TaxTMI 
TaxTMI 
2004 (4) TMI 294
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....v, R.C. Kohli, Tripurari Ray, Vishwajit Singh, Ritesh Agrawal, P.D.Sharma, Ashish Dholakia, Ms. Sumita Hazarika, Manoj Swarup, Uday Gupta, Ms. Suruchii Agarwal, P.N. Puri, Y. Raja Gopala Rao, Mahesh Agarwal, Rishi Agarwal, Vivek Yadav, E.C. Agrawala, M.J.S. Rupal, Madhup Singhal, Jitendra Mohan Sharma, Ms. Lalita Kohli, Anubhav Kumar, Ashok Kumar Gupta, S.N. Bhat, Nikhil Nayyar, Ms. Shobha, Manoj Sharma, Ms. Sheetal Aggarwal, Manish Jain, Atul Sharma, Praveen Jain, Pramod Swarup, Vivek Narayan, Prem Malhotra, Saurabh Kirpal, Rajiv Shakdhar, Manish Singhvi, Ms. V. Mohana, Ms. Sushma Suri, Ms. P.S. Shroff, Sunil Dogra, Ms. Rashi Malhotra, Vikram B. Trivedi, Bharat Sangal, Ms. Sangeeta S. Panicker, R.R. Kumar, S. Mehta, Pranab Kumar Mullick, Rajeev Sharma, Deepak Goel, Rishi Malhotra, M.P.S. Thomar, Ms. Sandhya Goswami, V. Maheshwari, Rameshwar Prasad Goyal, S.H. Bhujani, Ms. Sayali Phatak, O.P. Gaggar, Dhruv Mehta, Mohit Chaudhary, Ms. Shalini Gupta, Pradeep Dewan, Dr. Manmohan Sharma, Pramod B. Agarwala, G.S. Sistani, Rajender Wali, Rakesh Singh, Arun K. Sinha, Sanjay R. Hegde, P.S. Shetty, Anil K. Misra, Janendra Lal, Ms. Yasmin Tarapore, Ms. Divya Lal, V. Ramasubramanian, M.T. Geo....
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....of the secured assets. Similar notices were issued by other financial institutions and banks under the provisions of section 13 of the Ordinance/Act to different parties who filed petitions in different High Courts. 4. The main contention challenging the vires of certain provisions of the Act is that the banks and the financial institutions have been vested with arbitrary powers, without any guidelines for its exercise and also without providing any appropriate and adequate mechanism to decide the disputes relating to the correctness of the demand, its validity and the actual amount of dues, sought to be recovered from the borrowers. The offending provisions as contained under the Act, are such that, it all has been made one sided affair while enforcing drastic measures of sale of the property or taking over the management or the possession of the secured assets without affording any opportunity to the borrower. Before further detailing the grounds of attack, we may peruse some of the relevant provisions of the Act. 5. The term "borrower" has been defined in clause (f) of section 2, which provides as under : "(f)'borrower' means any person who has been granted financial as....
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.... a bank or financial institution; in whose favour security interest is created for due repayment by any borrower of any financial assistance;" 12. "Secured Debt" has been defined in clause (ze) of section 2 which means : "(ze)'secured debt' means a debt which is secured by any security interest;" 13. "Security interest" has been defined in clause (zf) of section 2 which means : "(zf)'security interest' means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in section 31;" 14. Section 13, which is relevant for our present purpose, provides: "Enforcement of security interest - (1) Notwithstanding anything contained in section 69 or section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal, by such creditor in accordance with the provisions of this Act. (2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of s....
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....or, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests. (8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset. (9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon b....
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....ntaining drastic steps and procedure depriving the debtors of any fair opportunity to defend themselves from the onslaught of the harsh steps as provided under the Act. 16. It is further submitted that no provision has been made to take into account the lenders liability, though at one time it was considered necessary to have an enactment relating to lenders liability and a bill was also intended to be introduced, as it was considered that it is necessary for the lenders as well to conduct themselves responsibly towards the borrowers. It is submitted that despite such a statement, as indicated above, on the floor of the House, neither any such law has been enacted so far nor any care has been taken to introduce such safeguards in the Act to protect the borrowers against their vulnerability to arbitrary or irresponsible action on the part of the lenders. On a comparative basis, in relation to other countries, it is submitted that the percentage of NPA of as against the GDP is only 6% in India which is much less as compared to China, Malaysia, Thailand, Japan, South Korea and other countries. Therefore, it is evident that the resort has been taken to a drastic legislation, under m....
