SC Clarifies SARFAESI Act’s Scope: DRT Cannot Adjudicate Title Disputes, Civil Courts Retain Jurisdiction

CENTRAL BANK OF INDIA & ANR.?V.?SMT. PRABHA JAIN & ORS. [2025] 2 S.C.R. 263 : 2025 INSC 95

PREPARED BY:

Mrinmoi Chatterjee, Advocate on Record, Supreme Court of India?&?

Ritik Kumar, Research Associate

CASE NOTE

The issue which arose in the present case was Whether the jurisdiction of a civil court to try a suit is completely barred by S-34 of the SARFAESI Act, 2002?

The SC held that the? SARFAESI Act provides a mechanism only for speedy recovery of debt by banks/financial institutions, not for adjudicating the validity of documents/titles disputes and further clarified that S-34 bars civil court's jurisdiction only in respect of those matters which the DRT/Appellate Tribunal is empowered to decide u/the SARFAESI Act or RDB Act, 1993. DRT's jurisdiction u/S-17(3) is limited to deciding the legality of measures taken by secured creditors u/S-13(4), therefore it cannot decide the matters which are not in relation to such measures u/S-13(4). In the present case,? reliefs (declare sale deed, mortgage deed illegal and handover possession of plot to her) sought by Respondent No.1 in her suit are not in relation to such measures u/S-13(4), thus they are not barred by S-34 as DRT has no jurisdiction to grant such reliefs u/S-17(3), and hence civil courts retains its jurisdiction to entertain such reliefs u/S-9 of CPC and the same is not ousted by s-34. SC reiterated that the plaint cannot be rejected partially u/ Order VII R.11, even if one relief survives, the plaint stands. At last, SC emphasized that the banks should exercise due diligence in verifying inadequate title reports before sanctioning loans; to protect public funds. Urged RBI and stakeholders to develop standardized guidelines for preparing title search reports and determining liability of loan approving officers.

BACKGROUND

• In this case, the suit land was purchased by the father-in-law of Smt. Prabha Jain (Respondent No.1).?
• Upon his death, the suit land was inherited by his 3 heirs in equal proportions:
• Smt. Prabha inherited 1/3rd share of the suit land after the death of her husband.?
• Thereafter, her husband’s elder brother w/o any partition amongst the heirs, divided the suit land into plots and illegally sold them to various individuals.
• One such plot was sold to Parmeshwar Das Prajapati,? who then mortgaged the said plot to the Central Bank of India ("Appellant") to obtain a loan.
• Parmeshwar Das Prajapati defaulted on the loan, and the Bank took possession of the said plot u/S- 13 of the SARFAESI Act, 2002 (hereinafter “the Act”)
• Respondent No.1 filed a suit in civil court claiming the following relief: 1. Declare sale deed executed by her husband’s elder brother in favor of Parmeshwar Das Prajapati is illegal (“First relief”); 2. Declare mortgage deed executed by Parmeshwar Das Prajapati in favor of the Bank (Appellant) is illegal (“Second relief”); 3. Hand over possession of the said plot to her (“Third relief”).
• Consequently, the Appellant filed an application u/ Ord. VII, R. 11 CPC, arguing that the plaint should be rejected as the civil court has no jurisdiction to try the same in view of S- 17 & S- 34 of the Act.
• The trial court allowed the application and? rejected the plaint, holding that the suit is barred by S-34 of the Act.
• On appeal by Respondent No. 1, HC? set aside the trial court order and restored the suit, holding that civil court jurisdiction in the suit is not ousted by S- 34 of the Act because “DRT has no jurisdiction to decide whether persons other than the mortgagor had title in the mortgaged property.”
• Thus, the aggrieved Appellant appealed before SC, contending that the suit is barred by S-34.

ISSUE: Whether the jurisdiction of a civil court to try a suit is completely barred by S-34 of the SARFAESI Act, 2002?

RELEVANT PROVISION

• S-34: Civil court not to have jurisdiction -?

