2017 (1) TMI 742 - SC - Indian Laws

Supreme Court Upholds Bank's Sale Notification Over State Land Laws

The Supreme Court held that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 prevails over the ... Sale Notification issued by the appellant Bank under the provisions of the SRFAESI Act, 2002 - whether was in infraction of Section 187 of the Tripura Land Revenue and Land Reforms Act, 1960 as under the Tripura Act there is a legislative embargo on the sale of mortgaged properties by the bank to any person who is not a member of a scheduled tribe - The auction purchasers in the present case happened to be the persons who are not members of any scheduled tribe - Restepping by the provisions of the State Act dealing with land reform into an area of banking covered by the Central Act - which is the dominant legislation having regard the area of encroachment? Held that:- The Act of 2002 is relatable to the Entry of banking which is included in List I of the Seventh Schedule. Sale of mortgaged property by a bank is an inseparable and integral part of the business of banking. The object of the State Act, as already noted, is an attempt to consolidate the land revenue law in the State and also to provide measures of agrarian reforms. The field of encroachment made by the State legislature is in the area of banking. So long there did not exist any parallel Central Act dealing with sale of secured assets and referable to Entry 45 of List I, the State Act, including Section 187, operated validly. However, the moment Parliament stepped in by enacting such a law traceable to Entry 45 and dealing exclusively with activities relating to sale of secured assets, the State law, to the extent that it is inconsistent with the Act of 2002, must give way. The dominant legislation being the Parliamentary legislation, the provisions of the Tripura Act of 1960, pro tanto, (Section 187) would be invalid. It is the provisions of the Act of 2002, which do not contain any embargo on the category of persons to whom mortgaged property can be sold by the bank for realisation of its dues that will prevail over the provisions contained in Section 187 of the Tripura Act of 1960. The decision of this Court in Central Bank of India vs. State of Kerala and Ors. (2009 (2) TMI 451 - SUPREME COURT OF INDIA) holding that the provisions of the Bombay Sales Tax Act, 1959 and the Kerala General Sales Tax Act, 1963 providing for a first charge on the property of the person liable to pay sales tax, in favour of the State, is not inconsistent with the provisions contained in the Recovery of Debts Due to Banks and Financial Institutions, Act 1993 (for short the “DRT Act”) and also the Act of 2002 must be understood by noticing the absence of any specific provision in either of the Central enactments containing a similar/parallel provision of a first charge in favour of the bank. The judgment of this Court holding the State enactments to be valid and the Central enactments not to have any overriding effect, proceeds on the said basis i.e. absence of any provision creating a first charge in favour of the bank in either of the Central enactments. Taking into account the averments made in the said affidavit, we find that the sale proclamation had mentioned a reserve price of ₹ 275 lacs and the property had been actually sold by auction at ₹ 416 lacs. That apart, the valuation report dated 14.06.2012 of the approved valuer valuing the property at ₹ 341.15 lacs has also been placed before us by way of an additional document which we are inclined to take on record. The requirements under Rule 5 and Rule 8(5) have, therefore, been complied with and the sale proclamation and the sale effected pursuant thereto cannot be invalidated on the above ground. For the aforesaid reasons, the impugned order passed by the High Court has to be set aside which we hereby do. The appeals are consequently allowed Issues Involved:1. Whether the Sale Notification dated 26.06.2012 issued by the appellant Bank under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act of 2002) is in violation of Section 187 of the Tripura Land Revenue and Land Reforms Act, 1960 (Tripura Act of 1960).2. Whether Article 31-B of the Constitution provides immunity to the Tripura Act of 1960 from being overridden by the provisions of a Parliamentary statute.3. Whether the Act of 2002, which allows the sale of immovable properties offered as security for a loan without restriction on the class or category of buyers, prevails over the restrictive provision under Section 187 of the Tripura Act of 1960.4. Whether the sale Notification dated 26.06.2012 is invalid for infraction of Rule 5 and Rule 8(5) of the Security Interest (Enforcement) Rules, 2002.Issue-wise Detailed Analysis:1. Violation of Section 187 of the Tripura Act of 1960:The respondents, members of Scheduled Tribes in Tripura, contended that the Sale Notification dated 26.06.2012 issued by the appellant Bank violated Section 187 of the Tripura Act of 1960, which restricts the sale of mortgaged properties to non-tribal members. The High Court ruled in favor of the respondents, invalidating the Sale Notification based on this provision.2. Immunity under Article 31-B of the Constitution:The High Court's decision was based on the inclusion of the Tripura Act of 1960 in the Ninth Schedule of the Constitution, which purportedly provided it immunity under Article 31-B. However, the Supreme Court clarified that Article 31-B only provides immunity from challenges based on violations of Part III of the Constitution and does not prevent the Tripura Act from being overridden by a subsequent Parliamentary statute.3. Prevalence of the Act of 2002 over Section 187 of the Tripura Act of 1960:The core question addressed was whether the Act of 2002, which permits the sale of immovable properties without restrictions on buyer categories, prevails over the restrictive provisions of Section 187 of the Tripura Act. The Supreme Court emphasized that the Act of 2002, enacted by the Union Parliament and referable to Entry 45 of List I (Union List), is the dominant legislation concerning banking activities, including the sale of mortgaged properties. The Tripura Act, referable to Entries 18 and 45 of the State List, must give way to the Central Act in case of conflict. The Court reiterated the principle of federal supremacy under Article 246(1), which mandates that Parliamentary legislation prevails over State legislation in case of irreconcilable conflict.4. Compliance with Rule 5 and Rule 8(5) of the Security Interest (Enforcement) Rules, 2002:The High Court also invalidated the Sale Notification on the grounds of non-compliance with Rule 5 and Rule 8(5) of the Security Interest (Enforcement) Rules, 2002, which require obtaining a valuation report before the sale. The Supreme Court, however, found that the appellant Bank had complied with these requirements. A valuation report dated 14.06.2012 was obtained, and the property was sold at a price higher than the reserve price mentioned in the sale proclamation. Thus, the sale was not invalidated on this ground.Conclusion:The Supreme Court set aside the High Court's order, holding that the Act of 2002 prevails over the Tripura Act of 1960 in matters concerning the sale of mortgaged properties by banks. The Sale Notification dated 26.06.2012 was deemed valid, and the appeals were allowed without any order as to costs.