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....is that before any action is taken under Section 13, there is no forum or adjudicatory mechanism to resolve any dispute which may arise in respect of the alleged dues or the NPA. 19. It is further submitted that the provision of appeal as contained in section 17 of the Act is also illusory since an appeal may be preferred within the specified time from the date on which measures under sub-section (4) of section 13 have been taken, is to say that the appeal would be maintainable after the possession of the property or the management of the secured assets has been taken over or the property has been sold. Further, an appeal is not entertainable unless 75% of the amount claimed in the notice is deposited by the borrower with the Debt Recovery Tribunal. It would be a matter in the discretion of the Debt Recovery Tribunal to waive the condition of pre deposit or to reduce the amount, for reasons to be recorded therefor. It is submitted that a remedy which is available, after the damage is done and on fulfilment of such an onerous condition as deposit of 75% of the demand, is illusory and a mere farce. It is no real remedy available to a borrower before he is subjected to harsh steps ....
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....on a decision of this Court in Indian National Congress (I) v. Institute of Social Welfare [2002] 5 SCC 685 observations made by one of us (Chief Justice V.N. Khare) have been relied upon as quoted below:- "20. ...Thus, where there is a lis or two contesting parties making rival claims and the statutory authority under the statutory provision is required to decide such a dispute, in the absence of any other attributes of a quasi-judicial authority, such a statutory authority is quasi-judicial authority. 21. But there are cases where there is no lis or two contending parties before a statutory authority yet such a statutory authority has been held to be quasi-judicial and decision rendered by it as a quasi-judicial decision when such a statutory authority is required to act judicially. In R v. Dublic Corpn. [1878] 2 ITR 371. It was held thus : 'In this connection the term judicial does not necessarily mean acts of a Judge or legal tribunal sitting for the determination of matters of law, but for purpose of this question, a judicial act seems to be an act done by competent authority upon consideration of facts and circumstances and imposing liability or affecting the rights.....
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....inathan Iyer AIR 1955 Mad. 343 (sic). It is submitted that English mortgage is in the nature of conveyance or absolute transfer of mortgage property with provision of retransfer upon discharge of mortgage and referred to Bank of Maharashtra Ltd. v. Official Liquidator, High Court Buildings AIR 1969 Mys. 280. It is submitted that the scope of section 13 of the Act is fundamentally different from the scope of power under section 69 of the Transfer of Property Act. 23. Shri Dholakia, learned senior counsel appearing on behalf of the guarantors of the principal borrower, refers to section 2(f) of the Act to indicate that the definition of the word 'borrower' covers even the guarantor. He then refers to section 135 of the Contract Act to show that in certain circumstances a guarantor is discharged of his obligation. The petitioner received a notice under Section 13(2) of the Act. The submission is in view of the bar of section 34 to file a suit in the Civil Court, it is not possible for him to approach the Court to show and establish that he is a discharged guarantor, hence notice under section 13(2) is bad and refers to Mafatlal Industries Ltd. v. Union of India [1997] 5 SCC 536 at ....
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....nancial activity and to meet the need and requirement of its other depositors and clients. The figures of NPA which have been given border around one lac crores. After coming into force of the Recovery of Debts due to Banks and Financial Institutions Act and establishment of Debt Recovery Tribunals the success in recovery has not been very encouraging. Therefore, need was felt for a faster procedure empowering the secured creditors to recover their dues and for securitisation of financial assets so as to generate maximum monetary liquidity. It has been felt that after coming into force of the Act there is a marked difference in realization of dues and more borrowers are coming forward to pay up the defaulted amount and clear the dues. It is submitted that in case a defaulter wants to raise any objection it may be raised in reply to the notice which would obviously be considered by the secured creditor before it would further proceed to take recourse to sub-section (4) of section 13 of the Act. It is further submitted that there will be ample time for a borrower to approach the Debt Recovery Tribunal to seek relief before sale of the secured assets. The remedy as provided under sect....
