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Banking & Debt Recovery LawSupreme Court of India

Central Bank of India v. Smt. Prabha Jain

Civil Appeal · 2025 INSC 95Decided 9 Jan 2025
C.A. No.-001876-001876 - 2016 (with 15 connected appeals)
Justice J.B. Pardiwala · Justice R. Mahadevan

Background

Prabha Jain's father-in-law had bought a plot of land in 1967, which after his death was to be inherited equally by his heirs, including Prabha's late husband. Without any formal partition, her brother-in-law illegally sold off portions of the land, including one plot sold to a third party who then mortgaged it to Central Bank of India to obtain a loan. When that loan went into default, the Bank moved to take possession and auction the property under the SARFAESI Act. Prabha filed a civil suit claiming the sale deed and mortgage were both a nullity since she had never consented to the sale, and sought possession of the land. The Bank argued the civil court had no jurisdiction to hear the case at all, since SARFAESI disputes must go to the Debts Recovery Tribunal (DRT); the trial court agreed and rejected the plaint, but the High Court restored the suit.

Decision Breakdown

The Supreme Court dismissed the Bank's appeal, upholding the High Court's decision that the civil court did have jurisdiction. It reasoned that the DRT's powers under Section 17 of the SARFAESI Act are limited to examining whether the "measures" the bank took to enforce its security (like taking possession) were lawful: the DRT has no power to decide the underlying validity of a sale deed or a mortgage, especially where, as here, the person challenging it (Prabha) was never a party to either document and was never in possession. The Court examined a chain of precedents, clarified where two of them had gone wrong in ignoring these distinctions, and also urged banks to be more careful about verifying property titles before sanctioning loans against them.

Lesson Learnt

A person who was never a party to a mortgage and never had possession of the property, and who is challenging the very validity of the underlying sale deed rather than the bank's recovery procedure, can go to a regular civil court rather than being forced into the specialised DRT process meant for disputes between banks and borrowers.

Central Bank of India v. Smt. Prabha Jain – Legal Case Shots | LegalAware