Central Bank of India & Anr. Vs Prabha Jain & Ors. (Supreme Court)
Summary: The Supreme Court examined whether Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), bars a civil suit challenging the validity of a sale deed and mortgage deed concerning property against which a bank has initiated recovery proceedings. The dispute arose when Smt. Prabha Jain claimed an inherited one-third share in property originally purchased by her father-in-law. According to her, her brother-in-law, Sumer Chand Jain, divided and sold portions of the property without partition among the legal heirs. One such plot was sold to Parmeshwar Das Prajapati, who mortgaged it to Central Bank of India. Following loan default, the Bank initiated SARFAESI proceedings. Prabha Jain instituted Civil Suit No. 25A/2011 seeking declarations that the sale and mortgage deeds were invalid, possession of the disputed property, damages and mesne profits.
The Bank sought rejection of the plaint under Order VII Rule 11 of the Code of Civil Procedure, 1908, contending that Section 34 of the SARFAESI Act excluded civil court jurisdiction. The trial court accepted the objection and rejected the plaint. However, the Madhya Pradesh High Court, by its judgment dated 30 October 2012 in First Appeal No. 408 of 2012, reversed that decision. The High Court held that the Debts Recovery Tribunal (DRT) could not determine the validity of the underlying sale deed or decide competing ownership claims concerning the mortgaged property. It also found that the plaintiff had paid the appropriate court fee. Central Bank of India challenged the High Court’s decision before the Supreme Court.
The Supreme Court explained that the jurisdictional bar under Section 34 extends only to matters that the DRT or Appellate Tribunal is empowered to determine. Under Section 17, the DRT examines the legality of measures adopted by secured creditors under Section 13(4), but it cannot finally adjudicate independent disputes over ownership, partition or the validity of antecedent sale and mortgage deeds. The Court further analysed Section 17(3), as applicable before the 2016 amendment, and distinguished restoration of possession from granting possession to a third party who was never in possession and whose claim was adverse to the borrower. Accordingly, the plaintiff’s claim for possession also fell outside the Tribunal’s remedial powers. The Court additionally clarified that a plaint cannot be rejected partially under Order VII Rule 11 CPC when at least one substantive relief remains maintainable.
The Supreme Court upheld the High Court’s decision permitting the civil suit to proceed and rejected the Bank’s challenge to its maintainability. It distinguished earlier decisions concerning challenges to secured creditors’ enforcement measures from independent civil disputes that the DRT lacks jurisdiction to resolve. The judgment reinforces that SARFAESI proceedings do not extinguish the civil court’s jurisdiction over genuine third-party title disputes merely because the disputed property has been mortgaged to a bank. The Court also addressed deficiencies in title verification by lending institutions and emphasised the importance of proper title-search procedures before accepting immovable property as security.