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....mitted that the question of enactment of the Act was under consideration for long and first Narasimham Committee and then Andhyarujina Committee were constituted by the Central Government for introducing reforms in the banking sector necessary for recovery of the outstanding dues of the financial institutions. The practice of securitisation of debts is in vogue all over the world. That is to say a measure of replenishing the funds by recourse to the secondary market. There are organizations who undertake exercise of securitisation. Such organizations take over the financial assets and in turn issue securities. 29. It is submitted that the funding of the debts is feasible only where there exists an efficacious and expeditious machinery for realization of debts for investors in such securities. It is submitted that in England a mortgagee under a legal mortgage has a right to take possession, to sell, and even appoint a receiver in relation to mortgaged properties without recourse to a court of law. It is also submitted that provisions as contained under section 9 of the Act are also valid. The securitisation is done in accordance with the guidelines framed by the Reserve Bank of I....
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....nder section 13(4) of the Act and the appeal would be entertainable only on deposit of 75% of the claim raised in the notice of demand? (iv)Whether the terms or existing rights under the contract entered into by two private parties could be amended by the provisions of law providing certain powers in one sided manner in favour of one of the parties to the contract? (v)Whether provision for sale of the properties without intervention of the Court under section 13 of the Act is akin to the English mortgage and its effect on the scope of the bar of the jurisdiction of the civil court? (vi)Whether the provisions under sections 13 and 17(2) of the Act are unconstitutional on the basis of the parameters laid down in different decisions of this Court? (vii)Whether the principle of lender's liability has been absolutely ignored while enacting the Act and its effect? 34. Some facts which need be taken note of are that the banks and the financial institutions have heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through Courts is lengthy and time taken is not suited for ....
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.... Accounting Policies and other Related Matters' it was opined that a proper system of income recognition and provisioning is fundamental to the preservation of the strength and stability of banking system. It was also observed that the assets are required to be classified, it also takes note of the fact that the Reserve Bank of India had classified the advances of a bank, one category of which was bad debts/doubtful debts. It then mentions that according to the international practice, an asset is treated as non-performing when the interest is overdue for at least two quarters. Income of interest is considered as such, only when it is received and not on the accrual basis. The Committee suggested that the same should be followed by the banks and financial institutions in India and an advance is to be shown as non-performing assets where the interest remains due for more than 180 days. It was further suggested that the Reserve Bank of India should prescribe clear and objective definitions in respect of advances which may have to be treated as doubtful, standard or sub-standard, depending upon different situations. Apart from recommending to set up of special Tribunals to deal with th....
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....ustration, we could look at the scheme of mortgage in the Transfer of Property Act, which is critical to the work of financial intermediaries..." One of the measures recommended in the circumstances was to vest the financial institutions through special statutes, the power of sale of the asset without intervention of the Court and for reconstruction of the assets. It is, thus, to be seen that the question of non-recoverable or delayed recovery of debts advanced by the banks or financial institutions has been attracting the attention and the matter was considered in depth by the committees specially constituted consisting of the experts in the field. In the prevalent situation where the amount of dues are huge and hope of early recovery is less, it cannot be said that a more effective legislation for the purpose was uncalled for or that it could not be resorted to. It is again to be noted that after the report of the Narasimham Committee, yet another committee was constituted headed by Mr. Andhyarujina for bringing about the needed steps within the legal framework. We are, therefore, unable to find much substance in the submission made on behalf of the petitioners that while the ....
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....ly, as from that date, a Non-performing Asset (NPA) shall be an advance where (i )interest and/or instalment of principal remain overdue for a period of more than 180 days in respect of a Term Loan, (ii)the account remains 'out of order' for a period of more than 180 days, in respect of an Overdraft/Cash Credit (OD/CC), (iii)the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, (iv)interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two and half years in the case of an advance granted for agricultural purposes, and (v)any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. 4.2.2 Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification of NPAs, especially in respect of high value accounts. The banks may fix a minimum cut off point to decide what would constitute a high value account depending upon their respective business levels. The cut off point should be valid for the entire accounting year. Responsibility and validation levels for ensuring ....
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....ake over the management of the secured assets under clause (b) including right to transfer; under clause (c) of sub-section (4) a manager may be appointed to manage the secured assets which have been taken possession of by the secured creditor and may require any person who has acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same to him as it may be sufficient to pay the secured debtor as provided under clause (d) of section 3(4) of the Act. Sub-section (8) of section 13 however, provides that if all the dues of the secured creditor including all costs, charges and expenses, etc., as may be incurred are tendered to the secured creditor before sale or transfer no further steps be taken in that direction. 40. Now coming to section 17, it provides for filing of an appeal to the Debt Recovery Tribunal within 45 days of any action taken against the borrower under sub-section (4) of section 13 of the Act. It reads as under : "17. Right to appeal.- (1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this C....
