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Sarfaesi 1

The High Court of Judicature at Madras is reviewing a Civil Revision Petition filed by K.R. Vijayakumar against an order dismissing his application to reject a plaint in a specific performance suit. The suit involves a sale agreement for property that was mortgaged, with the petitioner arguing that the agreement is void under the SARFAESI Act due to prior notice of mortgage default. The court concludes that the sale agreement can still be enforced as the bar under the SARFAESI Act is not absolute, allowing the first respondent to seek specific performance of the agreement.

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0% found this document useful (0 votes)
15 views22 pages

Sarfaesi 1

The High Court of Judicature at Madras is reviewing a Civil Revision Petition filed by K.R. Vijayakumar against an order dismissing his application to reject a plaint in a specific performance suit. The suit involves a sale agreement for property that was mortgaged, with the petitioner arguing that the agreement is void under the SARFAESI Act due to prior notice of mortgage default. The court concludes that the sale agreement can still be enforced as the bar under the SARFAESI Act is not absolute, allowing the first respondent to seek specific performance of the agreement.

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Dawood KS
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 22

2024:MHC:1882

C.R.P.(PD)No.3756 of 2018

IN THE HIGH COURT OF JUDICATURE AT MADRAS

RESERVED ON : 26.03.2024

PRONOUNCED ON : 15.04.2024

CORAM

THE HONOURABLE MR. JUSTICE S.SOUNTHAR

C.R.P.(PD)No.3756 of 2018
and C.M.P.No.20948 of 2018

K.R.Vijayakumar ... Petitioner

Vs

1.D.Ponnuvel

2.The City Union Bank,


Rep. by its Manager,
Rasipuram Branch,
Rasipuram, Namakkal District. ... Respondents

PRAYER: Petition filed under Article 227 of the Constitution of India


praying to set aside the impugned order dated 25.09.2018 made in
I.A.No.289 of 2018 in O.S.No.25 of 2011 on the file of the Fast Track /
Mahila Judge, Namakkal.

For Petitioner : Mr.T.Poornam,


for M/s.S.Panneerselvam

For Respondents : Mr.Avinash Wadhwani


for M/s.V.Srimathi for R1

Mr.K.R.Ananda Gomathy for R2


ORDER

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C.R.P.(PD)No.3756 of 2018

This Civil Revision Petition is filed challenging the order passed by

the trial Court dismissing the application filed by the petitioner / first

defendant seeking rejection of the plaint in O.S.No.25 of 2011 on the file

of Fast Track Court / Mahila Court, Namakkal, filed by the first

respondent herein against the petitioner and the second respondent.

2. The above said suit was filed by first respondent against the

petitioner and the second respondent seeking specific performance of sale

agreement dated 18.10.2010, allegedly entered into by the first

respondent with the petitioner for purchase of plaint schedule property

and also for consequential injunction restraining the second respondent

from proceeding with auction of the suit property.

3. According to the first respondent, the petitioner herein obtained

loan from the second respondent by mortgaging the suit property and in

order to discharge the mortgage debt, he agreed to sell the property to the

first respondent and entered into suit sale agreement dated 18.10.2010. It

was stated by the first respondent that as per the terms of the agreement,

sale price was fixed at Rs.30 lakhs and on the date of agreement, he paid

a sum of Rs.5 lakhs to the petitioner by way of cash and another

Rs.5 lakhs by way of cheque. Thus, on the date of agreement itself, a sum

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C.R.P.(PD)No.3756 of 2018

of Rs.10 lakhs was paid to the petitioner as an advance and it was agreed,

the remaining Rs.20 lakhs should be paid within three months. It was also

claimed by the first respondent that he had been ready and willing to

perform his part of contract all along. However, the petitioner failed to

take any steps to discharge the mortgage debt with the second respondent

and hence, the first respondent issued a lawyer notice to the petitioner on

13.01.2011 expressing his readiness and willingness to complete the sale

transactions. The petitioner came up with a reply containing false

allegations, as if the petitioner received a loan of Rs.10 lakhs from the

first respondent and as a security for the said loan transaction, the suit

sale agreement was executed. It was also averred by the first respondent

that he was ready to pay the entire amount due to the second respondent

and get the sale transaction completed. However, the petitioner failed to

accept the same. In these circumstances, the first respondent was

constrained to file a suit for specific performance.