1. to entertain any suit/proceeding in respect of any matter which a DRT/Appellate Tribunal is empowered by or under this Act to determine and?
2. 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 u/this Act or the RDB Act, 1993

• S-17: Application against measures to recover secured debts -

1. Any person (including a borrower) aggrieved by any measures taken by the secured creditor u/S-13(4) may file an application(with prescribed fee) to the DRT (having jurisdiction) within 45 days from the date on which such measure had been taken.
2. The DRT shall consider whether the measures taken by the secured creditor u/S-13(4) for enforcing security are in accordance with the provisions of the Act and rules? thereunder.
3. If the DRT, after examining the facts and circumstances of case, and evidence, concludes that the measures taken u/S-13(4) are not in accordance with the Act and rules, and require restoration of the management or possession, of the secured assets to the borrower/ other aggrieved person, it may, by order.

• Section 13 (4): Enforcement of Security Interest?If the borrower fails to discharge is liability in full within the specified period in sub clause (2), the secured creditor may take one or more of the following measures to recover his secured debt-

(a) Take possession of the borrower's assets, such as residential or commercial properties; (b) Manage the borrower's business; (c) Appoint a manager to manage the secured assets?(d) Require anyone who has acquired secured assets from the borrower to pay the secured creditor?(e) Sell or lease the assets to recover the outstanding loan amount?

SC DECISION

1. The SARFAESI Act is enacted essentially to provide the speedy recovery of debts by banks/ financial institutions, not to adjudicate the validity of documents/titles.
2. Further, DRT constituted u/ the RDB Act, 1993 is only empowered to exercise powers u/ that Act and the SARFAESI Act 2002. Thus, it has limited jurisdiction and has to function within the four-corners of the statute creating it, not beyond that. (Om Prakash Gupta v. Dr. Rattan Singh & Anr and M.P. Wakf Board v. Subhan Shah (Dead) by LRs)
3. S-34 bars the jurisdiction of civil courts only in respect of those matters which the DRT/Appellate Tribunal is empowered to determine by or u/the SARFAESI Act or the RDB Act, 1993. (Mardia Chemicals Ltd. & Ors. v. Union of India & Ors,? Jagdish Singh v. Heeralal & Ors. and Robust Hotels Private Limited & Ors. v. EIH Limited & Ors.)
4. U/S- 17 of the Act only the DRT has jurisdiction to determine whether measures taken by the secured creditor u/S-13 (4) are in accordance with the Act or Rules thereunder. Thus, when measures u/S- 13 are challenged, the civil court jurisdiction is ousted by S-34 of the Act. (State Bank of Patiala v. Mukesh Jain & Anr.)
5. First and second reliefs sought by Respondent No.1 are not in relation to any measures taken by the secured creditor (Appellant-Bank) u/s.13(4) but relates to events that occurred before the secured creditor came into picture and invoked the Act’s provisions. Thus, DRT has no jurisdiction to grant such reliefs u/S-17.
6. Third relief is also not barred by S-34? because the Court cannot? partially reject the plaint u/ Ord. VII, R. 11 CPC; if even one relief survives, the plaint must stand.? However, it should not make adverse observations on the barred relief while deciding an Ord. VII, R. 11 CPC application. (Madhav Prasad Aggarwal & Anr. v. Axis Bank Limited & Anr.)
7. All the reliefs sought by Respondent No. 1 in the suit are not barred by S- 34 of the Act,? because DRT has no jurisdiction u/S-17 of the Act: Such jurisdiction only vests with the civil courts u/S- 9 of CPC. Therefore, the civil court has the jurisdiction to finally adjudicate upon all reliefs, and the same is not ousted by S-34 of the Act.
8. Accordingly, SC dismissed the appeal and affirmed HC order and restored the suit for trial.
9. Lastly, SC emphasized that the banks must exercise proper due diligence in verifying the inadequate title clearance report (obtained cheaply; for external reasons) before sanctioning a loan, as this concerns the protection of public money and is in the larger public interest. Further, RBI and other stakeholders should establish standardised guidelines for:

1. preparing title search reports before loan sanctions
2. determining the liability (including potential criminal action) of the officer approving the loan.
3. set fee/cost associated with title search reports, to ensure they maintain? high-quality.