- 1 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27TH DAY OF JANUARY, 2025 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE G BASAVARAJA WRIT PETITION NO. 13473 OF 2024 (GM-DRT) BETWEEN: SRI B A VARADARAJACHAR, S/O ANJANEYACHAR, AGED 65 YEARS, RESIDING AT NO.45, BANASWADI MAIN ROAD, KRISHNARAJAPURAM ROAD, BENGALURU-560043. …PETITIONER (BY SRI. MADHUKAR M. DESHPANDE., ADVOCATE) AND: M/S RELIANCE ASSET RECONSTRUCTION COMPANY LIMITED, A COMPANY REGISTERED UNDER COMPANIES ACT, 1956 ACTING IN ITS CAPACITY AS A TRUSTEE OF THE RELIANCE ARC 010 TRUST, REPRESENTED BY ITS AUTHORIZED SIGNATORY, MR. RAJESH SURESH BICHITKAR HAVING ITS OFFICE AT RELIANCE CENTER, NORTH WING, 6TH FLOOR, OFF WESTERN EXPRESS HIGHWAY, SANTACRUZ, EAST MUMBAI-400055. …RESPONDENT (BY SRI. VIGNESH SHETTY, ADV. FOR C/RESPONDENT) Digitally signed by LAKSHMINARAYAN N Location: High Court of Karnataka - 2 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 THIS WRIT PETITION IS FILED UNDER ARTICLES 226 AND 227 OF THE CONSTITUTION OF INDIA PRAYING TO ISSUE OF WRIT IN THE NATURE OF CERTIORARI OR QUASH OR SET ASIDE THE ORDER DATED 18.04.2024 PASSED BY THE DEBT RECOVERY APPELLATE TRIBUNAL AT CHENNAI IN M.A No- 40/2023 VIDE ANNEXURE-A ETC. THIS PETITION, COMING ON FOR FURTHER HEARING, THIS DAY, ORDER WAS MADE THEREIN AS UNDER: CORAM: HON'BLE MR JUSTICE KRISHNA S DIXIT and HON'BLE MR JUSTICE G BASAVARAJA ORAL ORDER (PER: HON'BLE MR JUSTICE KRISHNA S DIXIT) This petition by the guarantor-cum-surety of the subject loan, seeks to lay a challenge to the order dated 18th April 2024, whereby the Debt Recovery Appellate Tribunal at Chennai has negatived his Miscellaneous Appeal No.40 of 2023. Petitioner has also sought for the quashment of Debt Recovery Tribunal’s order dated 28th June 2023, whereby his Application No.724 of 2022, seeking stay of all further proceedings in respondent’s Original Application No.73 of 2025, has been negatived. 2. Sri.Madhukar Deshpande, learned Counsel appearing for the petitioner argues that although his client was admittedly a guarantor having executed mortgage for securing the - 3 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 repayment of initial debt, his client's liability by virtue of suretyship, would stand discharged, absolutely because of, (a) Novatio inasmuch as new transaction has been brought about by executing a whole lot of new loan documents; and (b) there is fraud & fabrication of documents perpetrated by the principal borrower hand-in-glove with the officials of the respondent. He cites the decision of Apex Court in the case of S.P. CHANGALVARAYA NAIDU (DEAD) BY LRs v. JAGANNATH (DEAD) BY LRs1 in support of his contention that all transactions stand voided by virtue of fraud & fabrication. 2.1 Secondly, Mr.Deshpande submits that his Civil Suit in OS No.688 of 2019 founded on fraud & fabrication is pending and that the respondent herein also happens to be one of the defendants to the same; the respondent’s application filed under Order VII Rule 11(d) of the Code of Civil Procedure was favoured by the Civil Court vide order dated 04th January 2020 and the suit was dismissed; the same was put to challenge in RFA No.421 of 2020, which came to be allowed by a Learned Single Judge of this Court vide judgment dated 15.02.2022 and dismissal order having been set at naught, suit is restored to 1 (1994)1 SCC 1 - 4 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 the trial Court for trial & disposal; that the order of this court would bind the respondent as well; that the debt recovery Tribunal being a creature of Law, has only been conferred with limited jurisdiction and it tries the causes in a summary way; therefore, it has no power to try the complex issues of fraud & fabrication. In support of his position, he relies upon certain rulings. 