SARFAESI Action Does Not Bar Civil Court From Hearing Partition Suit: Bombay High Court

The Bombay High Court has held that civil courts retain jurisdiction to adjudicate partition suits involving secured assets, observing that the Debts Recovery Tribunal cannot grant such relief even where proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) have been initiated.

A Single Bench of Justice N.J. Jamadar observed that, “The Tribunal, thus, cannot transgress its jurisdictional limits and delve into the matters which do not strictly fall within its adjudicatory province.”

The ruling came while dismissing a writ petition filed by Tourism Finance Corporation of India Ltd. (TFCI). The petition challenged an appellate order restraining the creditor from creating third-party interests in a property housing Hotel Aishwarya Regency.

The dispute arose after financial facilities were extended to Aishwarya Regency LLP. Security interest was created over the property housing the hotel. After the borrowers defaulted, the creditor invoked measures under Section 13 of the SARFAESI Act and took symbolic possession of the property.

Subsequently, the borrower's daughter, Aishwarya Chetan Khedkar, instituted a partition suit claiming coparcenary rights in the property. She is also the plaintiff in the civil suit. The trial court rejected her plea seeking an interim injunction.

On appeal, the District Judge reversed the order. The appellate court restrained the creditor and family members from creating third-party interests in the property to the extent of the plaintiff's share. The restraint was to operate until the final disposal of the suit.

The creditor argued before the High Court that the civil court's jurisdiction was barred under Section 34 of the SARFAESI Act. It contended that only the Debts Recovery Tribunal could adjudicate disputes arising from enforcement of a security interest. The creditor also argued that the property was not ancestral and that subsequent instruments showed Defendant No.1 had become the absolute owner.

Khedkar opposed the petition. It was contended that the creditor had proceeded to sell the property to a third party despite the injunction order. The respondent argued that such a sale in breach of the restraint order was illegal and void.

The court then turned to the question of jurisdiction. It noted that civil courts possess a wide and plenary authority to decide disputes of a civil nature unless that power is expressly taken away. Tribunals, however, stand on a different footing. Created by statute, they can operate only within the boundaries of the powers granted to them.

Justice Jamadar emphasised that a tribunal cannot step beyond those statutory limits. In that context, the court referred to decisions such as Bank of Baroda v. Gopal Shriram Panda and Central Bank of India v. Prabha Jain. These rulings clarify that while the Debts Recovery Tribunal has exclusive authority over measures taken under the SARFAESI Act, it cannot decide disputes that lie outside the powers given to it under the statute.

The court observed that, “Where civil rights of persons other than the borrowers or guarantors are involved, the Civil Court would have jurisdiction, especially when it is prima facie apparent from the face of the record that the relief claimed is incapable of being granted by the Tribunal under Section 17 of the Recovery of Debts and Bankruptcy Act, 1993 (“the RDB Act”) read with Sections 13 and 17 of the SARFAESI Act, 2002.”

On the character of the property, the court examined mutation entries from 1991 showing a partition among family members. The entries showed that the suit lands were allotted to the plaintiff's grandfather.

The bench also examined later transactions involving the property, including a gift deed and release deeds executed within the family. These documents, the court said, did not change the underlying character of the land, which continued to retain its ancestral nature.

In the circumstances, the High Court found no legal infirmity in the District Judge's order granting interim protection over the property to safeguard the plaintiff's claimed share. The writ petition was therefore dismissed.