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Banking & Debt Recovery LawSupreme Court of India

Authorised Officer, State Bank of India v. M/s Allwyn Alloys Pvt. Ltd. & Ors.

Civil Appeal · 2018 INSC 536Decided 17 May 2018
Civil Appeal No. 5248 of 2018
Chief Justice Dipak Misra · Justice A.M. Khanwilkar · Dr. Justice D.Y. Chandrachud

Background

SBI had a mortgage over a flat used as security by the directors of a company that defaulted on its loan. Two individuals claiming rights over the same flat under an unregistered Memorandum of Understanding challenged the bank's recovery action, first before the Debts Recovery Tribunal/Appellate Tribunal (which ruled against them), and then in a writ petition before the Bombay High Court. The High Court disposed of the writ petition by giving the claimants liberty to approach "a proper forum" to litigate their claim, and directed the bank to deposit Rs. 25 lakhs in an interest-bearing account pending that litigation. The bank appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Section 34 of the SARFAESI Act, 2002 bars civil courts (and by extension, this kind of civil adjudication route) from entertaining disputes over matters that a DRT/DRAT is empowered to decide, so the High Court's direction permitting the claimants to pursue a separate civil forum was legally untenable. The Court found the High Court had failed to engage with the concurrent factual findings of the DRT and DRAT, which had already rejected the claimants' title. Rather than deciding the underlying title dispute itself, the Supreme Court set aside the High Court's order, restored the original writ petition to the High Court's file for a fresh decision on its own merits, and separately held that the High Court's direction to deposit Rs. 25 lakhs was unwarranted and set that aside too. The appeal was allowed with no order as to costs, and the High Court was requested to dispose of the restored writ petition expeditiously.

Lesson Learnt

Once a bank initiates recovery action under the SARFAESI Act, disputes about rights in the mortgaged property generally must be pursued through the DRT/DRAT framework, not through a parallel civil law route: courts cannot simply let claimants "go litigate elsewhere" when a specialised tribunal already has jurisdiction over the issue.

Authorised Officer, State Bank of India v. M/s Allwyn Alloys Pvt. Ltd. & Ors. – Legal Case Shots | LegalAware