2007 (7) TMI 686 - HC - Indian Laws

Co-op banks subject to Securitisation Act; court rejects arbitrariness claims, grants 6-week stay.

Khaja Industries Versus State Of Maharashtra And Anr.

The court upheld the applicability and constitutional validity of the Securitisation Act to co-operative banks. It rejected contentions regarding ... - Issues Involved:1. Applicability of the Securitisation Act to co-operative banks.2. Alleged arbitrariness and violation of Article 14 of the Constitution by the Securitisation Act.3. Deprivation of the right to adjudicate claims under the MCS Act by the Securitisation Act.4. Validity of notices under Section 13 of the Securitisation Act without specifying the exact amount.5. Requirement of final adjudication of the claim amount before action under Section 13 of the Securitisation Act.6. Legislative competence of Parliament to enact the Securitisation Act concerning co-operative banks.Issue-wise Detailed Analysis:Re: 1. Applicability of the Securitisation Act to co-operative banks:A consideration of the provisions of the Securitisation Act establishes beyond doubt that the same is made applicable to co-operative banks. Section 2(1)(c) of the Securitisation Act includes 'such other bank which the Central Government may, by notification, specify for the purposes of this Act.' The Central Government issued a notification on 28-1-2003 specifying 'Co-operative Bank' as defined in Section 5 of the Banking Regulation Act, 1949. The Supreme Court in Greater Bombay Cooperative Bank Ltd. v. United Yarn Tex. Pvt. Ltd. acknowledged that the Securitisation Act includes co-operative banks within its ambit. Therefore, the first contention is rejected.Re: 2. Alleged arbitrariness and violation of Article 14 of the Constitution by the Securitisation Act:The petitioners contended that the Securitisation Act is arbitrary and violative of Article 14 as it deprives borrowers of the right to challenge the bank's action under Section 13. However, the Supreme Court in Mardia Chemicals Ltd. v. Union of India upheld the constitutional validity of the Securitisation Act, including Sections 13 and 17. The court observed that Section 17 provides an adequate mechanism for borrowers to challenge the actions of the banks. The amendments to Sections 13 and 17 post-Mardia Chemicals further addressed the concerns raised. Thus, the second contention is also rejected.Re: 3. Deprivation of the right to adjudicate claims under the MCS Act by the Securitisation Act:The petitioners argued that adopting proceedings under the Securitisation Act deprives borrowers of the right to adjudicate claims under the MCS Act. However, the Supreme Court in Mardia Chemicals and subsequent judgments clarified that the Securitisation Act's purpose is to enable secured creditors to take possession of securities without court intervention. Section 13(10) allows creditors to file applications for recovery of the balance amount before the Debt Recovery Tribunal or a competent court. The scope of adjudication under Section 17 is limited to the validity of the secured creditor's actions, not the exact quantum of the claim. Therefore, the third contention is rejected.Re: 4. Validity of notices under Section 13 of the Securitisation Act without specifying the exact amount:The petitioners contended that notices under Section 13 are invalid if they do not specify the exact amount due. However, the court clarified that the purpose of an application under Section 17 is not to determine the exact amount due but to ascertain the validity of the secured creditor's actions. The exact amount due can be adjudicated in subsequent proceedings under Section 13(10). Therefore, the fourth contention is rejected.Re: 5. Requirement of final adjudication of the claim amount before action under Section 13 of the Securitisation Act:The petitioners argued that no action under Section 13 can be taken without a final adjudication of the claim amount. However, the court reiterated that the Securitisation Act's purpose is to enable secured creditors to enforce their securities without court intervention. The exact amount due can be adjudicated in subsequent proceedings under Section 13(10). Therefore, the fifth contention is rejected.Re: 6. Legislative competence of Parliament to enact the Securitisation Act concerning co-operative banks:The petitioners contended that the Securitisation Act is without legislative competence as Parliament has no authority to enact it concerning co-operative banks. However, the court noted that the Supreme Court in Mardia Chemicals upheld the constitutional validity of the Securitisation Act. The court also referred to judgments that clarified that the Securitisation Act deals with the field of banking, which falls under Parliament's legislative competence. The Act does not trench upon the State subject of co-operative societies under Entry 32 of List II. Therefore, the sixth contention is rejected.Conclusion:The court dismissed the writ petitions, upholding the applicability and constitutional validity of the Securitisation Act concerning co-operative banks. The court also rejected the contentions regarding the arbitrariness of the Act, deprivation of the right to adjudicate claims under the MCS Act, and the requirement of final adjudication of the claim amount before action under Section 13. The court granted a six-week period for the petitioners before the respondents could take further action under Section 13(4) of the Securitisation Act.