In a case related to Section 34 of the SARFAESI Act, the Madras High Court made an observation that the jurisdiction of civil courts is not automatically excluded when the remedy sought cannot be effectively addressed by the SARFAESI Tribunal.

Justice RN Manjula emphasized that in the case involving property rights, a comprehensive trial was necessary to establish those rights, and such a trial could only be conducted before a Civil court, not a tribunal.

“In every conceivable scenario, I do not find any justification for dismissing the complaint based on the statements and accusations presented in it. The plaintiffs have successfully made their case, and there is also evidence to suggest that the relief they are seeking in the civil court cannot be adequately pursued in the Debt Recovery Tribunal. Therefore, I firmly believe that the restrictions imposed by Section 34 of the SARFAESI Act do not apply to the type of claim put forth by the applicant/5th defendant in this ongoing lawsuit,” ruled the court.

The lawsuit was initiated by a collective of residential apartment complex owners. They contended that despite allocating an undivided land area of 161 sq.ft for a shared purpose, the developer transferred the property to other defendants. Subsequently, these defendants established a mortgage for the property in favor of Punjab National Bank to secure a loan. As the loan amount remained unpaid, the bank commenced SARFAESI proceedings and assumed control of the property in question.

Even though the apartment owners had initially approached the Debt Recovery Tribunal, their petition was dismissed by the tribunal. The tribunal's rationale for dismissal was that the bank possessed a legitimate mortgage on the property. Additionally, the tribunal noted that the flat owners were not asserting ownership but rather a right to use the property, for which they should pursue a remedy through other means rather than the tribunal. Consequently, the apartment owners then brought their case before the High Court.

Despite the bank's challenge to the lawsuit on the grounds that the court lacked jurisdiction, the court observed that even the tribunal had expressed the opinion that the party's assertions regarding joint possession could only be addressed by a civil court.

The apartment owners further contested the application by asserting that the provision under Section 34 of the SARFAESI Act did not completely exclude the jurisdiction of the civil court if the remedies provided by the Act were deemed insufficient. They argued that the relief sought by the apartment owners exceeded the Act's scope, and therefore, the court's jurisdiction should not be restricted.

The court took note of the apartment owners' allegations, asserting that there were preliminary pieces of evidence suggesting collusion between the bank officials and the defendants in obtaining financial assistance. Additionally, the court pointed out that although the bank had initially obtained a favorable order from the tribunal indicating that the owners could only pursue a lawsuit, they had now adopted a different stance by arguing that the suit was not sustainable.

The court also emphasized that when fraud had been alleged against the bank itself, the appropriate recourse was through a civil court. Therefore, the court observed that even if the mortgage was legally valid, it did not preclude the owners from asserting their undivided share and interest in the property, which they contended was linked to their respective residential units in the apartment complex.

Given the absence of any compelling grounds for dismissing the complaint, the court rejected the application.

Case: Punjab National Bank v. R Lalitha and Others, Application No.3549 of 2022 in C .S.No.97 of 2022