Supreme Court on DRT’s Jurisdiction for Small Debts

[Guest
post by Yudhvir Dalal, 5th Year
B.A.LL.B. (Hons.), The National University of Advanced Legal Studies (NUALS), Kochi.]
The Supreme Court late last year in State
Bank of Patiala v. Mukesh Jain
[i]

held that under section 17 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI
Act’) a Debt Recovery Tribunal (‘DRT’) is entitled to entertain a matter even
if the debt involved less than rupees ten lakhs (Rs. 1,000,000). 
Statutory
Position
Section 1(4) of the Recovery of Debts
Due to Banks and Financial Institutions Act, 1993 ( ‘RDB Act’) provides that the
provisions of the RDB Act shall not apply where the amount of debt due to any
bank or financial institution or to a consortium of banks or financial
institutions is less than rupees ten lakhs or such other amount, being not less
than rupees one lakh (Rs. 100,000), as the Central Government may, by
notification, specify. The DRT and the Debt Recovery Appellate Tribunal (‘DRAT’)
have been constituted under section 3 and section 8 respectively of RDB Act. If
the borrower fails to fully discharge its liability, then section 13(4) of the SARFAESI
Act empowers the secured creditor to recover its secured debt by any of the
measures mentioned therein.
Moreover, if any person (including
borrower) is aggrieved by recovery measures taken under section 13(4) of the SARFAESI
Act, then under section 17 that party can appeal to the DRT. Section 34 of the
SARFAESI Act stipulates that no civil court shall have jurisdiction to
entertain any suit or proceeding in respect of any matter which a DRT or a DRAT
is empowered by or under SARFAESI Act and no injunction shall be granted by any
court or other authority in respect of any action taken or to be taken in
pursuance of any power conferred by or under SARFAESI Act or under the RDB Act.
Section 31(h) of the SARFAESI Act provides that the provisions of that Act
shall not apply to any security interest for securing repayment of any
financial asset not exceeding rupees ten lakhs.         
The legality and constitutional
validity of RDB Act as a whole and the Central Government’s power to constitute
DRT and DRAT, tribunals other than tribunals constituted under Articles 323A
and 323B have been upheld in Delhi
High Court Bar Association v. Union of India
[ii].
The
constitutional validity of the SARFAESI Act except then section 17 (2) has been
upheld by the Supreme Court in Mardia
Chemicals Ltd. v. Union of India
[iii].
 
Factual
matrix
In the present case under discussion,
the appellant (State Bank of Patiala) lent rupees eight lakhs (Rs. 800,000) to the
respondent no. 1 as secured debt. Upon the respondent committing a default in
repayment of the said loan, the appellant issued notice under section 13(2) of
the SARFAESI Act and sought further proceedings. The respondent challenged the
said proceedings before the civil court. The appellant filed an application for
rejection of the said civil suit under order 7 rule 11 of the Civil Procedure
Code by contending that in light of section 34 read with section 13(2) of SARFAESI
Act, the civil court is restricted from entertaining any matter arising under
the provisions of SARFAESI Act. The said application of the appellant was
rejected by the trial court, as the subject-matter of the suit i.e. the amount
sought to be recovered was less than rupees ten lakhs and in accordance with section
1(4) of the RDB Act the provisions of RDB Act would not apply if the
subject-matter is less than rupees ten lakhs. Therefore, the DRT had no
jurisdiction to entertain the present matter. The High Court of Delhi by way of
its judgment[iv]
dated April 16, 2005 confirmed the view of trial court and rejected the
appellant’s application.    
Issue
Involved
Whether
the DRT can entertain an appeal under Section 17 of the SARFAESI Act even when
the debt amount is less than rupees ten lakhs?
Judgment
The Supreme Court held that the DRT
has jurisdiction to entertain an appeal in accordance with section 17 of the SARFAESI
Act even if the amount involved is less than rupees ten lakhs. But, the said appellate
jurisdiction need not be misunderstood with the original jurisdiction of the DRT.
The Court was of the opinion that the application submitted by the appellant under
order 7 rule 11 should have been granted by the trial court as, according to
Section 34 of the SARFAESI Act, a civil court has no jurisdiction to entertain
any appeal arising under the Act. Consequently, the impugned judgment as well
as the order rejecting the application filed under order 7 rule 11 were set
aside.  
Comments
The Supreme Court in this judgment
has carried harmonious construction of provisions of RDB Act and the SARFAESI
Act. However, in doing so the court has filled in a gap where there existed
lacunae in the two legislation. On a perusal of section 1(4) of the RDB Act, it
is explicit that it restricts the jurisdiction of the DRT and the DRAT
constituted under it to matters having a subject-matter above rupees ten lakhs unless
notified to the contrary by the Central Government. Neither the RDB Act nor the
SARFAESI Act distinguishes between original and appellate jurisdiction of DRT.
On one hand, from a reading of section
31(h) of the SARFAESI Act it is implied that the provisions of SARFAESI Act can
be applied for securing repayment of any financial asset exceeding rupees one
lakh and there is no other provision in the SARFAESI Act restricting the
jurisdiction of the legislation only to matters above rupees ten lakhs. This
view has been explicitly upheld by the High Court of Kerala in Joseph
George v. Joint Registrar
[v].

The Kerala High Court further held that the power conferred on the DRT under
the provisions of the SARFAESI Act are over and above that Tribunal’s powers
conferred on it under the RDB Act. Hence, basically under Section 13 of the SARFAESI
Act, a secured creditor can recover its secured debt if the secured debt
exceeds rupees one lakh. Furthermore, if any party is aggrieved by the
proceedings under section 13(4), then in terms of section 17 it can appeal to
DRT. Hence, an appeal to the DRT can lie even from the disputes where
subject-matter is above rupees one lakh but less than rupees ten lakhs. However,
on the other hand, section 1(4) of the RDB Act forbids the DRT from
entertaining any matter involving debts below rupees ten lakhs. In the present
case, in order to harmonize these two provisions, the Court distinguished
between the appellate and original jurisdiction of DRT. In doing so the Court
filled the gap left by the Parliament.
There is a need for the legislature
to fill the void left by it and to harmonize the provisions of both statutes. The
apt step would be that Parliament inserts an explanation to section 17 of the SARFAESI
Act which categorically stipulates that the appellate jurisdiction of DRT under
this provision can be availed for any subject-matter above rupees one lakh. In doing
so, the legislature would also be able to ensure that no aggrieved debtor is
left remediless. If a party would not be able to approach a civil court in the
light of section 34 then that aggrieved party would have the option of approaching
the DRT.    
– Yudhvir Dalal



[i] (2017) 1 SCC 53
[ii] AIR 1995 Del 323
[iii] (2004) 4 SCC 311
[iv] SBI v. Mukesh Jain, 2005 SCC OnLine Del 1522
[v] AIR 2005 Ker 305

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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