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....ut intervention of the court or Tribunal. Section 69 of the Transfer of Property Act provides as follows : "69. Power of sale when valid.- (1) A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section, have power to sell or concur in selling the mortgaged property, or any part thereof, in default of payment of the mortgage-money, without the intervention of the Court, in the following cases and in no others, namely:- (a )where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Mohammadan or Buddhist or a member of any other race, sect, tribe or class from time to time specified in this behalf by the State Government, in the Official Gazette; (b)where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed and the mortgagee is the Government; (c )where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by mortgage-deed, and the mortgaged property or any part thereof was, on the date of the execution of the mortgage-deed, situate within the towns of Calcutta, Madras, Bombay, or in any other ....
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....agee', 'mortgage-money' and 'mortgage-deed' defined.- ****** (e )English mortgage - Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged property absolutely to the mortgagee, but subject to a proviso that he will retransfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage." It is, thus, pointed out that in English mortgage, absolute transfer of the property already takes place. Hence, the question of intervention of the Court may not arise. It has a condition of retransfer. It is submitted that by no means it can be said that the transactions in question are like those as English mortgage. On the basis of the above provision it is further submitted that if the condition of retransfer is not invoked the mortgagee is possessed of all rights absolutely in the property. There are different kinds of mortgages as enumerated in section 58 of the Transfer of Property Act. We feel that it would not be necessary to further go into the matter as to whether the agreements in the cases before us amount to English mortgage or not since the non obstante clause under sect....
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....der : "The Rajamannar Committee appointed by the Government of India gave its report in 1977 pointing out the development of the law of mortgages and explaining how it had become completely anachronistic in the latter part of the 20th century where mortgages had become a very important instrument to facilitate development of commercial credit. The Rajamannar Committee's recommendations, that were extracted in the Narasimham Report (1998) stated ".... thus a distinction was made in the original schemes as regards mortgages to which Europeans were parties mortgages where the properties were situated in the presidency towns, and mortgages where the mortgages were of native origin and mortgages where the property was situate in the mofussil. This distinction was based on the fact that in the mofussil, it was the money lenders with their unscrupulous methods, who were, by and large, the persons lending against mortgage of immovable property. . . . evidently, the situation that prevailed at the time of the enactment of the Transfer of Property Act 1882, justify the legislative action of the then Government of India in limiting the right of sale without the intervention of Court. . . e....
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....y be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of section 13 in case of non-compliance of notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfilment of a requirement of reasonableness and fairness in the dealings of institutional ....
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....iability of fairness to keep the borrower informed particularly the developments immediately before taking measures under sub-section (4) of section 13 of the Act. It will also cater the cause of transparency and not secrecy and shall be conducive in building an atmosphere of confidence and healthy commercial practice. Such a duty, in the circum- stances of the case and the provisions is inherent under section 13(2) of the Act. 48. The next safeguard available to a secured borrower within the framework of the Act is to approach the Debt Recovery Tribunal under section 17 of the Act. Such a right accrues only after measures are taken under sub-section (1) of section 13 of the Act. 49. On behalf of one of the respondents Shri Andhyarujina submitted that as a matter of fact section 13 of the Act leaves more scope and provides wider protection to the borrower as compared to in the case of English mortgage and in connection with the above submission it has been pointed out that in case of an English mortgage there is no scope of intervention of the Court unless a case is made out before the Court that action of the mortgagee is fraudulent or it is a case of the like nature. Otherw....
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....h the civil court. Therefore, it cannot be said no remedy is available to the borrowers. We, however, find that this contention as advanced by Shri Salve is not correct. A full reading of section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That is to say the prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all such matters which may be taken cognizance of by the Debt Recovery Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of section 13. 51. However, to a v....