2.2 After service of notice, the respondent-Asset Reconstruction Company has entered caveat through its Senior Panel Counsel, who vehemently opposes the petition making submission in justification of the impugned orders of Debt Recovery Tribunal and Debt Recovery Appellate Tribunal. He refutes the submission of learned Counsel for the petitioner contending that the DRT functions under the provisions of the Recovery of Debts and Bankruptcy Act, 1993; it has all powers which Civil Courts do possess; even the contentions of novatio, limitation and ‘fraud & fabrication’ can also be duly adjudicated upon. Therefore, petitioner is not justified in seeking to stall the DRT proceedings with one or the other pretext. He also highlights the likely consequences of allowing the borrowers & sureties to approach the Civil Court to litigate on issues of the - 5 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 kind and thereby interdicting the speedier loan recovery, which the 1993 Act intends. He also adds that the subject suit is essentially founded on the lack of jurisdiction of Tribunals constituted under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as distinguished from those constituted under the 1993 Act. In support of his contention, he too banks upon certain rulings. 3. Having heard the learned Counsel for the parties and having perused the petition papers, we are inclined to grant a limited indulgence as under and for the following reasons: 3.1 Initially, Term Loan of Rs.1.30 crore along with Rs.3.00 crore Open Cash Credit limit was availed in the year 2010. Subsequently, on 14th July 2011, the Open Cash Credit Limit came to be enhanced to Rs.7.50 crore and the repayment of the entire loan was secured by execution & registration of mortgage of the subject property, dated 25th July 2011. The Letter of Guarantee also came to be executed by the petitioner on 16th July 2011. These facts are not in dispute. Later, the Open Cash Credit Limit facility limit came to be further enhanced to Rs.10.00 crore. In that connection, the - 6 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 Principal Debtor had executed certain documents and it is the case of the petitioner that certain documents were fabricated as purporting to have been executed by them. This is militantly disputed by the learned Senior Panel Counsel of respondent. 3.2 In relation to alleged fraud and fabrication, as already mentioned above, petitioner has instituted a suit in OS No.688/ 2019. In the meanwhile, the respondent Company instituted Original Application No.173 of 2015 before the Debt Recovery Tribunal, Bengaluru on 30.01.2015. Petitioner herein filed his Written Statement on 27.03.2019 resisting the Original Application inter alia on the ground of fraud & fabrication. However, he has admitted the transaction to the tune of Rs.7.50 crore. Petitioner had moved an Application before the DRAT on 25.03.2022 under Section 10 read with Section 151 of Code of Civil Procedure and Section 22(2)(h) of 1993 Act, seeking stay of DRT proceedings. The said application having been turned down on 20.06.2023, petitioner moved Miscellaneous Appeal No.40 of 2023 which also met the same fate at the hands of the DRAT, Chennai, vide order dated 18.04.2024. - 7 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 3.3 Vehement submission of learned Counsel for the petitioner that once there is novatio, a new arrangement comes into existence and eventually, the surety is absolutely discharged, is essentially a mixed question of law & fact, which the DRT has to treat after holding trial and therefore, this Court need not venture examination of the same. It hardly needs to be stated that the jurisdiction of the DRT/DRAT to undertake examination of the said issue is apparent from the very provisions of the 1993 Act. Where Tribunal is shown to have jurisdiction, the challenge to the orders of such Tribunal would fall u/a 227 of the Constitution that vests a limited supervisory jurisdiction, the other provision namely Article 226 having been ornamentally employed in the pleadings vide NARESH SHRIDHAR MIRAJKAR AND OTHERS v. STATE OF MAHARASHTRA AND ANOTHER2. Similarly, the question as to bar of limitation is again a mixed question of law & facts and therefore, that also has to be adjudged by the Tribunal at the appropriate stage of proceedings that pend before it. 2 AIR 1967 SC 1 - 8 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 3.4 The above being said, there is force in the submission of learned Counsel for the petitioner that the DRT is a creature of a special statute namely the 1993 Act exercising summary jurisdiction in a class of matters involving debts of Banks and Financial Institutions. Apparently, the