Civil Court Jurisdiction Barred Under SARFAESI Act; Misuse of Loan Funds Cited
The Allahabad High Court, under the judgment of Justice Abdul Shahid, dismissed the appeal filed by M/S Srijan Hospital against the Bank of Baroda, reinforcing the trial court's decision to deny jurisdiction over the civil suit challenging recovery proceedings initiated under the SARFAESI Act, 2002. The judgment, delivered on May 11, 2026, emphasized that the civil courts are prohibited from entertaining suits in matters where the Debts Recovery Tribunal or the Appellate Tribunal have jurisdiction, as per Section 34 of the SARFAESI Act.
The case arose from a dispute over a loan sanctioned under the Loan Guarantee Scheme for the Covid-affected healthcare sector (LGSCAS). The appellant, Srijan Hospital, contended that despite not receiving the full loan amount of Rs. 2.84 crore, recovery proceedings were unjustly initiated. However, the court noted that the appellant had materially altered the purpose of the loan from its intended use for healthcare infrastructure to constructing a hotel, without obtaining the necessary approvals, thus breaching the loan agreement.
The trial court had previously denied a temporary injunction sought by the hospital to halt recovery actions, citing the appellant's concealment of material facts and failure to approach the court with clean hands, a principle upheld by the Supreme Court in previous cases. The High Court concurred, finding no merit in the appeal and affirming the trial court's decision.
This ruling underscores the primacy of the SARFAESI Act provisions over other laws, as stated in Section 35, and highlights the legal obligation of borrowers to adhere to the terms of their loan agreements, particularly concerning the intended use of funds.
Bottom line:-
Suit filed by the plaintiff challenging recovery proceedings initiated under SARFAESI Act, 2002 is barred as civil courts lack jurisdiction to entertain such matters under Section 34 of the Act. Also, plaintiff's act of concealing material facts and misusing the loan for a purpose other than sanctioned renders the claim unsustainable.
Statutory provision(s): Section 34 of the SARFAESI Act, 2002, Section 35 of the SARFAESI Act, 2002, Order XXXIX Rules 1 and 2 of the Civil Procedure Code.
M/S Srijan Hospital v. Bank of Baroda, (Allahabad) : Law Finder Doc id # 2897497
