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Legal Case Shots

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Labour & Industrial LawSupreme Court of India

Punjab and Sind Bank vs. Frontline Corporation Ltd. (Civil Appeal No. 2924 of 2023)

Civil Appeal · 2023 INSC 386Decided 18 Apr 2023
Civil Appeal No. 2924 of 2023
B.R. Gavai · Aravind Kumar

Background

Punjab & Sind Bank had been a tenant in a Kolkata property since 1972. After the respondent, Frontline Corporation, bought the property, the Bank availed large credit facilities (over Rs. 42 crore) from itself, mortgaging the same property as collateral. When Frontline defaulted, the Bank declared the account a Non-Performing Asset and initiated recovery under the SARFAESI Act, including taking possession of the property. Frontline went to the Calcutta High Court seeking specific performance of a separate settlement/lease arrangement and got an interim order restraining the Bank from finalizing any sale of the property; a Single Judge later vacated that order (citing the Bank's rights as a secured creditor), but a Division Bench of the High Court reinstated the restraint, reasoning that the Bank was bound by the earlier settlement (invoking "promissory estoppel").

Decision Breakdown

The Supreme Court held that under Section 34 of the SARFAESI Act, civil courts have no jurisdiction over matters that a Debts Recovery Tribunal (DRT) is empowered to decide: this bar applies broadly to any matter connected with actions taken or to be taken under the Act, with only a very narrow exception where the secured creditor's claim is clearly fraudulent or wholly untenable, which was not the case here. The Court also held that the Division Bench, sitting in an appeal against the Single Judge's exercise of discretion, should not have substituted its own view unless the Single Judge had acted arbitrarily or ignored settled legal principles, which he had not, since he had correctly applied the statutory bar under Section 34. The Supreme Court therefore restored the Single Judge's order, allowing the Bank to proceed, and set aside the Division Bench's judgment.

Lesson Learnt

Once a bank or financial institution invokes the SARFAESI Act to recover a secured debt, a borrower generally cannot use an ordinary civil suit to block the recovery process: such disputes must ordinarily go through the specialized Debt Recovery Tribunal, and appellate courts should be cautious about overturning a lower court's reasonable exercise of discretion.

Punjab and Sind Bank vs. Frontline Corporation Ltd. (Civil Appeal No. 2924 of 2023) – Legal Case Shots | LegalAware