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.... nor he could approach the civil court. It is submitted by the respondent in such cases civil court may have jurisdiction to entertain the case as character as a guarantor itself is denied. 54. In so far the argument advanced on behalf of the petitioners that by virtue of the provisions contained under sub-section (4) of section 13 the borrowers lose their right of redemption of the mortgage. In reply it is submitted that rather such a right is preserved under sub-section (8) of section 13 of the Act. Where a borrower tenders to the creditor the amount due with costs and expenses incurred, no further steps for sale of the property are to take place. In this connection, a reference has also been made by the learned Attorney General to a decision in Naraindas Karsondas v. S.A. Kamtam [1977] 3 SCC 247, which provides that a mortgagor can exercise his right of redemption any time until the final sale of the property by execution of a conveyance. Sri Sibal, however, submits that it is the amount due according to the secured creditor which shall have to be deposited to redeem the property. May be so, some difference regarding the amount due may be there but it cannot be said that righ....
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....ke deposit of the huge amount of 75% of the demand, once he is deprived of the possession/management of the property namely, the secured assets. Therefore, the condition of deposit is a condition of impossibility which renders the remedy made available before the DRT as nugatory and illusory. The learned Attorney General refutes the aforesaid contention. It is further submitted that such a condition of pre-deposit has been held to be valid by this Court earlier and a reference has been made to a decisions at p. 202 in Anant Mills Co. Ltd. v. State of Gujarat [1975] 2 SCC 175 to submit that such a provision is made to regulate the exercise of the right of an appeal conferred upon a person. The purpose is that right of appeal may not be abused by any recalcitrant party and there may not be any difficulty in enforcing the order appealed against if ultimately it is dismissed and there may be speedy recovery of the amount of tax due to the corporation. 58. In another decision relied upon in Seth Nandlal v. State of Haryana 1980 (Suppl.) SCC 574, there was no provision for a waiver or reduction of amount of pre-deposit, it is submitted, even that the provision was held to be valid as ....
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.... the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and therefore an appeal for its maintainability must have the clear authority of law. That explains why the right of appeal is described as a creature of statute." (p. 397) 60. The requirement of pre-deposit of any amount at the first instance of proceedings is not to be found in any of the decisions cited on behalf of the respondent. All these cases relate to appeals. The amount of deposit of 75% of the demand, at the initial proceeding itself sounds unreasonable and oppressive more particularly when the secured assets/the management thereof along with the right to transfer such interest has been taken over by the secured creditor or in some cases property is also sold. Requirement of deposit of such a heavy amount on basis of one sided claim alone, cannot be said to be a reasonable condition at the first instance itself before start of adjudication of the dispute. Merely giving power to the Tribunal to waive or reduce the amount, does ....
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....rty before a decree is passed or to appoint a receiver and to make a provision by way of interim measure in respect of the property in suit. But for obtaining such orders a case for the same is to be made out in accordance with the relevant provisions under the law. There is no such provision under the Act. 63. Yet another justification which has been sought to be given for the requirement of deposit is that the secured assets which may be taken possession of or sold may fall short of the dues therefore such a deposit may be necessary. We find no merit in this submission too. In such an eventuality the recourse may have to be taken to sub-section 10 of section 13 where a petition may have to be filed before the Tribunal for the purpose of making up of the short-fall. 64. The condition of pre-deposit in the present case is bad rendering the remedy illusory on the grounds that (i) it is imposed while approaching the adjudicating authority of the first instance, not in appeal, (ii)there is no determination of the amount due as yet (iii) the secured assets or its management with transferable interest is already taken over and under control of the secured creditor (iv) no special ....
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....reconstruction of the debt, manages the affair in a manner so as to revive the company and liquidate the debts to whomsoever they may be due. 66. On behalf of the petitioners one of the contentions which has been forcefully raised is that existing rights of private parties under a contract cannot be interfered with, more particularly putting one party to an advantageous position over the other. For example, in the present case, in a matter of private contract between the borrower and the financing bank or institution through impugned legislation rights of the borrowers have been curtailed and enforcement of secured assets has been provided for without intervention of the Court and above all depriving them the remedy available under the law by approaching to the civil court. Such a law, it is submitted, is not envisaged in any civilized society governed by rule of law. As discussed earlier as well, it may be observed that though the transaction may have a character of a private contract yet the question of great importance behind such transactions as a whole having far reaching effect on the economy of the country cannot be ignored, purely restricting it to individual transaction....
