A mere hardship cannot be a ground for striking down a valid legislation unless it is held to be suffering from the vice of discrimination or unreasonableness. A valid piece of legislation, thus, can be struck down only if it is found to be ultra vires article 14 of the Constitution of India and not otherwise.
Our final conclusions are summarised, thus :
(i) Section 14 of the Act is a valid piece of legislation and is declared intra vires.
(ii) The District Magistrate or Chief Metropolitan Magistrate, as the case may be, is bound to assist the secured creditor in taking possession of the secured assets and is not empowered to decide the question of legality and propriety of any of the actions taken by the secured creditor under section 13(4) of the Securitisation Act.
(iii) Though section 14 of’the Securitisation Act provides that no act of the Chief Metropolitan Magistrate or District Magistrate done in pursuance of section 14 shall be called in question in any court or before any authority, the right of judicial review under articles 226 and 227 of the Constitution of India cannot be taken away, but that power can be exercised only in cases where the concerned Magistrate or the Commissioner, as the case may be, exceeds his power or refuses to exercise his jurisdiction vested in him under the law.
(iv) Absence of an appeal does not necessarily render the legislation unreasonable as only because no appeal is provided under the Act against the order passed under section 14 of the Securitisation Act will not render section 14 ultra vires the provisions of the Constitution of India.
HIGH COURT OF GUJARAT
Mansa Synthetic (P.) Ltd.
v.
Union of India
SCA NO. 1829 OF 2012
C.A. NO. 1635 OF 2012
MARCH 12, 2012
JUDGMENT
1. By way of this writ-petition under article 226 of the Constitution of India, the writ petitioner has prayed for declaration that the provisions contained in section 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (‘the Securitisation Act’) are ultra vires the Constitution of India and has also prayed for quashing and setting aside the order dated 30th January, 2012 passed by the District Magistrate, Surat in exercise of powers under section 14 of the Securitisation Act.
2. The facts relevant for the purpose of deciding this petition can be summarised as under:
2.1 The petitioner No. 1 is a private limited company and the petitioner Nos.2 to 4 are its directors. The petitioners availed of loan facility from respondent No.2-Bank and as they failed to repay the loan amount, they were declared as defaulters. As the petitioners defaulted in repayment of the loan amount, the Bank decided to proceed against them under the Securitisation Act. The Bank issued a notice under section 13(2) of the Act and called upon the petitioners to make good the payment failing which the Bank would proceed to take over the possession of the secured assets under section 13(4) of the Securitisation Act. It appears from record that the petitioners being aggrieved by the measures taken by the Bank under the Act preferred an application under section 17 of the Securitisation Act in the form of an appeal. The appeal is still pending before the Debts Recovery Tribunal (‘DRT/Tribunal’) at Ahmedabad. Record reveals that the DRT, Ahmedabad refused to grant any interim relief in favour of the petitioners vide order dated 10th October, 2011. Against the said order passed by the DRT, Ahmedabad, refusing to grant any relief, the petitioners have preferred an appeal being No.65 of 2012 before the DRT, Mumbai under section 18 of the Act. The appeal is still pending before the DRT, Mumbai. It appears that in the meantime, the Bank preferred an application under section 14 of the Act before the District Magistrate, Surat, requesting to provide for police protection for the purpose of taking over of the actual possession of the secured assets. The District Magistrate, Surat vide order dated 30th January, 2012 directed the Police Inspector of the concerned Police Station to provide for necessary assistance for the purpose of taking over of the possession of the secured assets.
3. The petitioners as original borrower-defaulters are aggrieved by the order passed by the District Magistrate, Surat in exercise of powers under section 14 of the Securitisation Act directing that necessary police protection and force be provided to the authorities of the Bank for the purpose of taking over of the actual physical possession of the secured assets, which were mortgaged by the petitioners at the time of availing of the loan facility.
4. The petitioners have challenged the legality and validity of section 14 of the Act on the ground that the same is violative of articles 14, 19 and 300A of the Constitution of India.
