The present reference arises from a question mark over the legal right of the
borrower to initiate proceedings before a Civil Court against the bank or
financial institution, which seeks to recover a loan amount against it.
Bank Of Rajasthan Ltd V. Vck Shares & Stock Broking Services Ltd.
(2022 Scc Online Sc 1557)
Bench: Sanjay Kishan Kaul And Abhay S. Oka, Jj.
VCK Shares & Stock Broking Services Ltd. took out a loan of INR 1.50 Crore at an
interest rate of 19.25% per year, from the Bank of Rajasthan Ltd. in 1994,
secured by a mortgage on the borrower's immovable properties. In 1995, the two
parties entered into a further agreement under which VCK Shares received
additional credit by pledging shares and securities of various companies. In
1997, the Bank of Rajasthan sent a notice to VCK Shares demanding that the term
loan be settled within three days, citing a lack of financial discipline.
The bank subsequently filed a case against VCK Shares under the Recovery of
Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) in the Debts
Recovery Tribunal (DRT) in Kolkata, seeking a recovery certificate for INR
8,62,41,973.36. VCK Shares entered an appearance to defend the case and also
filed a civil suit against the bank in the Calcutta High Court.
In 1998, the Bank of Rajasthan sold the pledged shares of BFL Software for a
total of INR 5,77,68,000 in order to offset the outstanding debt. In response,
VCK Shares filed another civil suit in the HC, seeking a declaration that the
sale of the BFL Software shares was void. The bank argued that the High Court
lacked jurisdiction to hear the case and that the suits filed by VCK Shares were
not maintainable, as the DRT had exclusive jurisdiction in such matters.
On 6th September 2022, a single judge in the High Court ruled in favour of the
bank and directed that the suits be taken off the High Court's file. However, on
27th September 2022, a division bench of the High Court overturned the single
judge's decision and held that the civil court had jurisdiction to hear the
case. The division bench relied on the Supreme Court's decision in Nahar
Industrial Enterprises Ltd. v. Hong Kong and Shanghai Banking Corporation, a
suit filed by a borrower against the bank was not barred before the Civil Court,
although a suit filed by the bank against the borrower was barred.
The Appellant appealed to the Supreme Court.
The Supreme Court noticed a conflicting view on the matter in the cases of
Indian Bank vs ABS Marines Product(s) Pvt Ltd
 and SBI vs Ranjan Chemicals
 and ultimately agreed with the decision in the latter case. The Supreme
Court concluded that there was a difference of opinion between several benches
on this issue and referred the following questions to a larger bench for further
The larger bench in this case answered the reference as under:
- Whether the jurisdiction of a civil court to entertain a civil suit filed
by a borrower against a lender bank was ousted by the RDB Act;
- Whether the civil court had jurisdiction to transfer the suit filed by
the borrower before it to the DRT; and
- Whether the consent of the parties could confer jurisdiction on the
civil court to transfer the suit to the DRT?
- The jurisdiction of a civil court under Section 9 of the Code of Civil
Procedure is inherent unless explicitly or implicitly ousted by a statute.
The bench cited its previous decisions in Dhulabhai v. State of MP
and Dwarka Prashad Agarwal v. Ramesh Chandra Agarwaland concluded
that there was nothing in the RDB Act that excluded the jurisdiction of the
civil court to entertain a suit filed by a borrower against a bank.
The bench also noted that the provisions of sections 19(6) and 19(11) of the RDB
Act, which relates to set-off and counterclaims, conferred an additional choice
on the borrower to submit to the jurisdiction of the DRT. However, the bench
stated that these provisions cannot be interpreted as restricting the
jurisdiction of the civil court under Section 9.
- Answering the second question, the larger bench held that under order 7
rule 10 CPC, all that the civil Court could have done was to return the
plaint. There is nothing in the CPC which confers the Civil court with
jurisdiction to transfer the case to DRT or any other forum.
- Answering the third issue, the larger bench held that the consent of the
parties to the suit would be inconsequential and the same could not confer
jurisdiction upon the court which inherently lacks it.
- (2009) 8 SCC 646
- (2006) 5 SCC 72
- (2007) 1 SCC 97
- (1968) SCR (3) 660
- (2003) 6 SCC 220