complex & complicated questions of fraud & fabrication cannot be examined inasmuch as voluminous oral evidence in addition to documentary may become necessary. Therefore, petitioner has rightly instituted the subject suit for demonstrating fraud, fabrication & duplicity of the Principal Borrower allegedly hand-in-glow with officials of the bank. We are also told that now the evidence of petitioner as PW.1 is being accomplished before long after the remand in the subject RFA. 3.5 The vehement submission of learned Senior Panel Counsel appearing for the respondent–Company that the power of the DRT is co-extensive with that of the Civil Court and therefore, it can undertake examination of the issue as to 'fraud & fabrication', therefore is bit difficult to countenance. 3.6 A perusal of the provisions of 1993 Act and 2002 Act makes it abundantly clear that DRT or DRAT is not an absolute - 9 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 substitution for the Civil Court. Secondly, it follows the summary procedure inasmuch as its object is to secure speediest recovery of public debts for bolstering the sustenance of domestic economy. Thirdly, execution of Civil Court’s jurisdiction cannot be readily inferred vide DHULABAI v. STATE OF MADHYA PRADESH3. Learned Counsel for the petitioner is justified in seeking succor for his submission by placing reliance on the Division Bench decision of Delhi High Court in RAJAN MALHOTRA AND ANOTHER v. UNION BANK OF INDIA4, wherein substantially similar issue was debated under the 1993 Act and answered in favour of debtor/surety therein. Learned Counsel for the petitioner fairly submits that challenge to this decision is pending before the Apex Court in Civil Appeals No.2416, 2417 and 2418 of 2021 and that no stay has been granted thereto. 3.7 There is another aspect to the matter: The 1993 Act and the 2002 Act are Parliamentary legislations. If some other High Court places its interpretation on the provisions of such legislations, their views become more than persuasive, to say 3 AIR 1969 SC 78 4 2019 SCC OnLine Del 11177 - 10 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 the least, in the light of Apex Court decision in M/S. KUSUM INGOTS AND ALLOYS LIMITED v. UNION OF INDIA AND ANOTHER5. Of course, we are not going to the extent of saying that those views absolutely bind us with no discretion to differ. For cogent reasons, arguably other High Courts can differ. We do not want to say anything beyond this. However, no reasons are canvassed before us by the counsel appearing for the respondent as to why we should differ from the views of Delhi High Court. 3.8 The vehement reliance of learned Senior Panel Counsel for the respondent on the decision of Apex Court in M/S. N.N. GLOBAL MERCANTILE PVT. LTD. v. M/s. INDO UNIQUE FLAMES LIMITED AND OTHERS6, does not come to his rescue inasmuch as it was a case relating to arbitrability of fraud & fabrication of Bank Guarantee. It has nothing to do with the powers of DRT/DRAT under the provisions of 1993 Act or of 2002 Act. It was a case arising under the Arbitration and Conciliation Act, 1996, wherein Court deviated from the 5 AIR 2004 SC 2321 6 (2021) 4 SCC 379 - 11 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 conventional stand that Arbitrators could not decide the issue of 'fraud and fabrication' and held that now they can. 3.9 The second ruling in the case of ICICI LTD v. GRAPCO INDUSTRIES LIMITED AND OTHERS7, also does not come to the rescue of respondent inasmuch as the matter essentially related to the power to grant interim relief availing to the DRT under the provisions of 1993 Act. Whether DRT can undertake complex issues like fraud and fabrication did not fall for consideration, even in the penumbra of the fact matrix. At paragraph 11 of the decision, the Court observed that power of the Tribunal in matters of granting interim reprieve are co- existence with that of Civil Courts. Thus, this ruling too does not avail to the respondent. The third recent ruling of the Apex Court in the case of BANK OF RAJASTHAN v. VCK SHARES AND STOCK BROKING8, also does not lend credence to the contention of respondent. That was a case relating to filing of Counter Claim in O.A. filed by the lender bank. The court rejected