5. We, therefore, first propose to deal with the contention of the writ petitioners that the provision of section 14 of the Act is violative of any of the provisions of the Constitution of India.
6. We have heard the learned advocate Mr. Vishvas K Shah appearing on behalf of the petitioners at length. We have also perused the materials on record.
Contentions of the petitioners
7.1 The learned advocate appearing on behalf of the writ petitioners has strenuously contended before us that the said provision is ultra vires the Constitution of India, more particularly, articles 14, 19 and 300A of the Constitution of India as no appeal is provided against the order passed under section 14 of the Act. The learned counsel has vociferously contended that the provisions of section 14 of the Securitisation Act are harsh, oppressive, arbitrary, unreasonable and no procedure as such has been prescribed by the Legislature for its exercise. He, therefore, submitted that in such a case, the absence of appeal against an order passed in exercise of powers under the provisions of section 14 of the Securitisation Act, will render section 14 unconstitutional. According to the learned advocate, as no appeal has been provided against the order passed by the District Magistrate or a Chief Metropolitan Magistrate, as the case may be, it causes lot of hardship.
7.2 The learned advocate further submitted that in the Act there is a provision for appeal under section 17 of the Securitisation Act, if any person (including a borrower) is aggrieved by any of the measures referred to in sub-section (4) of section 13 of the Securitisation Act, taken by the secured creditor. However, against the order passed under section 14 of the Securitisation Act, no appeal has been provided. He also submitted that the right to appeal is recognised in the Securitisation Act for other provisions, but when harsh powers are exercised under the provisions of section 14 of the Securitisation Act, wherein a person is being deprived of his property, the Legislature has thought fit not to provide for any appeal.
8. To put it briefly, the sum and substance of the contentions as raised by the learned advocate for the petitioners, are two-fold :
(i) Section 14 of the Securitisation Act confers unfettered and unbridled powers to the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, and when the Legislature has thought fit to confer such powers, then absence of an appeal against such an order would render the provision ultra vires.
(ii) As no appeal has been provided under the Act against the order passed under section 14 of the Securitisation Act, it causes immense hardship to the person who is being deprived of his property by taking over the possession of the same.
9. It would not be out of place to state at this stage that the constitutional validity of section 14 of the Securitisation Act was a subject-matter of challenge before this Court in the case of Rameshwaram Cotton Industries (Gujarat) (P.) Ltd. v. District Magistrate in Letters Patent Appeal No.165 of 2010 in Special , Civil Application No.712 of 2010/decided on 4th February, 2010. The Division Bench while upholding the constitutional validity of section 14 of the Securitisation Act dismissed the appeal observing as under :
“5. Though banking industry in India progressively complying with international prudential norms and accounting practices, there were certain areas in which banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There was no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Unlike international banks, banks and financial institutions in India had no power to take possession of securities and sell them. Taking into account the aforesaid fact and with a view to empower banks and financial institutions to facilitate securitisation of financial assets, Central Government decided to promulgate an Act empowering the banks and financial institutions to take possession of the securities and to sell them. In this background, Securitisation Act was enacted as evident from the Statement of Objects and Reasons of the said Act. Under the aforesaid Act, banks and financial institutions have been empowered to enforce their security interests under sub-section (2) to section 13 where the borrower, under a liability to a secured creditor under the agreement, makes any default in repayment of the secured debt classified by the secured creditor as a non-performing asset, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor. Under sub-section (3) to section 13 secured creditor shall give in such notice the details of amount payable by the borrower and the secured assets intended to be enforced in the event of non-payment of secured debts by the borrower. This is the stage the borrower is given a notice that if he fails to pay the debt within the time prescribed, the secured creditor may enforce for recovery of its debts by selling the secured asset. At that stage, the borrower has a right to make a representation or raise any objection under sub-section (3A) of section 13 and the secured creditor in such case is bound to consider the representation or objection, but if on consideration the secured creditor comes to a conclusion that such representation or objection is not acceptable or tenable, such decision is required to be communicated to the borrower. It is only after following the aforesaid provisions, the secured creditor may take recourse to sub-section (4) or section 13 for taking one or other measures as mentioned therein, including measures to take possession of the secured asset of the borrower and right to transfer by way of lease, assignment or sale for releasing the secured asset. Thus, it will be evident that before taking possession the secured creditor is required to give notice and after taking into consideration the representation and objections, the secured creditor can take direct possession of the secured assets or may take any action as stipulated under sub-section (4) of section 13.
6. In the case of Bharatbhai Ramniklal Sata v. Collector and District Magistrate (Letters Patent Appeal No.2172 of 2009) this court by its unreported judgment dated 3rd February, 2010 held that a secured creditor cannot take possession of the secured asset except in accordance with the prescribed procedure. For taking such possession, procedure is prescribed under section 14, in accordance with which the secured creditor has to request the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, to assist the secured creditor in taking possession of the secured asset. In such case, the Chief Metropolitan Magistrate or the District Magistrate, as the case may be, takes possession of the secured asset and documents on behalf of the secured creditor and hands over the same.
7. Any action on the part of the secured creditor in taking possession of secured asset, if not in accordance with the Act or the Rules framed thereunder, such measures as deemed to be taken under sub-section (4) of section 13, one can challenge such action or measures taken by filing petition under section 17 of the Securitisation Act, but such illegal action, if any, will not render section 14 bad in law. We, therefore, upheld section 14 of the Securitisation Act being the procedure prescribed to take possession, which is followed only after notice under sub-section (2) of section 13 and deciding the objections, if any, preferred by the borrower under sub-section (3A) of section 13 and when action is taken under sub-section (4) of section 13.
8. So far as individual case of the appellant is concerned, we are not discussing the same on merit as action of secured creditor in taking possession which amounts to action under sub-section (4) of section 13 can be challenged before the Debts Recovery Tribunal under section 17. If in one or other case notice under sub-section (2) of section 13 is not given or details as required under sub-section (3) of section 13 are not supplied and the secured creditor has taken steps to take possession, a measure under sub-section (4) of section 13 by following procedure under section 14, the aggrieved person may challenge the same before the Debts Recovery Tribunal under section 17, but such action will not render section 14 illegal.”
10. Thus, it can be seen that the Division Bench of this court has held in clear terms that if any action of the secured creditor is not in accordance with the Act or Rules, then one can challenge such action or measures by filing an appeal under section 17 of the Securitisation Act, but such illegal action, if any, will not render section 14 of the Securitisation Act bad in law.
11. When we confronted the learned advocate of the petitioners with this particular judgment of the Division Bench, the learned advocate submitted that he is conscious about the judgment delivered by the Division Bench, but according to the learned advocate, the same can be termed as per incurium because the Division Bench did not consider the validity of section 14 of the Securitisation Act from the point of view that no appeal has been provided against an order passed under section 14 of the Securitisation Act. According to him the right to property is a constitutional right and also a human right and no one can be deprived of his or her property arbitrarily. According to him, section 14 of the Securitisation Act can be termed as a very harsh provision and there should have been an appellate authority to examine the legality and validity of any orders passed under section 14 of the Securitisation Act.
12. We could have concluded at this very stage holding that as the Division Bench of this court has already upheld the validity of section 14 of the Securitisation Act no further adjudication would be necessary relying on the judgment rendered in the case of Rameshvaram Cotton Industries (P.) Ltd. (supra). However, we are of the view that there are some important issues arising in this petition which we would like to look into and express our opinion on the same.
13. We have, therefore, decided look into the issues as regards the constitutional validity of section 14 of the Securitisation Act independently and more particularly, in context of the contention that no appeal has been provided against such an order passed under section 14 of the Securitisation Act.
14. It is well settled position of law that a statute can be invalidated or held unconstitutional –
(i) if it is ultra vires the Parent Act ;
(ii) if it is contrary to the statutory provisions other than those contained in the Parent Act;
(iii) if law making power has been exercised in bad faith ;
(iv) if it is not reasonable and it goes against the legislative policy ; and
(v) if it does not fulfil the object and purpose of the enabling Act.
