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2023 (11) TMI 1371 - HC - Indian LawsMonetary amount involved in the application - Rejection of petitioner s application u/s 13(10) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 (SARFAESI Act) read with Rule 11 of the Security Interest (Enforcement) Rules 2002 - rejected on the ground that the same was less than Rs. 10, 00, 000 and was therefore not within the pecuniary jurisdiction of the learned Debts Recovery Tribunal III - whether the Debts Recovery Tribunal constituted under the RDB Act exercises any original jurisdiction for the recovery of debts under the SARFAESI Act? - HELD THAT - In terms of Section 179 of the IBC the Debts Recovery Tribunal is also the Adjudicating Authority for individuals and firms. Thus to clothe the Debts Recovery Tribunal with the jurisdiction to adjudicate insolvency of individuals and firms Section 249 of the IBC amended certain provisions of the RDB Act as set out in the Fifth Schedule to the IBC. This included amendment to Sub-section (4) of Section 1 of the RDB Act by introducing the opening words save as otherwise provided . The import of the said words was to carve out an exception to the clause regarding the pecuniary jurisdiction of the Debts Recovery Tribunal. Thus to the extent that the Debts Recovery Tribunal is expressly conferred jurisdiction it would exercise the same notwithstanding the pecuniary threshold specified under Sub-section (4) to Section 1 of the RDB Act. Whether the pecuniary jurisdiction of a Debts Recovery Tribunal under the RDB Act would also apply for an application made under Section 13(10) of the SARFAESI Act? - HELD THAT - There is no provision in the RDB Act or the SARFAESI Act that specifies the Debts Recovery Tribunal to which an application is required to be made under Section 13(10) of the SARFAESI Act. Section 17(1A) of the SARFAESI Act specifies the Debts Recovery Tribunal to which an application under Section 17(1) of the SARFAESI Act may be made; however there is no such similar provision for making an application under Section 13(10) of the SARFAESI Act. RDB Act (then known as Recovery of Debts Due to Banks and Financial Institutions Act 1993) was held to be unconstitutional by this Court in Delhi High Court Bar Association Anr. v. Union of India Secty. Department of Economic Affairs 1995 (3) TMI 506 - DELHI HIGH COURT on various grounds including that the enactment did not enable a defendant to claim any set off or make any counter claim against a bank or a financial institution. The remedy under Section 13(10) of SARFAESI Act cannot be considered as a remedy independent of the RDB Act. An application under Section 13(10) of the SARFAESI Act is required to be made in a manner as prescribed in the form annexed as Appendix VI to the SIE Rules and is required to be accompanied with the requisite fee as prescribed under the Debts Recovery Tribunal (Procedure) Rules 1993. However for all intents and purposes this application is an Original Application under Section 19(1) of the RDB Act and is required to adjudicated as such. Conclusion - The Debts Recovery Tribunal exercises original jurisdiction under the Recovery of Debts and Bankruptcy Act 1993 and appellate jurisdiction under the SARFAESI Act with pecuniary limits applying only to the original jurisdiction. Petition dismissed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court were:
2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Jurisdiction of the Debts Recovery Tribunal under Section 13(10) of the SARFAESI Act for claims below Rs. 10,00,000/- Relevant legal framework and precedents: Section 13(10) of the SARFAESI Act allows a secured creditor to file an application to the Debts Recovery Tribunal or a competent court for recovery of the balance amount if dues are not fully satisfied by sale proceeds of secured assets. Section 1(4) of the RDB Act excludes the applicability of the RDB Act where the amount of debt is less than Rs. 10,00,000/- (later enhanced to Rs. 20,00,000/- by notification). The Supreme Court in State Bank of Patiala v. Mukesh Jain & Anr. clarified that the pecuniary limit under Section 1(4) of the RDB Act applies to the original jurisdiction of the DRT but not to its appellate jurisdiction under Section 17 of the SARFAESI Act. Court's interpretation and reasoning: The Court observed that Section 13(10) of the SARFAESI Act is an enabling provision permitting