TaxTMI 
TaxTMI 
2002 (3) TMI 825
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.... of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 ('the Act') on the ground that the Act is unreasonable and is violative of article 14 of the Constitution, and that the same is beyond the legislative competence of the Parliament, arises for consideration in these cases. 3. The banks and financial institutions had been experiencing considerable difficulties in recovering loans and enforcement of securities charged with them. The procedure for recovery of debts due to the banks and financial institutions which was being followed had resulted in a significant portion of the funds being blocked. In order to remedy the locking up of huge funds, the Parliament enacted the said Act, which was preceded by an ordinance. The Act, inter alia, provides for the establishment of the Tribunals and Appellate Tribunals. The Tribunals have been given the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and financial institutions, while the Appellate Tribunals have the jurisdiction, powers and authority to entertain appeals. The procedure which is required to be follo....
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....t between Rs. 5 lakhs and Rs. 10 lakhs was to be filed before the Delhi High Court and for less than Rs. 5 lakhs before the subordinate Courts. This lowered the status of the High Court inasmuch as the Tribunal, which was presided by an officer who did not have the status of a High Court Judge would be deciding the suits for recovery of money exceeding Rs. 10 lakhs. (c) The Act eroded the independence of the judiciary since the jurisdiction of Civil Courts had been truncated and vested in the Tribunal. It also came to the conclusion that the independence of the judiciary was eroded as the High Court had no role to play in the appointment of the presiding officers. 7. During the pendency of this appeal, the Guwahati High Court was also required to consider the validity of this Act. By the judgment dated 16-8-1999 to 20-8-1999, which is the subject-matter of Civil Appeal Nos. 6227-6246 of 2000, the High Court came to the conclusion that though the Parliament has legislative competence to enact the law, but as it had abrogated/negated the power of judicial review, which had violated the basic feature of the Constitution, the Act was void. It further held that some of the p....
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....ical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude." [Emphasis Supplied (p. 836)] 10. Again in Union of India v. H.S. Dhillon [1972] 2 SCR 33 it was observed as follows : "It seems to us that the function of article 246(1), read with entries 1-96 List I, is to give positive power to Parliament to legislate in respect of these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so. . . . " (p. 51) 11. In H.S. Dhillon's case (supra), it was held that what one has to ask is whether the matter sought to be legislated is included in List II or in List III and no question has to be asked about List I. If the answer is in the negative, then it follows that the Parliament has power to make laws with respect to that matter or text. 12. It has, thus, been clearly enunciated that the power of the Parliament to enact a law, which is not covered by an Entry List II and List III, is absolute. While article....
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.... constituted as per the preamble of the Act, 'for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto' would squarely fall within the ambit of entry 45 of List I. As none of the items in the lists are to be read in a narrow or restricted sense, the term 'Banking' in entry 45 would mean legislation regarding all aspects of banking including ancillary or subsidiary matters relating of banking. Setting up of an adjudicatory body like the banking Tribunal relating to transactions in which banks and financial institutions are concerned would clearly fall under entry 45 of List I giving the Parliament specific power to legislate in relation thereto. 15. The learned counsel has drawn our attention to the provisions of the Act and we are unable to agree with the Delhi High Court that the Act or any other provision thereof is in any way arbitrary or bad in law. During the pendency of these appeals, the Act has been amended and whatever lacunae or infirmities existed have now been removed by the said Amending Act and with the framing of more rules. For example, the rules have been framed in 1998 f....
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....thirty days of the service of summons as to why the relief prayed for should not be granted. (5) The defendant shall, at or before the first hearing or within such time as the Tribunal may permit, present a written statement of his defence. (6) Where the defendant claims to set-off against the applicant's demand any ascertained sum of money legally recoverable by him from such applicant, the defendant may, at the first hearing of the application, but not afterwards unless permitted by the Tribunal, present a written statement containing the particulars of the debt sought to be set-off. (7) The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Tribunal to pass a final order in respect both of the original claim and of the set-off. (8) A defendant in an application may, in addition to his right of pleading a set-off under sub-section (6), set up, by way of counterclaim against the claim of the applicant, any right or claim in respect of a cause of action accruing to the defendant against the applicant either before or after the filing of the application but before the defendant has delivered his defence or....
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....d not furnish security, or fails to furnish the security required, within the time fixed by the Tribunal, the Tribunal may order the attachment of the whole or such portion of the properties claimed by the applicant as the properties secured in his favour or otherwise owned by the defendant as appears sufficient to satisfy any certificate for the recovery of debt. (14) The applicant shall, unless the Tribunal otherwise directs, specify the property required to be attached and the estimated value thereof. (15) The Tribunal may also in the order direct the conditional attachment of the whole or any portion of the property specified under sub- section (14). (16) If an order of attachment is made without complying with the provisions of sub-section (13), such attachment shall be void. (17) In the case of disobedience of an order made by the Tribunal under sub-sections (12), (13) and (18) or breach of any of the terms on which the order was made, the Tribunal may order the properties of the person guilty of such disobedience or breach to be attached and may also order such person to be detained in the civil prison for a term not exceeding three months....
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....operty is situated : Provided that in a case where the Tribunal to which the certificate of recovery is sent for execution find that it has no jurisdiction to comply with the certificate of recovery, it shall return the same to the Tribunal which has issued it. (24) The application made to the Tribunal under sub-section 9(1) or sub-section (2) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the application finally within one hundred and eighty days from the date of receipt of the application. (25) The Tribunal may make such orders and give such directions as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice." 16. The aforesaid section prescribes the manner in which an application to the Tribunal filed by a bank or a financial institution is to be dealt with. Section 22 provides that the Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure, but shall be guided by the principles of natural justice and, subject to the rules framed. They shall have powers to regulate ....
