Electrosteel Castings Limited vs UV Asset Reconstruction Company Limited and Others

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6669 OF 2021

Electrosteel Castings Limited ..Appellant(S)

VERSUS

UV Asset Reconstruction ..Respondent(S) Company Limited &Ors.

JUDGMENT

M. R. Shah, J.

1. Feeling aggrieved and dissatisfied with the impugned

judgment and order dated 13.08.2021 passed by the High

Court of Judicature at Madras in O.S.A. No.292 of 2019, by

which the Division Bench of the High Court has dismissed

the said appeal preferred by the original plaintiff rejecting the

plaint/suit filed by the appellant herein – original plaintiff on Signature Not Verified Digitally signed by R Natarajan the ground that the suit is barred by Section 34 of the Date: 2021.11.26 17:14:35 IST Reason: 1 SARFAESI Act, 2002, the original plaintiff has preferred the

present appeal.

2. The facts leading to the present appeal in nutshell are as

under:­

2.1 That original defendant No.3 ­ respondent No.3 herein

(hereinafter referred to as original defendant No.3) availed the

loan facility vide Rupee Loan Agreement dated 26.07.2011

from defendant No.2 ­ respondent No.2 herein – SREI

Infrastructure Finance Limited and availed the financial

assistance to the extent of Rs.500 crores. The appellant

herein – original plaintiff stood as guarantor. A mortgage was

created by the appellant herein – original plaintiff in favour of

defendant No.2 – respondent No.2 herein – financial creditor

over its factory land at Evalur, Tamil Nadu along with plant

and machinery, by way of deposit of title deeds in terms of

the declaration to secure the repayment, discharge and

redemption by original defendant No.3. That original

defendant No.3 – corporate debtor could not pay the loan

amount, therefore the proceedings under the Insolvency

Bankruptcy Code, 2016 (IBC) was initiated against the

2 corporate debtor. An application under Section 7 of the IBC

was filed by the State Bank of India against original

defendant No.3 – corporate debtor. The default amount was

INR 923,75,00,000/­. The resolution process was initiated

and an interim resolution professional was appointed under

the provisions of IBC. A resolution plan came to be approved

by the Committee of Creditors under Section 30(4) of the IBC.

The learned Adjudicating Authority vide order dated

17.04.2018 approved the resolution plan. Under the

approved resolution plan an amount of INR

241,71,84,839.18 was required to be paid and 67,23,710

equity shares of the corporate debtor were to be allotted. As

per the case on behalf of the plaintiff – appellant herein on

payment of aforesaid amount and transfer of aforesaid shares

No Due Certificate was issued in favour of the corporate

debtor – original defendant No.3 on 25.06.2018 and the

corporate debtor came to be discharged. It appears that

thereafter an assignment agreement was executed between

defendant No.2 – respondent No.2 herein and defendant No.1

– respondent No.1 herein on 30.06.2018, assigning all the

rights, titles and interest in all the financial assistance

3 provided by defendant No.2 – financial creditor ­ respondent

No.2 herein in terms of agreement dated 26.07.2011 in

favour of assignee ­ respondent No.1. As assignee ­

respondent No.1 herein pursuant to the assignment

agreement dated 30.06.2018 had issued letter to all the

interested parties, namely, assignor ­ financial creditor,

guarantor and corporate debtor informing that assignor –

financial creditor ­ respondent No.2 herein had absolutely

assigned all the rights, title and interest in all the financial

assistance granted by financial creditor ­ respondent No.2

herein from time to time to corporate debtor in favour of

assignee ­ respondent No.1 herein vide assignment

agreement dated 30.06.2018. The said letter was responded

by the plaintiff – appellant herein stating the following :­

(i) “Respondent No.2 had duly filed its claim before the Resolution Professional in accordance with the provisions of IBC.

(ii) This claim was crystallised and admitted at INR 577.90 Crores and also formed part of the approved Resolution Plan of Vedanta Limited.

(iii) Pursuant to the approved Resolution Plan, the entire debt of Respondent No.2 has been discharged by way of allotment of shares and payment in cash on 6.06.2018 and 21.06.2018 respectively.

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(iv) It was also highlighted that in terms of section 3.2(xi) of the approved Resolution Plan, upon discharge of financial creditors (including Respondent No.2), the financial creditors were required to redeliver and cause to be delivered to Petitioner all documents encumbered with the financial creditors.

(v) Therefore, when no due was outstanding and in fact redelivery of encumbered assets was required, there was no basis under contract or law for assignment of loan/debts/securities.

(vi) It was emphasised that assignment agreement dated 30.06.2018 was null, void ab initio and without any basis.”

