Court Affirms Securitisation Act, 2002 Constitutionality and Jurisdiction

Kalyani Sales Co. Versus Union of India

Kalyani Sales Co. Versus Union of India - [2006] 70 SCL 177 (PUNJ & HAR) Issues Involved:
1. Constitutionality of the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act).
2. Jurisdiction of the Debts Recovery Tribunal (DRT) under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) for debts less than Rs. 10 lakhs but more than Rs. 1 lakh.
3. Applicability of ad valorem court fee under rule 7 of the DRT (Procedure) Rules, 1993, for applications under section 17(1) of the Act.
4. Whether banks or financial institutions can invoke the Act's jurisdiction without withdrawing or abandoning proceedings under the RDB Act or civil court.
5. Whether the bank's recourse to take possession under section 13(4) of the Act includes taking actual physical possession of immovable property.

Detailed Analysis:

Question 1: Constitutionality of the Provisions of the Act
The petitioners argued that the constitutionality of the Act could still be challenged based on the doctrine of sub silentio, asserting that the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India did not address specific issues. The court rejected this argument, stating that the Supreme Court had considered the Act's provisions irrespective of the debt quantum and had upheld its constitutionality. The court emphasized that the constitutional validity of the Act cannot be re-opened merely because a particular argument was not raised earlier.

Question 2: Jurisdiction of the DRT Under the RDB Act
The court examined whether the DRT has jurisdiction to entertain applications under section 17 of the Act for debts less than Rs. 10 lakhs. It was argued that the DRT's jurisdiction under the RDB Act is limited to debts of Rs. 10 lakhs or more. The court, however, held that the DRT constituted under the RDB Act has jurisdiction over applications under section 17 of the Act, regardless of the debt amount, due to the doctrine of incorporation by reference. The court disagreed with the Delhi High Court's decision in State Bank of India v. Mukesh Jain, which had limited the DRT's jurisdiction based on debt amount.

Question 3: Applicability of Ad Valorem Court Fee
The court addressed whether ad valorem court fee is applicable to applications under section 17(1) of the Act. The petitioners contended that the fee prescribed under rule 7 of the DRT (Procedure) Rules, 1993, should not apply. The court noted that after the amendment of the Act on 11-11-2004, section 17(1) requires a prescribed fee, and no such rule has been framed under the Act. Therefore, the court concluded that a fixed court fee of Rs. 250 should apply until rules are made under section 17(1) of the Act.

Question 4: Election of Remedies by Banks or Financial Institutions
The court examined whether banks or financial institutions can invoke the Act's jurisdiction without withdrawing or abandoning proceedings under the RDB Act or civil court. The court held that banks must elect their remedy, either proceeding under the Act or withdrawing applications under the RDB Act. The court emphasized that simultaneous actions under both statutes are not permissible, and the doctrine of election applies.

Question 5: Taking Physical Possession Under Section 13(4) of the Act
The court considered whether the bank's recourse under section 13(4) of the Act includes taking actual physical possession of immovable property. The court held that physical possession cannot be taken at the time of issuing notice under section 13(4) to ensure the borrower's right to adjudication. Physical possession can only be taken following the procedure under section 14 of the Act or after the sale is confirmed under rule 9 of the Security Interest (Enforcement) Rules, 2002.

Conclusion:
The court allowed the writ petition, quashing the impugned order and directing the DRT to entertain the appeal/application on payment of a fixed court fee of Rs. 250. The court emphasized the need for banks and financial institutions to elect their remedy and clarified the procedures for taking possession of secured assets.