the contention that when banks suit for recovery is transferred, the Counter Claim is not transferred and therefore, 7 1999(4) SCC 710 8 2023(1) SCC 1 - 12 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 the same should be tried by the Civil Court itself. That is not the case here. What is significant to note is the absence of the issue as to Debt Recovery Tribunal’s power and competence to decide the complex issue like fraud and fabrication. That issue had not cropped up in the said decision. Lord Halsbury, more than a century ago, in QUINN v. LEATHEM9, observed that a case is an authority for the proposition it lays down in a given fact matrix and not for all that, that would logically follow from what had been so laid down. 3.10 All the above being said, we do not agree with the submission of learned Counsel for the petitioner that the proceedings before the DRT on merits, should be interdicted till after the subject suit is tried & decided. A contra view would defeat the very idea of speedier recovery of outstanding public debts, as rightly contended by learned Senior Panel Counsel appearing for the respondent-Company. Therefore, some via media admissible in law needs to be worked out. In our considered view, that can be done by permitting the DRT and the Civil Court to go on with the respective matters not being influenced by each other. However, the decree/order to be 9 [(1901) AC 495] - 13 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 passed by the DRT shall be subject to decree to be entered in the pending suit, in the sense that if the decree goes in favour of the petitioner on the ground of fraud & fabrication, to that extent, no liability shall be fastened on the petitioner. We repeat that it is only to that extent, and for the rest the liability would not be disclosed. While making this arrangement, we have noted that the debt in question is secured by other properties as well and therefore, the proceedings before the DRT should not be interdicted. 3.11 The above arrangement would facilitate recovery of loan by executing the DRT's decree/order should it be in favour of the respondent, at least as against the properties other than the one comprised in the suit. If the suit is decided against the petitioner, then respondent can execute the DRT decree/order as against the suit property too. In the peculiar fact matrix of this case, this arrangement would balance the competing interests of parties. It is also consistent with what the Apex Court observed in BANK OF RAJASTHAN, supra, which is reproduced hereunder: "53. We certainly would not like that the process envisaged under the RDB Act be impeded in any - 14 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 manner by filing of a eparate 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. The suit would take its own course while a petition before the DRT would take its own course. We appreciate that this may be in the nature of parallel proceedings but then it is the defendant’s own option. We see no problem with the same as long as the objective of having expeditious disposal of the claim before the DRT under the RDB Act is not 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. 54. We thus make it abundantly clear that in case of such an option exercised by the defendant who filed an independent suit, whatever be the nature of reliefs, the claim petition under the RDB Act would continue to proceed expeditiously in terms of the procedure established therein to come to a conclusion whether a debt is due to a bank and/or financial institution and whether a recovery certificate ought to be issued in that behalf." In the above circumstances and with above observations, this writ petition is disposed off. Both the Civil Court and Debt Recovery Tribunal are requested to try & dispose off the subject cases within an outer limit of one year. All contentions of the parties are kept open. This Court places on record its appreciation for the performance of learned Counsel for the Petitioner Sri.Madhukar - 15 - NC: 2025:KHC:3621-DB WP No. 13473 of 2024 Deshpande and also the learned Panel Counsel for the respondent Sri.Vignesh Shetty. Costs made easy. Sd/- (KRISHNA S DIXIT) JUDGE Sd/- (G BASAVARAJA) JUDGE lnn List No.: 1 Sl No.: 35