a secured creditor to recover balance dues by filing an application to the DRT or competent court. However, the SARFAESI Act does not specify which DRT has jurisdiction for such original claims. Rule 11 of the SIE Rules prescribes the procedure for such applications and incorporates the Debts Recovery Tribunal (Procedure) Rules, 1993 mutatis mutandis. The Court reasoned that since the DRT is constituted under the RDB Act, the pecuniary jurisdiction limits prescribed under Section 1(4) of the RDB Act apply to original applications under Section 13(10) of the SARFAESI Act. The Court rejected the petitioner's contention that the SARFAESI Act provides an independent code for recovery of balance amounts without regard to the RDB Act's pecuniary limits. Key evidence and findings: The petitioner's claim was Rs. 6,92,551.63, below the Rs. 10,00,000/- threshold (later Rs. 20,00,000/-). The DRT dismissed the application citing lack of pecuniary jurisdiction. The Court relied on legislative amendments to the RDB Act (notably Section 249 of the Insolvency and Bankruptcy Code, 2016) and the procedural rules to conclude that pecuniary limits apply. Application of law to facts: Since the petitioner's claim was below the pecuniary threshold, the DRT lacked jurisdiction to entertain the application under Section 13(10) of the SARFAESI Act. The petitioner was required to approach a competent civil court for recovery of the balance amount. Treatment of competing arguments: The petitioner argued for independent jurisdiction of the DRT under SARFAESI Act without pecuniary limits, relying on the absence of explicit pecuniary limits in the SARFAESI Act and the procedural rules. The respondents contended that the RDB Act's pecuniary limits apply, supported by statutory amendments and notifications increasing the threshold to Rs. 20,00,000/-. The Court sided with the respondents, emphasizing the integrated scheme of the RDB Act and SARFAESI Act. Conclusion: The DRT does not have jurisdiction to entertain applications under Section 13(10) of the SARFAESI Act where the amount claimed is below the pecuniary threshold prescribed under the RDB Act. Issue 2: Applicability of the RDB Act provisions and procedural rules to applications under Section 13(10) of the SARFAESI Act Relevant legal framework and precedents: Rule 11 of the SIE Rules prescribes the procedure for recovery of shortfall amounts under Section 13(10) of the SARFAESI Act and mandates that the Debts Recovery Tribunal (Procedure) Rules, 1993 apply mutatis mutandis. Section 17(7) of the SARFAESI Act requires the DRT to dispose of applications under Section 17(1) in accordance with the RDB Act and rules. Court's interpretation and reasoning: The Court held that the procedural framework of the RDB Act is integral to the adjudication of claims under Section 13(10) of the SARFAESI Act. The procedural rules and pecuniary limits under the RDB Act cannot be excluded or ignored. The Court emphasized that the SARFAESI Act does not provide a separate recovery mechanism for balance dues beyond the enforcement of security interests and that recovery of balance dues is essentially a debt recovery proceeding governed by the RDB Act. Key evidence and findings: The Court noted that the SARFAESI Act lacks provisions for issuance of recovery certificates or enforcement machinery for recovery of debts, which are provided under the RDB Act. The Court also highlighted the legislative intent to avoid parallel regimes and ensure uniformity by applying the RDB Act's procedural safeguards and limits. Application of law to facts: The petitioner's application under Section 13(10) was required to comply with the procedural framework under the RDB Act, including payment of fees and adherence to pecuniary limits, which was not done. Treatment of competing arguments: The petitioner argued the application under Section 13(10) is a separate remedy independent of the RDB Act and the procedural rules under the RDB Act should not apply. The Court rejected this, holding that the procedural rules and pecuniary limits of the RDB Act are applicable mutatis mutandis. Conclusion: Applications under Section 13(10) of the SARFAESI Act are subject to the procedural rules and pecuniary jurisdiction limits prescribed under the RDB Act. Issue 3: The relationship between the SARFAESI Act and the RDB Act and availability of alternate remedies Relevant legal framework and precedents: Section 