4. The petitioner / first defendant in the suit filed an application to

reject the plaint on the ground that the suit is barred by section 34 of “The

Securitisation and Reconstruction of Financial Assets and Enforcement of

Security interest Act, 2002” (hereinafter referred to as “the SARFAESI

Act for the sake of convenience and brevity), as suit sale agreement came

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C.R.P.(PD)No.3756 of 2018

into existence subsequent to notice under Section 13(4) of SARFAESI

Act. The said petition for rejection of the plaint was dismissed by the

trial Court and aggrieved by the same, this Civil Revision Petition is

filed.

5. The learned counsel appearing for the petitioner submitted that

the present suit for specific performance filed by the first respondent is

barred by Section 34 of SARFAESI Act and hence, the plaint is liable to

be rejected. The learned counsel further submitted that the suit sale

agreement, which is sought to be specifically enforced came into

existence subsequent to notice by second respondent / secured creditor

under Section 13(4) of SARFAESI Act and in view of provisions of

Section 13 sub-Section (13) of SARFAESI Act, the petitioner is disabled

from transferring the suit property by way of sale, lease or otherwise. In

nutshell, it is the contention of the learned counsel that any sale

subsequent to notice under Section 13 sub-section (2) of SARFAESI Act

shall be treated as a void transaction in view of prohibition contained

under Section 13 sub-Section (13) of the said Act. The learned counsel

submitted that though Section 13 sub-Section (13) of the said Act does

not prohibit entering into a sale agreement, when there is a prohibition

against sale, the sale agreement cannot be specifically enforced and


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C.R.P.(PD)No.3756 of 2018

hence, there cannot be a decree for specific performance. In support of

his contention, the learned counsel for the petitioner relied on the

following judgments:

1. Satish Kumar Vs. Karan Singh and Another reported in (2016)

4 SCC 352;

2. Sopan Sukhdeo Sable and Others Vs. Assistant Charity

Commissioner and Others reported in (2004) 3 SCC 137;

3. Canara Bank Vs. P.Selathal and Others reported in (2020) 13

SCC 143;

4. B.P.Samiappan (died) and 4 others Vs. Arunthavaselvan and 3

others reported in 1994-1-L.W.399; and

5. T.Arivandandam Vs. T.V.Satyapal and Another reported in

(1977) 4 SCC 467.

6. The learned counsel appearing for the contesting first respondent

submits that the right acquired by the first respondent is subject to the

right of the secured creditor viz., the second respondent and hence,

subject to the right of second respondent, the first respondent is entitled to

get a decree for specific performance. The learned counsel pointed out

that the second respondent / secured creditor who is entitled to invoke the

provisions of the SARFAESI Act against the secured asset, has not filed

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any application to reject the plaint and in such circumstances, the

mortgagor of the property, viz., the petitioner is not entitled to maintain

an application for rejection of the plaint, when his right is not all affected.

7. The learned counsel for the first respondent further submitted

that bar under Section 13 sub-Section (13) of the SARFAESI Act is not

an absolute one and therefore, the suit is not hit by provisions of the

SARFAESI Act. The learned counsel by relying on Section 91 of

Transfer of Property Act, 1882, submitted that he is ready to pay the

entire amount due to the second respondent and discharge the mortgage

debt payable by the petitioner to the second respondent and hence, he is

entitled to maintain the suit for specific performance as per the suit sale

agreement. The learned counsel also submitted that he already filed an

application before the trail Court for payment of entire amount due to the

second respondent and the said application is pending consideration. In

support of his contention, learned counsel relied on the following

judgements:

1.Arasa Kumar and another Vs. Nallammal and others reported

in (2004) 4 CTC 261 and

2.K.Deenadayalan Vs. N.Sathish Kumar reported in 2015-1-

L.W.229.
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8. The suit property, which is the subject matter of the suit sale

agreement was mortgaged by the petitioner to the second respondent and

as he failed to repay the loan amount, the second respondent initiated

SARFAESI proceedings. It is not in dispute that notice under Section

13(2) of the SARFAESI Act was issued by the second respondent on

03.05.2010. The notice under Section 13(4) of the SARFAESI Act was

issued on 20.07.2010. Thereafter, auction notice was issued on

08.09.2010. The auction was scheduled to have taken place on

18.10.2010 and the first respondent / plaintiff himself was participated in

the auction. It is stated that on the said date, the petitioner paid a sum of

Rs.5 lakhs and in view of the same, auction was postponed. The suit sale

agreement said to have entered into on 18.10.2010 between the petitioner

and the first respondent. Now the main point urged by the learned

counsel for the petitioner is suit agreement is not specifically enforceable

in view of Section 13 (13) of the SARFAESI Act. The relevant section

reads as follows:

“13.Enforcement of security interest:


......
(13) No borrower shall, after receipt of notice referred
to in sub-section (2), transfer by way of sale, lease or
otherwise (other than in the ordinary course of his business)
any of his secured assets referred to in the notice, without
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C.R.P.(PD)No.3756 of 2018

prior written consent of the secured creditor.”


9. A perusal of the above provision would make it clear that the

petitioner, who is a borrower is not entitled to transfer by way of sale,

lease or otherwise any of his secured assets after receipt of notice under

Section 13(2) of the SARFAESI Act. It is not disputed that Section 13(2)

notice was received by the petitioner prior to the suit sale agreement.

Now the question to be decided is whether the bar created under Section

13 sub-Section (13) of the SARFAESI Act is an absolute one and any

transaction violating said Section can be treated as void transaction.

10. The language of Section 13 sub Section (13) of SARFAESI Act

would indicate that there is no total bar from transacting with secured

asset, after the receipt of notice under Section 13(2) of the SARFAESI

Act. Transfer by borrower with a written consent of secured creditor,

even after receipt of 13(2) notice, is permissible. Therefore, the bar

created by Section 13 sub Section (13) of SARFAESI Act is not an

absolute one and transfer is permitted subject to a condition. However,

the provision is silent as to the effect of transfer by the borrower without

written consent of secured creditor.

11. Under common law, if the mortgagor / borrower transfers the

secured assert to a third party, such a transferee will acquire right over the

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property subject to the mortgage liability. Therefore, notwithstanding

transfer of the property by borrower, the secured creditor is entitled to

proceed against the secured asset which is transferred in favour of a third

party. Therefore, even in the absence of qualified bar created under

Section 13 sub-Section (13) of the SARFAESI Act, the right of the

secured creditor is very well protected and he can always proceed against

the secured asset simply ignoring the subsequent transfer by the borrower

in favour of a third party.

12. In the case on hand, it is admitted fact that the first respondent

was aware of mortgage liability created by the petitioner in favour of

second respondent bank. In fact, the learned counsel for the first

respondent submits that he is ready to pay the entire amount due to the

second respondent and get the mortgage debt discharged. Knowing fully

that its rights are very well protected under law, the second respondent

bank consciously decided not to file any application for rejection of the

plaint. The petitioner, who allegedly entered into sale agreement with the

first respondent is not entitled to take shelter under Section 13 sub-

Section (13) of the SARFAESI Act and seek rejection of the plaint so as

to get rid of his obligation under the agreement. Section 13 sub-section

(13) of the SARFAESI Act does not indicate that any transaction

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C.R.P.(PD)No.3756 of 2018

violating prohibition contained under the Section shall be treated as void.

When the Section does not declare a transaction, without written consent

of secured creditor as a void transaction, this Court is not inclined to

supplement something which is not contemplated by the legislature in it's

wisdom. Therefore, this Court holds that the bar under Section 13 sub-

Section (13) of the SARFAESI Act is not an absolute one and any transfer

made by the borrower without written consent of the secured creditor is

not void, but it is not binding on the secured creditor to the extent of

enforcing it's right over secured asset.

13. As discussed earlier, even in the absence of Section 13 of sub-

section (13) of the SARFAESI Act, under common law any transfer by

the mortgagor in favour of a third party, when the mortgage is subsisting,

is only subject to the mortgage liability. In other words, the mortgagor is

entitled to transfer the property, which is subjected to mortgage liability

to a third party and the third party will acquire right over the suit property

subject to mortgage liability. Notwithstanding such transfer in favour of

third party, the mortgagee is entitled to enforce payment of mortgage debt

against the property even if it is in hands of third party concerned.