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....mmatlal v. State of Maharashtra [1977] 2 SCC 670, Ramdhandas v. State of Punjab [1962] 1 SCR 852. 67. It is well known that in different states Rent Control legislations were enacted providing safeguards to the sitting tenants as against the existing rights of the landlords, which before coming into force of such law were governed by contract between the private parties. Therefore, it is clear that it has always been held to be lawful, whenever it was necessary in the public interest to legislate irrespective of the fact that it may affect some individuals enjoying certain rights. In the present we find that case the unrealized dues of banking companies and financial institutions utilizing public money for advances were mounting and it was considered imperative in view of recommendations of experts committees to have such law which may provide speedier remedy before any major fiscal set back occurs and for improvement of general financial flow of money necessary for the economy of the country that the impugned Act was enacted. Undoubtedly such a legislation would be in the public interest and the individual interest shall be subservient to it. Even if a few borrowers are affecte....
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....y is essential for determining the rights of the parties more particularly when the consequences which flow from the offending Act defeat the civil rights of a party. 69. On behalf of respondents time and again stress has been given on the contention that in a contractual matter between the two private parties they are supposed to act in terms of the contract and no question of compliance with the principles of natural justice arises nor the question of judicial review of such actions need to be provided for. However, at the very outset, it may be pointed that the contract between the parties as in the present cases, is no more as private as sought to be asserted on behalf of the respondents. If that was so in that event parties would be at liberty to seek redressal of their grievances on account of breach of contract or otherwise taking recourse to the normal process of law as available, by approaching the ordinary civil courts. But we find that a contract which has been entered into between the two private parties, in some respects has been superseded by the statutory provisions or it may be said that such contracts are now governed by the statutory provisions relating to reco....
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....ir shutting out all possible and reasonable remedies to the other party, namely borrowers and assume all drastic powers for speedier recovery of NPAs. Possessing more drastic powers calls for exercise of higher degree of good faith and fair play. The borrowers cannot be left remediless in case they have been wronged against or subjected to unfair treatment violating the terms and conditions of the contract. They can always plead in defence deficiencies on the part of the banks and financial institutions. 72. Shri Soli J. Sorabjee, learned Attorney General submits that basically there is a presumption in favour of the constitutionality of an enactment and unless it is found that a provision enacted results in palpably arbitrary consequences, courts refrain from declaring the law invalid as legislated by the legislature. In support of this contention, he has relied upon a decision of this Court in R.K.Garg v. Union of India [1981] 4 SCC 675. He has particularly drawn our attention to the following passage : "The first rule is that there is always a presumption in favour of the constitutionality of a statute. This rule is based on the assumption, judicially recognized and accept....
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.... enforcement of the Debt Relief Act will turn into an enquiry into scrupulous and unscrupulous creditors, frustrating through endless litigation, the instant relief to the indebted which is the promise of the legislature." (p. 689) Yet in another decision referred to reported in Kishanchand Arora v. Commissioner of Police [1961] 3 SCR 135, it has been held that absence of appeal does not necessarily render the legislation unreasonable. Provision for appeal is not an absolute necessity. For same propositions a reference has also been made to Chinta Lingam v. Government of India [1970] 3 SCC 768 at 772, where it has been observed that when the power has to be exercised by one of the highest officers the fact that no appeal has been provided is not material. In respect of appellate provision once again our attention has been drawn to the observations made by this Court in Organo Chemical Industries v. Union of India [1979] 4 SCC 573 at pp. 582-83, paras 15 & 16, to the effect that an appeal is a desirable corrective but not an indispensable imperative. It is, however, further observed in this decision that it may all depend upon the nature of the subject matter, other available cor....
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.... secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated. So as to demonstrate that the reply of the borrower to the notice under section 13(2) of the Act has been considered applying mind to it. The reasons howsoever brief that may be for not accepting the objections, if raised in the reply, must be communicated to the borrower. True, presumption is in favour of validity of an enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary to see that the persons aggrieved get a fair deal at the hands of those who have been vested with the powers to enforce drastic steps to make recovery. 78. It was sought to be argued that fairness cannot be a one way street. The plea of absence of natural justice lies ill in the mouth of chronic defaulters who have not paid the principal amounts admittedly due to the banks. The said argument pre-supposes admission of the liability by the borrowers and all of them to be chronic defaulters. It would only be pre-judging an issu....
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....and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under section 17 of the Act before the Debt Recovery Tribunal. 3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition at it may deem fit and proper to impose. 4.In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an appeal (petition) under section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition is invalid and it is liable to be struck down. 5.As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the Court. 81. In view of the discussion held in the judgment and the findings and directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity ....