Court Clarifies Civil Court Jurisdiction Under Section 34 of SARFAESI Act; Partition Suits by Non-Alienating Co-sharers May Proceed if Independent Rights Asserted
In a significant judgment dated August 29, 2026, the Karnataka High Court (Dharwad Bench) has elucidated the scope of civil court jurisdiction under Section 34 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The ruling arose from a civil revision petition filed by M/s. Tyger Capital Limited (formerly Adani Capital Pvt. Ltd) challenging the maintainability of a suit instituted by Lalita and others concerning a property mortgaged by one of the co-sharers to the petitioner bank.
The Court examined the critical question of whether civil courts are barred from entertaining suits that effectively challenge the measures taken by secured creditors under Section 13(4) of the SARFAESI Act, especially in cases where family members or co-sharers bring suits styled as partition proceedings but that also seek to declare the mortgage invalid and restrain the bank from enforcing its security interest.
The Court reaffirmed the principle that Section 34 of the SARFAESI Act bars civil courts from entertaining suits or proceedings in respect of matters that the Debts Recovery Tribunal (DRT) or Debts Recovery Appellate Tribunal (DRAT) are empowered to determine, notably enforcement actions under Section 13(4). This statutory bar is not an omnibus ouster of civil jurisdiction over every dispute involving mortgaged property but applies specifically where the substance of the relief sought is to challenge the secured creditor's statutory measures.
Significantly, the Court distinguished between two categories of suits:
1. Suits where the dominant relief challenges the validity or legality of SARFAESI enforcement measures, such as possession notices or auction proceedings. Such suits are barred before civil courts and must be pursued before the DRT under Section 17.
2. Suits instituted by non-alienating co-sharers or coparceners asserting independent pre-existing civil rights, such as partition and determination of their share, accompanied by declarations that the mortgage does not bind their independent share. Such suits are maintainable before civil courts because the DRT lacks jurisdiction to grant partition decrees.
In the present case, the plaint filed by the respondents did not merely seek partition and declaration of their independent share but also contained detailed allegations that the mortgage was fraudulently created, was illegal, and that the bank was unlawfully interfering with their possession. The reliefs included prayers to declare the mortgage null and void and to restrain the bank from enforcing its security interest. The Court found that these reliefs, when read with the plaint's averments, amounted to a substantive challenge to the SARFAESI measures, thus falling squarely within the exclusive jurisdiction of the DRT.
Consequently, the High Court allowed the civil revision petition filed by the bank, set aside the trial court's order, and rejected the plaint under Order VII Rule 11(d) of the Civil Procedure Code, 1908 (CPC), holding that the suit was barred under Section 34 of the SARFAESI Act.
The Court clarified that while civil courts retain jurisdiction to determine independent civil rights such as partition and share determination by non-alienating co-sharers, they cannot entertain suits that effectively seek to invalidate or restrain the enforcement of security interests created under the SARFAESI Act. The statutory remedy for such grievances lies exclusively before the DRT.
This judgment provides important guidance on the interplay between civil court jurisdiction and the special adjudicatory mechanism created by the SARFAESI Act. It stresses the necessity of examining the substance of the relief sought rather than the mere form or nomenclature of the suit and reinforces the principle that challenges to SARFAESI enforcement must be pursued through the designated statutory forums.
Bottom Line:
Civil Court jurisdiction under Section 34 of SARFAESI Act - Civil Court is barred from entertaining suits challenging measures taken by secured creditors under Section 13(4) of SARFAESI Act, as such grievances fall under the jurisdiction of the DRT under Section 17. However, independent civil rights like partition and determination of share by non-borrower co-sharers asserting pre-existing rights may not be barred if such relief does not interfere with SARFAESI measures.
Statutory provision(s):
Section 9 CPC, Order VII Rule 11(d) CPC, Section 13(4) SARFAESI Act 2002, Section 17 SARFAESI Act 2002, Section 34 SARFAESI Act 2002, Section 35 SARFAESI Act 2002
M/s. Tyger Capital Limited v. Lalita, (Karnataka)(Dharwad Bench) : Law Finder Doc Id # 2979988
