Mortgage Suit Transferred From Civil Court To DRT Does Not Become Money Recovery Proceeding: Calcutta High Court

The Calcutta High Court has recently held that a mortgage suit does not become a simple money recovery proceeding merely because it is transferred from a civil court to the Debt Recovery Tribunal, holding that the lender's security interest and the borrower's equity of redemption continue to subsist.

Justice Ajoy Kumar Mukherjee made the observation while allowing UCO Bank's challenge to orders of the Debt Recovery Tribunal and Debt Recovery Appellate Tribunal that had held the bank's SARFAESI proceedings to be time-barred.

“In my view when a mortgage suit is transferred from a civil court to a Debt Recovery Tribunal under section 31 of the Act of 1993, it does not loss its character as a mortgage suit or becomes a simple money recovery suit. The DRT in such case acts as a specialized tribunal to adjudicate the debt, but the nature of the claim, which involves security interest, remains that of mortgage suit allowing for the sale of mortgaged property to recover the debt. The transfer merely changes the forum i.e. from the Civil Court to the Tribunal but not the substantive right of the parties or the nature of the debt secured by the mortgage. The lender still hold the security interest and the borrower still has equity of redemption.”, the court held.

The dispute arose from a mortgage suit instituted by UCO Bank before the Barasat Court on February 29, 1992 for enforcement of mortgage over secured properties after the borrower acknowledged liability in a balance sheet signed on January 25, 1990. Following the coming into force of the Recovery of Debts Due to Banks and Financial Institutions Act, the suit was transferred to the DRT and renumbered.

The borrower later challenged notices issued by the bank under the SARFAESI Act, contending that the bank's mortgage enforcement rights had become time-barred.

Referring to the Delhi High Court's judgment in Somnath Manocha v. Punjab and Sind Bank, the Court held that since UCO Bank had instituted a mortgage suit within the limitation period, it had already lodged a claim in respect of the financial asset, enabling it to invoke SARFAESI remedies.

The Court held that an application seeking sale of mortgaged property in an already pending mortgage proceeding does not invoke any fresh cause of action or seek any new substantive relief.

“In fact every application which seeks to enforce right or seeks a remedy or relief, on the basis of any cause of action in civil suit, unless otherwise provided, will be subject to the law of limitation. But when an application does not invoke the jurisdiction of the court to grant any fresh relief based on any new cause of action but merely made a prayer before the tribunal to pass order for sale and realization of the suit properties mentioned in schedule by public auction to satisfy his claim, such relief is not based on any cause of action and therefore there is no question of any limitation. Such an application in a suit which is already pending, which contains no fresh or new prayer for relief, is not one to which Limitation Act 1963 would apply.,” the court said.

Accordingly, the court set aside the DRT and DRAT orders and upheld the validity of the auction sale and conveyance deed executed in favour of the auction purchaser.