined by the Wakf Act as well as the three-year limitation rule. The court stated, a suit without stating a cause of action cannot be entertained. In making their decision concerning the appeal, the Supreme Court referred to the S.J.F.C. Chambers v. Prem Kumar Bhadragiri & Ors. (1984) 4 SCC 588, where the court had clarified that the rule of limitation attempts to ensure that issues should not be suffered to linger long and that a suit should be dismissed all in one go, and not one that is allowed to go around all these years. The Supreme Court was in agreement with the High Court that this suit should have been dismissed earlier since this sale was settled in 1997.
Shri M.C. Kallikutty who was at the time the Guarantor, a writ petition was filed, when the DRT issued the decree, on the 27th day of August, 2003 in the Madras High Court. He claimed never to have pledged the loan, that there was no such “Equitable Mortgage”. He also demanded FIR and investigations through the Crime Branch-CID. On November 2, 2005, the court recorded FIR No. 152/2010 and after that placed a final report under Section 173(2) of Cr.P.C., with a list of a number of crimes, enabling the partners and a bank officer, K.V. Roshan Babu, of the IPC. On 28 June 2011, the High Court quashed the charges on Roshan Babu. Canara Bank took the partnership firm to auction in year 2007 and got the money back to the tune of Rs. 38 lacs. In 2008, five years later, after issuing the DRT order, the Guarantor moved an application to quash the ex-parte decree. On June 12, 2009, the DRT dismissed the application on the main ground that the challenge was 1337 days after the decree, and 2392 days after the ex-parte order. The present dispute was carried out wilted fifteen years after the property was mortgaged, and seven years after decree of DRT. The respondents (original plaintiffs) who said they had purchased the suit property through sale deeds dated January 30, 1996 and deeds dated March 10, 1997 marked with the Guarantor in the year 2010 and 2011 filed the suit in the Second Additional Subordinate Court, Coimbatore. They wanted a formal rule be declared during the ruling that on August 27, 2003, DRT order was non-est, ultra-vires and non-binding on the suit property or it should be declared as null and void. They also wanted to seek an indefinite injunction to prevent the Recovery Officer to interfere with their possession. The plaintiffs claimed that the mortgage was a product of fraud in collusion with the bank officials with the promoters of the principal borrower.
In these suits under Order 7 Rule 11 (d) of the CPC in order to reject the plaint. The bank claimed not to fall under the civil court since it was under the particular bar in the Sections 18 and 20 (1) of the RDDBFI Act. These applications have been rejected by the trial court and the Madras High Court, having promulgated that the issues of fraud, or impersonation, or the validity of the mortgage should be disputed in the civil suits and in cases of crime.
Final Decision
Considering its extensive arguments, the Supreme Court admitted the appeals of Canara Bank. The impugned common judgment and order dated 09.11.2017 Judge High Court of Judicature at Madras as also orders passed by the learned trial court that had refused to reject the plaints were quashed and set aside. The plaints in O.S. No. 1269/2010 and O.S. No. 233/2011 that had designed to challenge the decree of the DRT, and restrain recovery proceedings, were therefore dismissed. With no second thought, the Supreme Court held that the actions were frivolous, vexatious and that there was no merit; and that the suits were an abuse of process of law and the court. It was of the opinion that the High Court as well as the trial court had wrongly failed to invoke their jurisdiction under Order 7 Rule 11(d) of the CPC to strike down these suits at their inception. The judgment clearly confirms the sanctity of specialized tribunal as far as jurisdiction is concerned and it strengthens the power of the judiciary to avoid unnecessary mischievous and time-wasting litigation.
Conclusion
It is an important one in Indian Banking Law and as regards the recovery of debts by a bank or a financial institution. The case affirms a few very important legal concepts which are quite significant in the scope of civil litigation and the effectiveness of specialist tribunals.
Lastly, the decision re-enforces the fact that barred suit by limitation is a glaring bar reason as held in Order 7 Rule 11 (d) of the CPC. The insistence by the Court on definite and non-vague pleadings of the discovery of a cause of action especially after a lapse of long period of time stresses how it is necessary to follow the statutory time frame requirements. This will see claims being filed in time which will see to the certainty in the law and will eliminate the old claims that occupy a large number in the courts.
FAQs
In Canara Bank v. P. Selathal & Ors. (2020), what was the main issue?
The real question was whether suits questioning the validity of a decree of the Debt Recovery Tribunal (DRT) under the RDDBFI Act could be discarded by the civil courts, in particular where the allegation of fraud and serious delay were raised, and could such suits be rejected under the provisions of Order VII Rule 11 (d) of the CPC.
Why were the civil suits initiated by the P. Selathal & Ors. dismissed by the Supreme Court?
The reason given by the Supreme Court to reject the suits was mainly of lack of jurisdiction by civil courts, since the allegations of fraud was for the purpose of obtaining a “purported benefit” and the structure of the suit itself was a sham and deceptive device of the special bar by RDDBFI Act.
What are the effects of this judgment on fraud allegations made before a court of law?
The ruling places a very tough standard to fraud allegations. It explains that the vague or unsubstantial claims of fraud are not the same as those relating directly to the central transaction or at the primary parties, and it will be considered that such claims are merely illusory and will be turned down in special jurisdictional matters. This makes it the less tempting idea to use the allegation of fraud as the method of trying to bypass the judicial process.
Why was the time-lapse of the bringing of the suits so material?
The big lapse between mortgage and declaration of the DRT in the filing of the 15 years and 7 years of the civil suits was a key element. The Supreme Court held the explanation of undue delay given by the plaintiffs (vague averments of knowledge) as unacceptable and decided that the suits were time-barred and amounted to an abuse of the process of law.
