SC rules civil courts not barred from entertaining counter case of borrower against banks & financial institutions

New Delhi: 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.