2.2 That thereafter on the basis of the assignment agreement

dated 30.06.2018, the assignee – original defendant No.1 –

respondent No.1 herein initiated the proceedings against the

plaintiff – appellant herein, who stood as guarantor, under

Section 13(2) of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act,

2002 (SARFAESI Act) by issuing a notice dated 27.12.2018,

demanding the payment of INR 587,10,08,309 due under the

rupee term loan agreement dated 26.07.2011. Notice dated

27.12.2018 of the SARFAESI Act was responded by the

plaintiff – appellant herein vide reply dated 20.02.2019

stating that pursuant to repayment of amount in terms of the

approved resolution plan, all the claims of financial creditor ­

5 respondent No.2 herein stand extinguished and

consequently, no claim can be made by the assignee ­

respondent No.1 herein for the same default and that no

amount is due and payable to assignee ­ respondent No.1.

That thereafter a possession notice dated 19.06.2019 was

issued under rule 8 (1) of the Security Interest (Enforcement)

Rules, 2002 by the assignee to the plaintiff – appellant

herein. Thus a possession notice was published in the

newspaper on 22.06.2019.

2.3 That thereafter the plaintiff – appellant herein instituted a

Civil Suit being C.S.(D) No.18962 of 2019 on 22.06.2019

before the High Court of Madras and prayed for the following

reliefs:­

“(i). To declare that the 1st Defendant acquired no rights against the Applicant herein under the Assignment Deed dated 30.06.2018, arid consequently, declare that the 1st Defendant is not a secured creditor vis­a­vis, the Applicant herein; and

(ii). Consequently, to declare Possession Notice dated 19.6.2019 issued by the 1st Defendant herein has null and vend and render justice.”

6 2.4 The suit was filed with an application seeking leave to file the

suit with the aforesaid prayers. As observed hereinabove, the

suit was filed on 22.06.2019. Immediately thereafter

appellant herein – plaintiff also filed an application before the

Debt Recovery Tribunal (DRT), Chennai under Section 17(1)

of SARFAESI Act on 17.07.2019 against the possession

notice dated 19.06.2019 praying that the assignee has

acquired no rights under the assignment agreement dated

30.06.2018 and consequently, assignee ­ respondent No.1 is

not a secured creditor vis­a­vis the appellant – plaintiff and

also to declare possession notice dated 19.06.2019 as null

and void. The registry of DRT returned the application filed

under Section 17(1) of SARFAESI Act by observing as under:­

“Counsel for the Appellant has represented SA without complying with the defects read out, however with an endorsement that he is a proper and necessary party and that relief prayed for vide Para VII(i) is maintainable. He has reiterated that relief has to be sought in relation to the notice under challenge.

May be returned.”

2.5 The defendants appeared before the High Court in C.S.(D)

No.18962 of 2019, affidavits and counter affidavits were filed

by the parties to the suit. By order dated 30.09.2019, the

7 learned Single Judge of the High Court dismissed application

No.4322 of 2019 and C.S.(D) No.18962 of 2019 on the

ground of jurisdiction observing that the suit is for land and

property situated outside the jurisdiction of the court and

therefore the suit is not maintainable. It was also observed

and held that the civil court’s jurisdiction is barred in view of

Section 34 of the SARFAESI Act and only DRT had

competence to decide the matter.

3. Feeling aggrieved and dissatisfied with the order passed by

the learned Single Judge of the High Court dismissing the

application as well as the suit vide order dated 30.09.2019,

appellant herein – original plaintiff filed an appeal before the

Division Bench of the High Court being O.S.A. No.292 of

2019. By the impugned judgment and order the Division

Bench of the High Court has dismissed the said appeal in

view of the bar under Section 34 of the SARFAESI Act.

4. Feeling aggrieved and dissatisfied with the impugned

judgment and order passed by the Division Bench of the High

Court confirming the judgment and order passed by the

learned Single Judge rejecting the plaint/dismissing the suit

8 as not maintainable in view of the bar under Section 34 of

the SARFAESI Act, original plaintiff – appellant herein has

preferred the present appeal.

5. Dr. A.M. Singhvi, learned Senior Advocate has appeared on

behalf of the appellant and Shri Shyam Divan, learned Senior

Advocate has appeared with Shri Huzefa Ahmadi, learned

Senior Advocate, on behalf of the respondents – defendants.

5.1 Dr. Singhvi, learned Senior Advocate appearing on behalf of

the plaintiff ­ appellant herein has vehemently submitted

that in the facts and circumstances of the case both, learned

Single Judge as well as the Division Bench have materially

erred in rejecting the plaint and dismissing the suit on the

ground that the suit is barred in view of the bar under

Section 34 of SARFAESI Act.

