2002 (10) TMI 418 - HC - Companies Law

Court upholds constitutionality of Securitisation & Reconstruction Ordinance, 2002, safeguarding borrower rights. Valid cause of action emphasized.

The court upheld the constitutionality of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) ... Enforcement of security interest Issues:Challenge to the constitutionality of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002 under Article 14 of the Constitution of India.Analysis:The petitioners challenged the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002, contending that it violates Article 14 of the Constitution as it does not provide any remedy to the borrower against actions taken by the secured creditor under section 13 of the Ordinance. The Ordinance allows secured creditors to enforce security interests without court intervention, empowering them to take various measures to recover debts. The petitioners argued that the lack of borrower remedies renders the Ordinance arbitrary and unconstitutional.Legal Provisions:Section 13 of the Ordinance empowers secured creditors to enforce security interests without court intervention, including taking possession of assets, managing assets, appointing a manager, and requiring payment from third parties. Sub-section (3) mandates communicating details of amounts payable and assets intended for enforcement to the borrower. Section 17 provides borrowers the right to appeal to the Debts Recovery Tribunal against creditor measures, subject to depositing 75% of the claimed amount. However, the tribunal can waive or reduce this deposit requirement. Section 18 allows further appeal to the Appellate Tribunal, and section 19 empowers tribunals to order return of assets and compensation if possession by the creditor was wrongful.Judgment:The court held that the Ordinance's provisions adequately protect borrower interests, with mechanisms for notice, two levels of appeal, and potential restitution and compensation. The court found no arbitrariness in the Ordinance's provisions and concluded that it does not violate Article 14 of the Constitution. Since the petitioners had not received any notice from their secured creditors, the court deemed the petition lacking in substance and dismissed it, emphasizing that the court's jurisdiction should not be used for academic purposes.Conclusion:The court upheld the constitutionality of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Second) Ordinance, 2002, finding that it provides sufficient safeguards for borrower interests and does not contravene Article 14 of the Constitution. The dismissal of the petition highlighted the importance of a valid cause of action and cautioned against using legal proceedings for academic exercises.