34 of the SARFAESI Act bars civil courts from entertaining suits or proceedings in respect of matters under the Act. Section 17 of the SARFAESI Act provides for appellate jurisdiction to the DRT against measures taken under the Act. The Supreme Court in United Bank of India v. Satyawati Tandon & Ors. held that statutory remedies under the RDB Act and SARFAESI Act are exclusive and efficacious, negating the need for High Court intervention under Article 226. Court's interpretation and reasoning: The Court observed that the SARFAESI Act and RDB Act constitute an integrated statutory scheme for recovery of debts secured by financial assets. The SARFAESI Act primarily deals with enforcement of security interests, while the RDB Act provides the mechanism for recovery of debts. The Court underscored that the legislative intent is to avoid parallel or conflicting remedies and to provide a comprehensive framework for recovery. Key evidence and findings: The Court noted that the RDB Act was amended to address procedural lacunae, such as enabling borrowers to claim set-offs and counterclaims, which are absent in the SARFAESI Act. The Court also referred to the Insolvency and Bankruptcy Code amendments that integrate the jurisdiction of the DRT. Application of law to facts: The petitioner's attempt to invoke an independent remedy under the SARFAESI Act for recovery of balance dues without regard to the RDB Act's provisions was inconsistent with the statutory scheme. The petitioner had alternate efficacious remedies under the RDB Act and civil courts for claims below the pecuniary threshold. Treatment of competing arguments: The petitioner contended that financial institutions covered under the SARFAESI Act but not under the RDB Act would be left remediiless if the pecuniary limits of the RDB Act applied. The Court rejected this, emphasizing the integrated nature of the laws and the availability of alternate forums. Conclusion: The SARFAESI Act and RDB Act operate as a cohesive statutory scheme, with the RDB Act governing recovery of debts, including balance amounts after enforcement of security interests. Alternate remedies exist and must be pursued where pecuniary limits preclude DRT jurisdiction. 3. SIGNIFICANT HOLDINGS "Section 13(10) of the SARFAESI Act is an enabling provision which permits a secured creditor to file an application to the Debts Recovery Tribunal having jurisdiction or a competent court for recovery of the balance amount from the borrower if the dues are not fully satisfied with the sale proceeds of the secured assets." "The provisions of the Recovery of Debts and Bankruptcy Act, 1993, including the pecuniary limits prescribed under Section 1(4) thereof, apply mutatis mutandis to applications filed under Section 13(10) of the SARFAESI Act." "An application under Section 13(10) of the SARFAESI Act is, for all intents and purposes, an original application under Section 19(1) of the Recovery of Debts and Bankruptcy Act, 1993 and is required to be adjudicated as such." "The Debts Recovery Tribunal does not have jurisdiction to entertain an application under Section 13(10) of the SARFAESI Act where the amount claimed is below the pecuniary threshold prescribed under Section 1(4) of the Recovery of Debts and Bankruptcy Act, 1993." "The procedural framework and pecuniary jurisdiction limits of the Recovery of Debts and Bankruptcy Act, 1993 cannot be excluded or ignored in applications under Section 13(10) of the SARFAESI Act." "The SARFAESI Act and the Recovery of Debts and Bankruptcy Act, 1993 operate as an integrated statutory scheme for enforcement of security interests and recovery of debts, respectively, and are not intended to create parallel or conflicting remedies." "The Debts Recovery Tribunal exercises original jurisdiction under the Recovery of Debts and Bankruptcy Act, 1993, and appellate jurisdiction under the SARFAESI Act, with pecuniary limits applying only to the original jurisdiction." "The absence of provisions in the SARFAESI Act for issuance of recovery certificates or recovery machinery underscores that recovery of balance dues is governed by the Recovery of Debts and Bankruptcy Act, 1993." "The petitioner's claim for recovery of Rs. 6,92,551.63 being below the pecuniary threshold, the Debts Recovery Tribunal lacked jurisdiction to entertain the application under Section 13(10) of the SARFAESI Act."
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