2015 (1) TMI 462 - HC - Companies Law

Court Upholds Constitutionality of Sec. 14 SARFAESI Act; No Violation of Constitution

MANSA SYNTHETIC PVT LTD AND OTHERS Versus UNION OF INDIA AND ANOTHER

The court upheld the constitutional validity of Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security ... Constitutional validity of Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The petitioners availed of loan facility from respondent No.2-Bank and failed to repay the loan amount - Bank issued a notice under Section 13(2) of the Act and called upon the petitioners to make good the payment failing which the Bank would proceed to take over the possession of the secured assets under Section 13(4) - The petitioners were aggrieved by the measures taken by the Bank. In their appeal order under section 17, no interim relief in favour of the petitioners was granted by DRT, Ahmedabad - The appeal thereagainst was still pending before the DRT, Mumbai - In the meantime, the Bank preferred an application under section 14 before the District Magistrate, Surat, requesting to provide for police protection for the purpose of taking over of the actual possession of the secured assets - District Magistrate, Surat directed the Police Inspector of the concerned Police Station to provide for necessary assistance for the purpose of taking over of the possession of the secured assets - petitioners have challenged the legality and validity of Section 14 of the Act on the ground that the same is violative of Articles 14, 19 and 300-A of the Constitution of India. Held that:- Fact that a right of appeal is not available against the order passed under Section 14 of the Act does not render the said provision unconstitutional and void as being violative of Articles 14 and 19 of the Constitution of India on the ground of arbitrariness and reasonableness. - Section 14 of the Act is a valid piece of legislation and is declared intra vires - The District Magistrate or Chief Metropolitan Magistrate, as the case may be, is bound to assist the secured creditor in taking possession of the secured assets and is not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under Section 13(4) of the Act. Though Section 14 of the Act provides that no act of the Chief Metropolitan Magistrate or District Magistrate done in pursuance of Section 14 shall be called in question in any Court or before any authority, the right of judicial review under Articles 226 and 227 of the Constitution of India cannot be taken away, but that power can be exercised only in cases where the concerned Magistrate or the Commissioner, as the case may be, exceeds his power or refuses to exercise his jurisdiction vested in him under the law. - Absence of an appeal does not necessarily render the legislation unreasonable as only because no appeal is provided under the Act against the order passed under Section 14 of the Act will not render Section 14 ultra vires the provisions of the Constitution of India. - Decided against Appellants. Issues Involved:1. Constitutional validity of Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.2. Absence of an appeal mechanism against orders passed under Section 14 of the Act.3. Alleged violation of Articles 14, 19, and 300-A of the Constitution of India.4. Role and powers of the District Magistrate or Chief Metropolitan Magistrate under Section 14 of the Act.Issue-wise Detailed Analysis:1. Constitutional Validity of Section 14 of the Act:The petitioners challenged the constitutional validity of Section 14 of the Act, arguing that it confers unfettered and unbridled powers to the District Magistrate or Chief Metropolitan Magistrate without providing an appeal mechanism, rendering it ultra vires the Constitution of India. The court referred to a previous judgment in Rameshwaram Cotton Industries (Gujarat) Pvt. Ltd. v. District Magistrate and others, where the constitutional validity of Section 14 was upheld. The court reiterated that the provision is a procedural one, assisting secured creditors in taking possession of secured assets and does not confer adjudicatory powers on the Magistrate. The court concluded that Section 14 is intra vires the Constitution.2. Absence of an Appeal Mechanism:The petitioners contended that the absence of an appeal against orders passed under Section 14 causes immense hardship and renders the provision unconstitutional. The court referred to several Supreme Court judgments, including Munnilal v. Town Rationing Officer and Prakash Amichand Shah v. State of Gujarat, which held that the absence of an appeal does not necessarily render a provision unconstitutional. The court emphasized that the right of appeal is a statutory right and not inherent, and the legislative intent must be respected. The court concluded that the absence of an appeal under Section 14 does not render it unconstitutional.3. Alleged Violation of Articles 14, 19, and 300-A:The petitioners argued that Section 14 violates Articles 14 (equality before law), 19 (protection of certain rights regarding freedom of speech, etc.), and 300-A (right to property) of the Constitution. The court held that Section 14 is a procedural provision assisting secured creditors in taking possession of secured assets, and any action taken under this section can be challenged before the Debts Recovery Tribunal under Section 17 of the Act. The court found that the provision does not violate the constitutional rights of the petitioners.4. Role and Powers of the District Magistrate or Chief Metropolitan Magistrate:The court clarified that the role of the District Magistrate or Chief Metropolitan Magistrate under Section 14 is ministerial, aimed at assisting the secured creditor in taking possession of the secured assets. The Magistrate is not vested with adjudicatory powers and cannot decide disputes between the secured creditor and the debtor. The court emphasized that any illegal action by the secured creditor can be challenged before the Debts Recovery Tribunal under Section 17, which provides a complete code for addressing grievances related to measures taken under Section 13(4) of the Act.Conclusion:The court concluded that Section 14 of the Act is a valid piece of legislation and does not violate the constitutional provisions. The absence of an appeal mechanism against orders passed under Section 14 does not render the provision unconstitutional. The role of the District Magistrate or Chief Metropolitan Magistrate under Section 14 is limited to assisting the secured creditor in taking possession of the secured assets, and any disputes arising from such actions can be addressed before the Debts Recovery Tribunal. The petition was dismissed, and the connected Civil Application was disposed of as infructuous.