2015 (1) TMI 462 - HC - Companies Law

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

The court upheld the constitutional validity of Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security ... Validity of Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - assistance to secured creditor in taking possession of secured assets - procedural and non-adjudicatory role of District Magistrate/Chief Metropolitan Magistrate under Section 14 - absence of statutory appeal against orders under Section 14 - remedy before Debts Recovery Tribunal under Section 17 - right to judicial review under Articles 226 and 227 of the Constitution - non-adjudicatory enforcement of security interest under Section 13(4)Validity of Section 14 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - procedural and non-adjudicatory role of District Magistrate/Chief Metropolitan Magistrate under Section 14 - assistance to secured creditor in taking possession of secured assets - Section 14 of the Act is intra vires and valid. - HELD THAT: - The Court held that Section 14 is a procedural provision which obliges the District Magistrate or Chief Metropolitan Magistrate to assist a secured creditor in taking possession of secured assets and to forward assets and documents to the secured creditor; the authority exercises a ministerial, not adjudicatory, function, and may use necessary force for securing compliance. The substantive power to take possession is traceable to Section 13(4) (measures available to secured creditors) while Section 14 merely facilitates execution of those measures. As the Magistrate has no power to determine disputes between creditor and borrower, Section 14 does not usurp the statutory adjudicatory powers vested in the Debts Recovery Tribunal under Sections 17 and 18. The statutory scheme (including bar on civil courts under Section 34 and the complete code in Section 17) provides the remedial structure for grievances arising from measures under Section 13(4). [Paras 15, 20]Section 14 is a valid, intra vires provision and the Magistrate/Chief Metropolitan Magistrate is bound to assist the secured creditor but is not empowered to adjudicate the legality of measures taken under Section 13(4).Absence of statutory appeal against orders under Section 14 - remedy before Debts Recovery Tribunal under Section 17 - right of appeal as creature of statute - Non-provision of an appeal against orders under Section 14 does not render Section 14 unconstitutional. - HELD THAT: - The Court found that absence of an express statutory right of appeal against orders passed under Section 14 does not, by itself, make the provision arbitrary or violative of Articles 14 or 19. The legislature may omit an appellate remedy where the power conferred is executive/ministerial or when other corrective mechanisms exist. Here the Act furnishes a statutory remedy - Sections 17 and 18 before the Debts Recovery Tribunal and Appellate Tribunal - to challenge measures taken pursuant to Section 13(4). The Court relied on precedents holding that availability of appeal is one factor among many (including status of the authority, nature of power, objective tests, and availability of judicial review) to assess reasonableness; accordingly, the absence of appeal in Section 14 is not determinative of unconstitutionality. [Paras 15, 16, 20]The absence of a statutory appeal against orders under Section 14 does not render Section 14 ultra vires the Constitution; remedies under Sections 17 and 18 and judicial review are adequate safeguards.Right to judicial review under Articles 226 and 227 - limits of ouster clauses - Judicial review under Articles 226 and 227 is not ousted in respect of actions under Section 14 when the Magistrate exceeds or refuses to exercise jurisdiction. - HELD THAT: - Although Section 14(3) states that acts done under Section 14 shall not be called in question in any court or before any authority, the Court held that the constitutional power of judicial review remains available. The protection in Section 14(3) does not bar recourse to High Courts under Articles 226/227 where the Magistrate/Commissioner exceeds statutory power or refuses to exercise jurisdiction; such review is available only on conventional grounds of excess, abuse or failure to exercise jurisdiction. [Paras 15, 20]Section 14 does not oust the High Court's power of judicial review under Articles 226 and 227 where the authority exceeds or refuses to exercise its jurisdiction.Final Conclusion: Writ petition dismissed. Section 14 of the Act is upheld as intra vires; the Magistrate/Chief Metropolitan Magistrate must assist secured creditors in taking possession but may not adjudicate disputes reserved for the Debts Recovery Tribunal under Sections 17-18; absence of an express appeal against Section 14 orders does not render the provision unconstitutional, and constitutional judicial review remains available for excess or abuse of power. 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.