Section 13 sub-section (13) of the SARFAESI Act only imposed a

condition on the mortgagor to get a written consent from secured creditor

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C.R.P.(PD)No.3756 of 2018

before transferring the property to a third party. However, the

consequence of failure to get written consent is not declared expressly. In

such circumstances, it would be appropriate to hold that transfer without

written consent of secured creditor is not void. However, it is not binding

on the secured creditor to the extent of his right to enforce payment of

debt due to him. Therefore, notwithstanding such transfer, the secured

creditor is entitled to proceed against the property.

14. In the light of the discussion made earlier, the first respondent

is very well entitled to insist for decree for specific performance based on

the sale agreement, which was contracted ignoring provisions of Section

13 of sub-Section (13) of the said Act. Any decree passed in the suit will

not affect the right of the second respondent bank to proceed against the

secured asset. The right acquired by the decree holder is subject to the

right of the mortgagee / secured creditor. The other contentions made by

the learned counsel for the petitioner that the suit sale agreement was

entered into as a security for loan transaction is a matter to be decided

based on evidence and hence, parties shall be relegated to trial.

15. Section 34 of the SARFAESI Act reads as follows:

“34. Civil Court not to have jurisdiction.-No civil


court shall have jurisdiction to entertain any suit or
proceeding in respect of any matter which a Debts
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Recovery Tribunal or the Appellate Tribunal is empowered


by or under this Act to determine and no injunction shall
be granted by any court or other authority in respect of
any action taken or to be taken in pursuance of any power
conferred by or under this Act or under the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993
(51 of 1993)”
16. A perusal of the same would indicate that no Civil Court shall

entertain any suit or proceedings in respect of any matter which a Debts

Recovery Tribunal or the Appellate Tribunal is empowered to determine.

Section 17 of the SARFAESI Act enables any person aggrieved by any of

the measures referred to in sub-section (4) of section 13 of the

SARFAESI Act to approach the Tribunal. Section 18 of the SARFAESI

Act enables any person aggrieved by the order passed by the Debts

Recovery Tribunal to the Appellate Tribunal. The scope of Sections 17

and 18 of the SARFAESI Act and jurisdiction of the Tribunal constituted

under the SARFAESI Act came up for consideration before this Court in

K.Deenadayalan Vs. N.Sathish Kumar reported in 2015-1-L.W.229. The

relevant observation of this Court reads as follows:

“16. At this juncture, the decision of the Honourable


Supreme Court reported in 2009 (8) SCC 646 = 2009 (4) CTC
74 (Nahar Industrial Enterprises Ltd. Vs. Hong Kong &
Shangha Banking Corpn.), more particularly paragraphs 96
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C.R.P.(PD)No.3756 of 2018

and 97, are relevant to be quoted:


"96. The Tribunal was constituted with a specific
purpose as is evident from its Statement of Objects. The
Preamble of the Act also is a point to that too. We have
also noticed the scheme of the Act. It has a limited
jurisdiction. Under the Act, as it originally stood, it did
not even have any power to entertain a claim of set-off
or counter-claim. No independent proceedings can be
initiated before it by a debtor.
97. A debtor under the common law of contract
as also in terms of the loan agreement may have an
independent right. No forum has been created for
endorsement of that right. Jurisdiction of a civil court as
noticed hereinbefore is barred only in respect of the
matters which strictly come within the purview of
Section 17 thereof and not beyond the same. The civil
court, therefore, will continue to have jurisdiction."
(emphasis supplied)
17. Further, in a decision reported in 2004 (4) SCC 311
= AIR 2004 SC 2371 (Mardia Chemicals Ltd. Vs. Union of
India), the Apex Court held in paragraph 51 as follows:
"51. However, to a very limited extent
jurisdiction of the civil court can also be invoked, where
for example, the action of the secured creditor is alleged
to be fraudulent or his claim may be so absurd and
untenable which may not require any probe whatsoever
or to say precisely to the extent the scope is permissible
to bring an action in the civil court in the cases of
English mortgages. ... .." (emphasis supplied)
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18. Considering the scope of Section 18 of the Act,


