SC Clarifies Civil Court Jurisdiction in Property Disputes Amid SARFAESI Proceedings

The Hon’ble Supreme Court of India in the case of Central Bank of India v. Smt. Prabha Jain, (2025 SCC OnLine SC 121) dated Janaury 9, 2025, held that civil courts retain jurisdiction over property ownership disputes, even during Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) proceedings. Additionally, the court emphasized that the Reserve Bank of India (RBI), along with other relevant stakeholders, should collaborate to develop standardized guidelines for Title Clearance Reports (TCRs).

The dispute arose from Smt. Prabha Jain’s (the “Plaintiff”) claim over her inherited 1/3rd share of a property, which was sold without formal partition by her brother-in-law, Sumer Chand Jain, to Parmeshwar Das Prajapati (the “Purchasser”). The Purchaser mortgaged the property to the Central Bank of India (the “Bank”). Thereupon, the Purchaser defaulted on the availed loan and the Bank initiated recovery proceedings under the SARFAESI Act, 2002. The Plaintiff filed a civil suit, seeking to declare the sale and mortgage deeds void due to the lack of formal partition. The Bank, invoking Order VII Rule 11 Civil Procedure Code (CPC), 1908, argued that jurisdiction lay with the Debts Recovery Tribunal (DRT) under Section 17 of the SARFAESI Act. While the trial court dismissed the Plaintiff’s suit, the Hon’ble High Court of Madhya Pradesh allowed it, prompting the Bank to appeal to the Hon’ble Supreme Court.

The Supreme Court upheld the High Court’s ruling, reinforcing that civil courts retain jurisdiction over disputes involving property ownership and title. The apex court clarified that the DRT can only examine the validity of measures taken under Section 13(4) of the SARFAESI Act, such as the enforcement of security interests, but cannot adjudicate ownership or title disputes that arise from transactions preceding the invocation of SARFAESI measures. In support of this position, the Court referred to the precedent set in Electrosteel Castings Ltd. v. UV Asset Reconstruction Co. Ltd., [2 SCC 573 (2022)] dated March 9, 2022, emphasizing that allegations of fraud alone do not bar the jurisdiction of civil courts. The court held that if a claim involves more than just fraud allegations, such as the Plaintiff’s claim of a void transaction, the civil court’s jurisdiction remains intact.

The court in this case emphasized significantly the quality and reliability of TCRs. The Supreme Court expressed concern about banks relying on inadequate or poorly prepared TCRs, which can often be obtained cheaply or influenced by external factors. The court noted that substandard TCRs can lead to fraudulent transactions, undermining the integrity of property transactions and financial systems. To prevent such occurrences, the court called on the RBI and other stakeholders to collaborate in creating a standardized, practical framework for preparing TCRs. This framework should ensure that title searches are thorough, confirming property ownership, the absence of encumbrances, and the legal clarity of the property being mortgaged. The court also recommended that there be uniform guidelines regarding the fees and costs associated with TCRs to maintain their quality. Additionally, it stated that bank officials who approve loans based on faulty or inadequate TCRs should be held accountable, potentially facing penalties or criminal liability. This would serve as a deterrent against negligence and misconduct within financial institutions. Ultimately, the apex court dismissed the Bank’s appeal and directed that the civil suit proceed expeditiously.

This judgment underscored the importance of diligent property title verification and called for greater accountability in the banking sector to safeguard public funds and prevent legal disputes.