TaxTMI 
TaxTMI 
2007 (6) TMI 538
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....r referred to as 'the Act') has been enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected thereto. The Act enables the banks and financial institutions to realise long-term assets, manage problems of liquidity, asset liability mis-match and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. The Act further provides for setting up asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured assets and take over the management of the business of the borrower. In Mardia Chemicals Limited vs. Union of India, 2004 (4) S.C.C 311, the constitutional validity of the Act, except the provisions of Sub-section (2) of Section 17of the Act, has been upheld by the Supreme Court. The findings of the Supreme Court, as summed up in paragraph-80 of the judgment, read as follows: " 80. Under the Act in consideration, we find that before taking action a notice ....
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..... Section 17 of the Act prior to the amendment reads as follows: SECTION 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 authorised officer under this Chapter, may prefer an appeal to the Debts Recovery Tribunal having jurisdiction in the matter within forty five days from the date on which measures had been taken. (2) Where an appeal is preferred by a borrower, such appeal shall not be entertained by the Debts Recovery Tribunal unless the borrower has deposited with the Debts Recovery Tribunal seventy-five per cents of the amount chaired in the notice referred to in Sub-section (2) of Section 13. Provided that the Debts Recovery Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this section. (3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder." 4. Section 17 of the Act was amended ....
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....er sub-section (4) of Section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of Section 13, is in accordance with the provisions of this Act and the rules made thereunder, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more the measures specified under sub-section (4) of Section 13 to recover his secured debt. (5) Any application made under sub-section (1) shall be dealt with by the Debts Recovery Tribunal as expeditiously as possible and disposed of within sixty days from the date of such application: Provided that the Debts Recovery Tribunal may, from time to time, extend the said period for reasons to be recorded in writing, so however, that the total period of pendency of the application with the Debts Recovery Tribunal, shall not exceed four months from the date of making such application made under sub-section (1) (6) If the application is not disposed of by the Debts Recovery Tribunal within the period of four months as specified in sub-section (5), any party to the application may make an appli....
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....Jayesh Dolia, Mr.S.Sethuraman, Mr.V.V. Sivakumar, Mr. P.D. Audikesavalu, Mr. V. Radhakrishnan and Mr. M. Sathyanaranan, learned counsel appearing for the respondents/banks and financial institutions in the respective writ petitions. 8. Learned counsel appearing for the petitioners strenuously contended that in Mardia Chemical's case, the Supreme Court has clearly held that the proceedings under Section 17 of the Act are in lieu of Civil Suit, which remedy is already available but barred under Section 34 of the Act. Our attention was drawn to the observations in paragraphs 59, 62 and 71 of the judgment, which read as follows: " 59. We may like to observe that proceedings under Section 17 of the Act, in fact, are not appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is brought before a forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in civil court. As a matter of fact proceedings under Section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section....
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....ons to act fairly and in good faith complying with their part of obligations under the contract. This is also the basic principle of the concept of lender's liability. It cannot be a one-sided affair shutting out all possible and reasonable remedies to the other party, namely, borrowers and assumes 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." 9. Relying on the above observations, it is contended that by virtue of amendment, the scope of Section 17 of the Act is restricted as to the compliance of the provisions of the Act alone and various other grounds such as demand of amount has been recovered and failure to follow the mandatory guildelines of Reserve Bank of India and offer of one time settlement, calculation of interest and nature of secured creditors and all the incidental questions cannot be gone into by the De....