coupled with a combined reading of Section 17 of the Act and
considering the above decisions of the Apex Court, I am of the
view that the "bar of jurisdiction of Civil Courts"
contemplated under Section 18 of the Act, is not a total bar as
claimed by the petitioner/fourth defendant and on the other
hand, it is only under the circumstances stated therein.
17. In Bank of Baroda Vs. Gopal Shriram Panda and Ors

reported in MANU/MH/0987/2021, a Division Bench of Bombay High

Court, after referring to various case laws on the point of exclusion of

civil Court's jurisdiction under SARFAESI Act held that Tribunals

constituted under SARFAESI Act cannot adjudicate on the civil rights

claimed vis-a-vis security interest and its jurisdiction is restricted to

examination of legality of actions of secured creditor under Section 13 of

the SARFAESI Act. The relevant observation of Division Bench reads as

follows:

“23. Keeping in mind the principles as laid down in


Dhulabhai (supra), and what we have considered and
discussed above, when we ask ourselves a question as to
whether the DRT exercising jurisdiction under Sections 13
and 17 of the SARFAESI Act, has the power, nay jurisdiction
to determine the Civil Law rights, which may be available to
a person, in the security interest, in the same manner as a
Civil Court could ? or in other words, can a person who
claims a right of partition, specific performance, reliefs under
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Sections 31 and 34 of the Specific Relief Act, preemption,


redemption, declaration in respect of a property which is a
security interest, approach the DRT for claiming adjudication
of his such claim ? and can the DRT grant him such relief ?
In our considered opinion, the answer has to be in the
negative for the reason that it is not permissible for the DRT
to embark on an adjudication of the civil rights claimed vis-
a-vis the security interest, in light of the clear, precise and
specific language of Section 17 (1) and 18 of the DRT Act
read with Sections 13, 17 and 34 of the SARFAESI Act, as
already discussed above.
23.1. If the DRT is not a Court as held in Nahar
Industrial Enterprises Limited (supra), which still holds the
field, and the jurisdiction of the DRT is limited and is
confined to the extent of examination of the actions of the
secured creditor under Section 13 (4) and Section 17 of the
SARFAESI Act, within the framework of Sections 17 and 19 of
the DRT Act 1993, then the DRT is jurisdictionally incapable
and incompetent to adjudicate and decide upon the rights of
a civil nature, accruing in favour of citizens, even if such
rights are found to be accruing or created by law or
otherwise, in the security interest. The jurisdiction to
adjudicate and decide such rights of a civil nature, would
then continue to vest with the Civil Courts under Section 9 of
the C.P.C., whose jurisdiction though otherwise is plenary,
omnipotent and unlimited, is limited only by the exclusion
clause/provision in various Statutes, which exclusion
clause/provision has to be strictly construed.
24. The purpose of creation of the Special Statutes i.e.
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the SARFAESI Act and the DRT Act, 1993, was to facilitate
creation of special machinery for speedy recovery of the
debts, due to Banks and Financial Institutions, which had
gained alarming proportions and still are alarmingly high,
and not to obviate or set at naught the civil rights as
available to litigants by availing the Civil Law remedy.
25. A meaningful interpretation has to be put to the
language of the bar as contained in Section 34 of the
SARFAESI Act so that the object and purpose sought to be
achieved by the Act is not rendered illusory and is fulfilled.
However, at the same time, the civil rights, which may be
available in respect of security interest, cannot be lost sight
of, which also have to be protected and the common law
remedy available for the enforcement cannot be rendered
ineffective. No doubt, Section 34 by creating a bar of
jurisdiction ensures the recovery of public money in a speedy
manner, however, the bar has to be read and construed in
light of the language it contains and not otherwise so as to
impeach upon the rights of a civil nature as available, which
are equally important for a citizen. In the zeal to ensure
speedy recovery of money, the civil rights which a citizen has,
cannot be permitted to be rendered redundant and balance
between both the rights has to be maintained, which would
only be possible on a case to case basis. The bar under
Section 34 of the SARFAESI Act, therefore, in view of the
discussion made above, in our considered opinion, is not
absolute, but is restricted to examination by the DRT of the
actions of the secured creditor under Section 13 of the
SARFAESI Act and the rights available under Section 17 of
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the SARFAESI Act, to be in accordance with the provisions of


the SARFAESI Act and the Rules made thereunder, as
indicated.”
18. In the light of case laws mentioned above, the bar under

Section 34 of the SARFAESI Act is limited to the matters over which the

Tribunals constituted under the SARFAESI Act are having jurisdiction.