5.2 It is submitted that the High Court has not properly

appreciated and considered the fact that in the suit plaintiff

had pleaded the fraud and it was the case on behalf of the

plaintiff – appellant herein that the assignment agreement

dated 30.06.2018 is fraudulent and relief was sought to

9 declare the assignment agreement dated 30.06.2018 as null

and void by the plaintiff – appellant herein, the said relief

cannot be granted by the DRT under the provisions of the

SARFAESI Act and therefore the bar under Section 34 of the

SARFAESI Act shall not be applicable.

5.3 It is submitted that when the suit is filed alleging ‘fraud’ the

bar under Section 34 of the SARFAESI Act shall not be

applicable and the suit for the reliefs sought in the plaint

shall be maintainable.

5.4 It is submitted that even otherwise considering the fact that

subsequently and before the assignment agreement, the

proceedings under the IBC against the corporate debtor with

respect to the loan agreement dated 26.07.2011were initiated

and the resolution plan was approved and entire amount due

and payable under the approved resolution plan was paid to

the successful resolution applicants and even 67,23,710

equity shares of the corporate debtor came to be transferred

as per the approved resolution plan and the original loanee –

corporate debtor was discharged and NOC was issued,

therefore, assignment deed can be said to be ‘fraudulent’

10 after the resolution plan under IBC and the amount paid

under the resolution plan and on transfer of the shares as

per the approved resolution plan and the corporate debtor

was discharged. Therefore, there shall not be any dues to be

paid by the appellant herein as guarantor.

5.5 It is submitted that as such not only the assignment

agreement dated 30.06.2018 is null and void and is

‘fraudulent’ even the assignee cannot be said to be a secured

creditor so far as the appellant is concerned.

5.6 It is further submitted by Dr. Singhvi, learned Senior

Advocate appearing on behalf of the appellant that there is

no legally enforceable debt by the plaintiff – appellant herein

for the reasons stated above and therefore the initiation of

the proceedings under the SARFAESI Act are bad in law and

not maintainable.

5.7 In the alternative, it is prayed by Dr. Singhvi, learned Senior

Advocate appearing on behalf of the appellant that in case

this Court is not inclined to entertain the present appeal,

confirming the judgment and order passed by the High Court

11 rejecting the plaint/dismissing the suit, in that case the

original plaintiff – appellant may be given an opportunity to

file the proceedings before the DRT under the SARFAESI Act

and all the contentions including that assignment agreement

is null and void; that assignee cannot be said to be the

secured creditor under the assignment agreement dated

30.06.2018; and that there are no dues so far as the

appellant – plaintiff is concerned may be kept open. He has

stated that in that case the appellant shall file appropriate

proceedings before the DRT within a period of two weeks

from today.

6. Present appeal is vehemently opposed by Shri Shyam Divan,

learned Senior Advocate and Shri Huzefa Ahmadi, learned

Senior Advocate, appearing on behalf of the contesting

defendants – original defendants – respondents herein.

6.1 It is vehemently submitted that the suit before the learned

Single Judge filed by the appellant is rightly held to be not

maintainable in view of the bar under Section 34 of the

SARFAESI Act.

12 6.2 It is vehemently submitted that as such the suit is rightly

held to be not maintainable. It is submitted that initiation of

the proceedings by the appellant by filing of the suit for the

reliefs sought in the plaint is nothing but abuse of process of

law and court.

6.3 It is submitted that the allegations of ‘fraud’ are nothing but

a clever drafting only with a view to bring the suit

maintainable before the civil court despite the bar under

Section 34 of the SARFAESI Act.

6.4 It is vehemently submitted by the learned senior counsel

appearing on behalf of the respondents herein – original

defendants that except using the word ‘fraud’/’fraudulent’,

there are no other particulars pleaded in support of the

allegations of fraud. It is submitted that pleading of ‘fraud’ is

made at two places in the plaint namely para 31 and para

46. At both these places, the assertion is that consequent to

the alleged discharge of the debt of the corporate debtor

through the proceedings under the IBC, no assignment of

such debt in favour of assignee could have been made and,

13 thus, for this reason, the initiation of proceedings under the

SARFAESI Act, is fraudulent. It is submitted that on the

aforesaid ground the assignment deed cannot be said to be

‘fraudulent’.

