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Civil courts can take up counter case of borrower against lenders: Supreme Court


A civil court is not barred from entertaining a counter lawsuit of a borrower against a lending bank or financial institution which is pursuing a separate recovery proceedings against him before a debt recovery tribunal (DRT) under a special law, the Supreme Court held on Thursday.

The top court was dealing with the vexed legal question whether a borrower, facing the recovery proceedings by a lending bank under the Recovery of Debts Due to Banks and Financial Institutions (RDB) Act, 1993 before the DRT, can file a counter claim case in civil court against the lending financial institutions instead of filing it in the DRT itself.

“There is no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted,” a bench of justices Sanjay Kishan Kaul, Abhay S Oka and Vikram Nath said.

“Is the jurisdiction of a civil court to try a suit filed by a borrower against a bank or financial institution ousted by virtue of the scheme of the RDB Act in relation to the proceedings for recovery of debt by a bank or financial institution? The aforesaid question ought to be answered first and is answered in the negative,” Justice Kaul, writing the 45-page judgement, said.

The bench also held that there was no power under the Civil Procedure Code to transfer the independent suit filed by a borrower against a bank or financial institution, which has applied for recovery of its loan against the plaintiff under the RDB Act, to the DRT.

“Since there is no such power with the civil court, there is no question of transfer of the suit whether by consent or otherwise to the DRT,” it held.

“We are thus of the view that there is no provision in the RDB Act by which the remedy of a civil suit by a defendant in a claim by the bank is ousted, but it is the matter of choice of that defendant. Such a defendant may file a counterclaim, or may be desirous of availing of the more strenuous procedure established under the Code, and that is a choice which he takes with the consequences thereof,” it said.

The bench said it, however, has a word of caution keeping in mind the nature of powers exercised by the DRT and the objective of its creation.

“We certainly would not like that the process envisaged under the RDB Act be impeded in any manner by filing of a separate suit if a defendant chooses to do so. A claim petition before the DRT has to proceed in a particular manner and would so proceed. There can be no question of stay of those proceedings by way of a civil proceeding instituted by a defendant before the civil court…,” it said.

It said that the DRT has been set up under the special RDB Act for expeditious disposal of the banks’ claim before it and it should not be impeded by filing a civil suit.

“Thus, it is not open to a defendant, who may have taken recourse to the civil court, to seek a stay on the decision of the DRT awaiting the verdict of his suit before the civil court as it is a matter of his choice,” it said.

The top court then held that its two judgements in “Indian Bank and Nahar Industrial Enterprises are affirmed except to the extent that they allow the transfer of a suit from the Civil Court to the DRT”.

The judgement came on a plea of Bank of Rajasthan against a borrower who had moved a civil court against the lending bank.



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