The jurisdiction of the Tribunals constituted under the SARFAESI Act is

limited to the legality of the proceedings initiated under Section 13 of the

SARFAESI Act. Therefore, only to that limited extent, the jurisdiction of

the Civil Court is barred and in other respects, the jurisdiction is not

ousted. This position was very well clarified in K.Deenadayalan's case

and Bank of Baroda's case (Cited Supra).

19. In view of the discussion made earlier, the submission made by

the learned counsel for the petitioner that suit is barred under Section 34

of the SARFAESI Act is not acceptable to this Court. The contract

between petitioner and first respondent can very well be enforced in civil

Court and any decree passed in the suit is subject to the right of the

secured creditor / second respondent bank over the secured asset.

20. The first respondent also prayed for injunction restraining the

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C.R.P.(PD)No.3756 of 2018

second respondent from proceeding with the auction of the secured asset.

The said prayer is clearly hit by second limb of Section 34 of the

SARFAESI Act. The auction proceedings in pursuance of Section 13(2)

notice is an auction, which is being taken by the second respondent in

pursuance of power conferred on it under the provisions of the

SARFAESI Act and the first respondent is not entitled to seek injunction

against second respondent bank. However, a plaint cannot be invoked in

part while exercising power under Order 7 Rule 11 of C.P.C. Therefore,

merely because one of the prayers in the suit is hit by Section 34 of the

SARFAESI Act, this Court is not inclined to reject the entire plaint when

the first prayer for specific performance is found to be maintainable.

21. The decision relied on by the learned counsel for the petitioner

in B.P.Samiappan (died) and 4 others Vs. Arunthavaselvan and 3 others

reported in 1994-1-L.W.399 is not applicable to the facts of the present

case in view of the fact that statutory provisions viz., Tamil Nadu Land

Reforms Act, dealt with in that case expressly declares the transactions to

be void. However, as discussed earlier under Section 13 sub-section (13)

of the SARFAESI Act, there is no such declaration declaring any

transaction violating prohibition contained therein as void. The decisions

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C.R.P.(PD)No.3756 of 2018

in Canara Bank Vs. P.Selathal and Others reported in (2020) 13 SCC

143, T.Arivandandam Vs. T.V.Satyapal and Another reported in (1977)

4 SCC 467 and Sopan Sukhdeo Sable and Others Vs. Assistant Charity

Commissioner and Others reported in (2004) 3 SCC 137 were pressed

into service for the proposition that Court should be cautious of clever

drafting creating illusion of a cause of action.

22. In the case on hand, as per the averments made in the plaint,

first respondent entered into an agreement with the petitioner and the

same is sought to be enforced. Whether really the agreement was entered

into or it was entered as a security for loan transaction is a matter for trial.

In view of the conclusion reached by this Court with regard to the effect

of Section 13 sub-Section 13 of the SARFAESI Act, I do not think the

plaint involves any clever drafting so as to create illusory cause of action.

23. In view of the discussion made earlier, the civil Revision

petition is dismissed with the clarification, any decree passed in the suit is

subject to the right of the secured creditor / second respondent over the

secured asset. There shall be no order as to costs. Consequently,

connected miscellaneous petition is closed.

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15.04.2024

NCC : Yes
Index : Yes

vsm

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C.R.P.(PD)No.3756 of 2018

To

1.The Fast Track / Mahila Judge, Namakkal.

2.The Section Officer,


VR Section,
Madras High Court,
Chennai.

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C.R.P.(PD)No.3756 of 2018

S.SOUNTHAR, J.
vsm

Order in
C.R.P.(PD)No.3756 of 2018

15.04.2024

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