6.5 It is further submitted that the word ‘fraud’/’fraudulent’ are

used in the plaint only with a view to bring the suit

maintainable before the civil court and to get out of the bar

under Section 34 of the SARFAESI Act. It is submitted that

after a month of filing of the suit, the appellant filed an

application under Section 17(1) of SARFAESI ACT before the

DRT, Chennai, assailing the possession notice issued by the

assignee under section 13(4) of the SARFAESI Act, however,

in the said application, no allegation of any kind of fraud was

made against any of the respondents.

6.6 It is submitted that in any case a bare review of the

assertions in paras 31 and 46, it can be seen that no

material particulars have been pleaded so as to constitute a

pleading of ‘fraud’ as required under Order VI Rule 4 of the

Civil Procedure Code,1908 (CPC). It is submitted that apart

14 from use of adjectives such as ‘fraudulent’ etc., qua the

assignment deed, no actual material particulars have been

given with regard to the ‘fraud’. It is submitted that the

pleadings in para 31 and para 46 do not satisfy the test of

‘fraud’ under Section 17 of the Indian Contract Act, 1872.

6.7 It is vehemently submitted by the learned Senior Advocates

appearing on behalf of the respondents herein that as per the

settled preposition of law pleading without any material

particulars would not tantamount to a pleading of ‘fraud’.

Reliance is placed on the decisions of this Court in the cases

of Bishundeo Narain & Anr. vs. Seogeni Rai & Jagernath,

(1951) SCR 548; Ladli Parshad Jaiswal vs. The Karnal

Distillery Co. Ltd., Karnal &Ors.,(1964) 1 SCR 270; Canara

Bank vs. P. Selathal & Ors.,(2020) 13 SCC 143; H.S

Goutham vs. Rama Murthy & Anr.,(2021) 5 SCC 241; Ram

Singh vs. Gram Panchayat Mehal Kalan & Ors.,(1986) 4

SCC 364; and Union of India & Anr. vs. K.C Sharma &

Company & Ors.,(2020) 15 SCC 209.

15 6.8 Making the above submissions and relying upon the

decisions of this Court in aforesaid cases, it is prayed to

dismiss the present appeal.

7. We have heard the learned senior counsel appearing on

behalf of the respective parties at length.

7.1 It is the case on behalf of the plaintiff – appellant herein that

in the plaint there are allegations of the ‘fraud’ with respect

to the assignment agreement dated 30.06.2018 and it is the

case on behalf of the plaintiff – appellant herein that

assignment agreement is ‘fraudulent’ in as much as after the

full payment as per the approved resolution plan under the

IBC and the original corporate debtor is discharged, there

shall not be any debt by the plaintiff – appellant herein as a

guarantor and therefore Assignment deed is fraudulent.

Therefore, it is the case on behalf of the plaintiff – appellant

herein that the suit in which there are allegations of ‘fraud’

with respect to the assignment deed shall be maintainable

and the bar under Section 34 of SARFAESI Act shall not be

applicable.

16 7.2 However, it is required to be noted that except the words

used ‘fraud’/’fraudulent’ there are no specific particulars

pleaded with respect to the ‘fraud’. It appears that by a clever

drafting and using the words ‘fraud’/’fraudulent’ without any

specific particulars with respect to the ‘fraud’, the plaintiff –

appellant herein intends to get out of the bar under Section

34 of the SARFAESI Act and wants the suit to be

maintainable. As per the settled preposition of law mere

mentioning and using the word ‘fraud’/’fraudulent’ is not

sufficient to satisfy the test of ‘fraud’. As per the settled

preposition of law such a pleading/using the word ‘fraud’/

‘fraudulent’ without any material particulars would not

tantamount to pleading of ‘fraud’. In case of Bishundeo

Narain and Anr. (Supra) in para 28, it is observed and held

as under:­

“.... Now if there is one rule which is better established than any other, it is that in cases of fraud, undue influence and coercion, the parties pleading it must set forth full particulars and the case can only be decided on the particulars as laid. There can be no departure from them in evidence. General allegations are insufficient even to amount to an averment of fraud of which any court ought to take notice however strong the language in which they are couched may be, and

17 the same applies to undue influence and coercion.

See Order 6, Rule 4, Civil Procedure Code.”

7.3 Similar view has been expressed in the case of Ladli Parshad

Jaiswal (Supra) and after considering the decision of the

Privy Council in Bharat Dharma Syndicate vs. Harish

Chandra (64 IA 146), it is held that a litigant who prefers

allegation of fraud or other improper conduct must place on

record precise and specific details of these charges. Even as

per Order VI Rule 4 in all cases in which the party pleading

relies on any misrepresentation, fraud, breach of trust, wilful

default, or undue influence, particulars shall be stated in the

pleading. Similarly in the case of K.C Sharma & Company

(Supra) it is held that ‘fraud’ has to be pleaded with

necessary particulars. In the case of Ram Singh and Ors.