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....l have their sittings. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a Civil Court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:- (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) issuing commissions for the examination of witnesses or documents; (e) reviewing its decisions; (f) dismissing an application for default or deciding it ex parte; (g) setting aside any order of dismissal or any application for default or any order passed by it ex parte; (h) any other matter which may be prescribed. (3) Any proceeding before the Tribunal or the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of Sections 193 and 228, and for the purposes of section 196, of the Indian Penal Code (45 of 1860) and the Tribunal or the Appellate Tribunal shall be deemed to be civil c....
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....facts of the case or who has on verification of the record sworn the affidavit in respect of the contents of application and the documents as evidence. (8) Provisions contained in section 4 of the Bankers' Books Evidence Act, 1891 (18 of 1891) shall apply to a certified copy of an entry in a banker's book furnished along with the application filed under sub-section (1) of Section 19 by the applicant." 21. As a result of the amendments made in the Act and the Rules, the position which would emerge is that section 19(1) require the filing of an application by a bank or a financial institution for the recovery of debt to be made before a Tribunal having territorial jurisdiction. On receipt of the application, summons are issued to the defendant who has to show cause within the stipulated period as to why the relief prayed for should not be granted. A right is now given by sub-section 6 of section 19 to the defendant to claim a set-off against the applicant's demand and the said written statement is to have the same effect as a plaint in a cross-suit. Under sub-section (8) of section 19, the defendant is also entitled to set-up a counter claim in addition to his right of cl....
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....ty to pay the claims. Rule 12(6), if paraphrased, would read as follows : 1. The Tribunal may at any time for sufficient reason order that any particular fact or facts may be proved by affidavit.... on such conditions as the Tribunal thinks reasonable; 2. The Tribunal may at any time for sufficient reason order that the affidavit of any witness may be read at the hearing, on such conditions as the Tribunal thinks reasonable. 23. In other words, the Tribunal has the power to require any particular fact to be proved by affidavit, or it may order the affidavit of any witness may be read at the hearing. While passing such an order, it must record sufficient treasons for the same. The proviso of rule 12(6) would certainly apply only where the Tribunal chooses to issue a direction, on its own, for any particular fact to be proved by affidavit or the affidavit of a witness being read at the hearing. The said proviso refers to the desire of an applicant or defendant for the production of a witness for cross-examination. In the setting in which the said proviso occurs, it would appear to us that once the parties have filed affidavits in support of their respective cases....
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.... the independence of the judiciary would stand eroded. 25. Such Tribunals, whether they pertain to Income-tax or Sales-tax or excise and customs or administration, have now become an essential part of the judicial system in this country. Such specialised institutions may not strictly come within the concept of the judiciary, as envisaged by article 50, but it cannot be presumed that such Tribunals are not an effective part of the justice delivery system, like courts of law. It will be seen that for a person to be appointed as a Presiding Officer of a Tribunal, he should be one who is qualified to be a District Judge and, in case of appointment of the Presiding Officer of the Appellate Tribunal he is, or has been, qualified to be a Judge of a High Court or has been a member of the Indian Legal Service who has held a post in Grade-I for at least three years or has held office as the Presiding Officer of a Tribunal for at least three years. Persons who are so appointed as Presiding Officers of the Tribunal or of the Appellate Tribunal would be well versed in law to be able to decide cases independently and judiciously. It has to be borne in mind that the decision of the Appellate T....
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....g the said jurisdiction with the subordinate courts or vice versa, cannot be a ground for holding that the Act is invalid. 28. At the time when the Guwahati High Court had rendered its decision there was only one Appellate Tribunal. It is for that reason that the Guwahati High Court had observed that the judicial review was illusory. Now, more Appellate Tribunals have been established and the inconvenience of the litigant in travelling a long distance to approach a appellate Tribunal cannot be regarded as making the judicial review of the Tribunal's decision illusory. Furthermore, with the picuniary jurisdiction of the Tribunal being of Rs. 10 lakh and above for a fairly large number of borrowers of small amounts, the civil courts are not devested of their jurisdiction. 29. The Guwahati High Court had held that sections 25 and 28 are arbitrary and unreasonable, being without any guidelines or control. These observations were made prior to the amendment of sections 25 and 28. After amendment the said provisions read as under : "25. Modes of recovery of debts.-The Recovery Officer shall, on receipt of the copy of the certificate under sub-section (22) of section 19, pr....
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....wn to the Recovery Officer. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, bank, financial institution, or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like to be made before the payment is made notwithstanding any rule, practice or requirement to the contrary. (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or the part thereof is not due to the defendant or that he does not hold any money for or an account of the defendant, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is dis....
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.... to the Income-tax Act, 1961 (43 of 1961)." While section 25 provides for modes of recovery of debts either by attachment and sale or arrest or appointment of a receiver, section 28 provides for modes of recovery in addition to the ones specified in section 25. A perusal of the aforesaid provisions cannot lead one to the conclusion that the same are arbitrary, unreasonable or without any guidelines. It is quite clear that in order to recover the debts, the recovery officer has to attach and sell the immovable property and that for protection and preservation of the same, he has the power to appoint a receiver for the management thereof. 31. By virtue of section 29, the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962, have become applicable for the realisation of the dues by the Recovery Officer. Detailed procedure for recovery is contained in these schedules to the Income-tax Act, including provisions relating to arrest and detention of the defaulter. It cannot, therefore, be said that the recovery officer would act in an arbitrary manner. Furthermore, section 30, after amendment by the Am....