Civil Courts Can't Grant Interim Relief Against SARFAESI Proceedings Despite Suit Being Maintainable: Kerala High Court

The Kerala High Court has held that civil courts cannot grant interim injunctions to halt proceedings under the SARFAESI Act even where the underlying civil suit is maintainable.

The ruling applies where the relief sought falls outside the jurisdiction of the Debt Recovery Tribunal.

Justice S. Manu delivered the ruling while dismissing an appeal filed by Deepa George against an order of the III Additional Sub Court, Ernakulam refusing interim relief against Federal Bank. The court observed that although a civil court may entertain a suit seeking reliefs such as partition, it cannot grant an interim injunction restraining proceedings initiated under the SARFAESI Act.

"The resultant conclusion is that even if a suit is not hit by the first limb of Section 34 of the SARFAESI Act, no interim injunction can be granted by the civil court against the proceedings under the SARFAESI Act or the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.", the court ruled.

Deepa George instituted a civil suit claiming that a residential property at Edappally in Ernakulam, though registered jointly in the names of her parents, had been purchased entirely with her father's funds. She alleged that her mother held the property only as a benamidar.

She further contended that the mortgage created by her mother in favour of Federal Bank to secure loans obtained by her brother and related business entities was unauthorised.

According to her, the mortgage was not binding on her claimed interest in the property. After learning that the bank had initiated proceedings to take possession of the secured asset, she sought partition of the property, a declaration that the mortgage was not binding on her and a permanent injunction against the bank.

Federal Bank opposed the plea, contending that the property was a secured asset and that proceedings under the SARFAESI Act had already commenced after the loan accounts were classified as non-performing assets. It also argued that the civil court could not grant the injunction sought.

Before the High Court, Deepa George relied on the Supreme Court's decision in Central Bank of India v. Prabha Jain. She argued that civil courts retain jurisdiction over suits seeking reliefs such as partition because the Debt Recovery Tribunal has no power to decide such disputes.

Federal Bank disputed the genuineness of the partition claim. It argued that even if the suit was maintainable, the latter part of Section 34 independently prohibited courts from granting injunctions against proceedings under the SARFAESI Act.

The court agreed that the jurisdictional bar under the first limb of Section 34 does not extend to reliefs such as partition, which the tribunal cannot decide. It noted that the Supreme Court in Central Bank of India had distinguished its earlier ruling in Jagdish Singh v. Heeralal. The Supreme Court had clarified that Jagdish Singh was not a precedent for suits seeking reliefs that fall outside the tribunal's jurisdiction.

The court, however, held that the prohibition on granting injunctions contained in the second limb of Section 34 operates independently.

"If it is held that the second part regarding granting of injunctions would still apply even if the suit is not hit by the first part of Section 34, the provision becomes entirely meaningful and every word employed has force and effect.", the court ruled.

Justice Manu observed that reading the injunction bar as dependent on the jurisdictional bar would render the latter part of Section 34 redundant. The court held that the legislature intended to ensure that recovery proceedings under the SARFAESI Act are not interrupted by injunctions issued by civil courts, even where the suit itself is maintainable.

The court also considered its earlier decisions in KHDFC Bank Ltd. v. Prestige Educational Trust and Abdu v. Authorised Officer, Federal Bank Ltd. It observed that those cases involved proceedings against properties alleged not to be secured assets. In the present case, the property was admittedly a secured asset. The earlier decisions were therefore distinguishable.

The court also found that the Sub Court had relied on Jagdish Singh without considering its subsequent treatment by the Supreme Court in Central Bank of India. It further observed that the Sub Court had not referred to the various authorities cited on behalf of Deepa George. Even so, the High Court held that the refusal to grant an interim injunction was legally correct and dismissed the appeal without costs.