(Supra), it is observed and held by this Court that when the

suit is barred by any law, the plaintiff cannot be allowed to

circumvent that provision by means of clever drafting so as to

avoid mention of those circumstances by which the suit is

barred by law of limitation.

18 7.4 In the case of T. Arivandandam vs. T.V. Satyapal & Anr.

(1977) 4 SCC 467, it is observed and held in para 5 as

under:­

“5. We have not the slightest hesitation in condemning the petitioner for the gross abuse of the process of the court repeatedly and unrepentently resorted to. From the statement of the facts found in the judgment of the High Court, it is perfectly plain that the suit now pending before the First Munsif's Court, Bangalore, is a flagrant misuse of the mercies of the law in receiving plaints. The learned Munsif must remember that if on a meaningful — not formal — reading of the plaint it is manifestly vexatious, and meritless, in the sense of not disclosing a clear right to sue, he should exercise his power under Order 7, Rule 11 CPC taking care to see that the ground mentioned therein is fulfilled. And, if clever drafting has created the illusion of a cause of action, nip it in the bud at the first hearing by examining the party searchingly under Order 10, CPC. An activist Judge is the answer to irresponsible law suits.”

7.5 A similar view has been expressed by this court in the recent

decision in the case of P. Selathal & Ors. (Supra).

8. Having considered the pleadings and averments in the suit

more particularly the use of word ‘fraud’ even considering the

case on behalf of the plaintiff, we find that the allegations of

‘fraud’ are made without any particulars and only with a view

to get out of the bar under Section 34 of the SARFAESI Act

and by such a clever drafting the plaintiff intends to bring

19 the suit maintainable despite the bar under Section 34 of the

SARFAESI Act, which is not permissible at all and which

cannot be approved. Even otherwise it is required to be noted

that it is the case on behalf of the plaintiff – appellant herein

that in view of the approved resolution plan under IBC and

thereafter the original corporate debtor being discharged

there shall not be any debt so far as the plaintiff – appellant

herein is concerned and therefore the assignment deed can

be said to be ‘fraudulent’. The aforesaid cannot be accepted.

By that itself the assignment deed cannot be said to be

‘fraudulent’. In any case, whether there shall be legally

enforceable debt so far as the plaintiff – appellant herein is

concerned even after the approved resolution plan against

the corporate debtor still there shall be the liability of the

plaintiff and/or the assignee can be said to be secured

creditor and/or whether any amount is due and payable by

the plaintiff, are all questions which are required to be dealt

with and considered by the DRT in the proceedings initiated

under the SARFAESI Act. It is required to be noted that as

such in the present case the assignee has already initiated

the proceedings under Section 13 which can be challenged

20 by the plaintiff – appellant herein by way of application under

Section 17 of the SARFAESI Act before the DRT on whatever

the legally available defences which may be available to it. We

are of the firm opinion that the suit filed by the plaintiff –

appellant herein was absolutely not maintainable in view of

the bar contained under Section 34 of the SARFAESI Act.

Therefore, as such the courts below have not committed any

error in rejecting the plaint/dismissing the suit in view of the

bar under Section 34 of the SARFAESI Act.

9. In view of the above and for the reasons stated above, the

present appeal fails and the same deserves to be dismissed

and is accordingly dismissed. However, it will be open for the

appellant herein to initiate appropriate proceedings before

the DRT under Section 17 of the SARFAESI Act against the

initiation of the proceedings by the assignee – respondent

No.1 herein under Section 13 of the SARFAESI Act inter alia

on the ground:­ (1) that the assignee cannot be said to be

secured creditor so far as the appellant is concerned; (2) that

there is no amount due and payable by the plaintiff –

appellant herein on the ground that in view of the

21 proceedings under IBC against the corporate debtor and the

corporate debtor being discharged after the approved

resolution plan, there shall not be any enforceable debt

against the appellant. If such an application is filed within a

period of two weeks from today the same be considered in

accordance with law and on merits after complying with all

other requirements which may be required while filing the

application under Section 17 of the SARFAESI Act. However,

it is made clear that we have not expressed anything on

merits in favour of either of the parties on the aforesaid two

issues. Present appeal is accordingly dismissed, however, in

the facts and circumstances of the case there shall be no

order as to costs

…………………………………J. (M. R. SHAH)

…………………………………J. (SANJIV KHANNA) New Delhi, November 26, 2021

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