Analysis :
15.1 Section 14 of the Securitisation Act reads as follows :
“14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset. – (1) Where the possession of any secured asset is required to be taken by the secured creditor or if any of the secured assets is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured asset, request, in writing/ the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or, as the case may be, the District Magistrate shall, on such request being made to him –
(a) take possession of such asset and documents relating thereto ; and
(b) forward such assets and documents to the secured creditor.
(2) For the purpose of securing compliance with the provisions of subsection (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary.
(3) No act of the Chief Metropolitan Magistrate or the District Magistrate done in pursuance of this section shall be called in question in any court ,or before any authority.”
15.2 On a plain reading it is apparent that the said provision is a procedural provision whereunder the Chief Metropolitan Magistrate or the District Magistrate, (the Authority) as the case may be, shall, on a request being made to him – (a) take possession of such asset and documents relating to the assets ; and (b) forward such assets and documents to the secured creditor. Under sub-section (2) of section 14 of the Securitisation Act the authority is empowered to take such steps and use such force as may be necessary for taking possession of the secured assets and the documents relatable thereto. Under sub-section (3) of section 14 of the Securitisation Act, such act of the authority is protected and the action shall not be questioned in any court or before any authority. Thus, it is apparent that the role envisaged by the Legislature insofar as the authority is concerned, is a ministerial role in the form of rendering assistance and exercising powers by virtue of the authority vested in the District Magistrate or the Chief Metropolitan Magistrate including use of force as may be necessary. The said authority, namely, the Chief Metropolitan Magistrate or the District Magistrate is not vested with any adjudicatory powers. There is no other provision under the Securitisation Act in exercise of which the said Authority, who is approached by a secured creditor, can undertake adjudication of any dispute between the secured creditor and the debtor or the person whose property is the secured asset of which possession is to be taken. If such adjudicatory powers were to be vested in the Authority, the Securitisation Act would have made a specific provision in this regard.
15.3 Section 13(4) of the Securitisation Act provides for various measures a secured creditor may take to recover the secured debt; one of such measures is to take possession of the secured asset. A person aggrieved by any of the measures referred to in sub-section (4) of section 13 of the Securitisation Act is granted a right to make an application to the DRT within the prescribed period under section 17(1) of the Securitisation Act. Under sub-sections (2), (3) and (4) of section 17 of the Securitisation Act the statute has provided a complete code, including the powers to the Tribunal to declare any of the measures taken by the secured creditor under section 13(4) of the Securitisation Act invalid and consequential restoration of possession to the person from whom the possession was taken. A person aggrieved by any order made by the Tribunal under section 17 of the Securitisation Act has a statutory right of appeal under section 18 of the Securitisation Act. Therefore, under the guise of acting under section 14 of the Securitisation Act the Authority cannot be permitted to usurp statutory powers vested in the Tribunal.
15.4 Under section 34 of the Securitisation Act jurisdiction of any civil court entertain any suit or proceeding in respect of any matter which the Tribunal or the Appellate Tribunal is empowered by or under the Securitisation Act to determine is specifically divested; furthermore, no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred under the Securitisation Act. Thus, the legislative scheme is clear : sections 17 and 18 provide for a statutory remedy before the Tribunal and the Appellate Tribunal, while simultaneously civil court and any other authority are prohibited from dealing with the subject-matter which can be exclusively determined by the Tribunal.
15.5 Hence, the authority who is called upon to act under section 14 of the Securitisation Act can only assist, nay, is bound to assist the secured creditor in taking possession of the secured asset. Any dispute between the parties regarding the secured asset raised before the authority cannot be gone into by the authority.
15.6 In this connection, we refer to section 13 of the Securitisation Act which reads as follows :
“13. 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 secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all ‘or any of the rights under sub-section (4).
(3) The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
(3A) If, on receipt of the notice under sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable pr tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower :
Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the court of District Judge under section 17A.
(4) In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely :
