TMI Blog2004 (4) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... sion 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? 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? Whether the principle of lender s liability has been absolutely ignored while enacting the Act and its effect? Held that:- The borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public interest. Therefore uphold the validity of the Act and its provisions except that of sub-section (2) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ep 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. George, Ms. Kamini Jaiswal, Ms. Shomila Bakshi, Ms. Barooah, R.N. Keshwani, Ms. Ruchi A. Mahajan, Ms. S. Janani, Ms. Reena Kumar, Akhil Sibal, S.U.K. Sagar, Ms. Bina Madhavan, Ms. Pooja Nanekar, Arun Aggarwal, Sanjay Kapur, Rajiv Kapur, Ms. Shubhra Kapur, Rajender Wali, Rakesh Singh, Arun K. Sinha, D.K. Sinha, Ms. Jayashree Wad, Ashish Wad, Ms. Yugandhara Jha, Anshu Bhanot, Satyajit A. Desai, Venkateswara Rao, Anumolu, Ashok Kumar Jain, B.K. Jain, Pankaj Jain, Bijoy Kumar Jain, Rajesh Jain, S.S. Ray, Ms. Rakhi Ray, Ms. Pooja Bhatnagar, Ms. Shilpi Jha, Nina Gupta, Bina Gupta, Rajiv Mehra, M. Dutta and Rajiv Mehta for the Appearing Parties . JUDGMENT Brijesh Kumar, J.- Leave granted in Special Leave Petition (Civil) Nos. 5013/2003, 9658/2003, 11089/2003, 11267/2003, 11268/2003, 15566/2003, 17465/2003 and special leave petition @ CC 10728 and SLP(C) No. 6723/2003. 2. By means of the abovenoted bunch of cases some of those having been transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng 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 assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance;" 6. "Financial assistance" has been defined in clause ( k ), which reads as under: "( k ) financial assistance means any loan or advance granted or any debentures or bonds subscribed or any guarantees given or letters of credit established or any other credit facility extended by any bank or financial institution;" 7. Similarly, the term "default" is defined in clause ( j ), as quoted below : "( j ) default means non-payment of any principal debt or interest thereon or any other amount payable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny 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. (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: ( a )t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inancial 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 by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors: Provided that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956). ****** (10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent Court, as the case may be, for recovery of the balance amount from the borrower. (11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed aga ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 misapprehension that other ways and means have failed to recover the dues from the borrowers. 17. Referring to section 13 of the Act it is submitted on behalf of the petitioners that a security interest can be enforced by the secured creditor straightaway without intervention of the court just on default in repayment of an instalment and non-compliance of a notice of 60 days in that regard, declaring the loan as non-performing asset. Under sub-section (4) of section 13 the secured creditor is entitled to take possession of the secured assets and may transfer the same by way of lease, assignment or sale as provided under clause ( a ) or under clause ( b ) to take over the management of the secured assets including the right to transfer any secured assets or to appoint any person as provided in clause ( c ) to manage the secured assets taken over by the creditor. Under clause ( d ) by means of a noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons 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 as provided under sub-section (4) of section 13. It is further submitted that after the possession of the secured assets or its management has been taken over by the secured creditor or the property is leased out or sold to any other person, it would not be possible to raise and deposit 75% of the amount claimed by the secured creditor. It is also submitted that once the secured assets are taken over there is hardly any occasion for deposit of 75% of the claim since it is already secured and the management and the possession of the secured assets moves into the hands of the creditor. The position thus is that the borrower is gagged into a helpless position where he cannot ventilate his grievance against the drastic steps taken against him. The doors of the civil court are closed for him and no adjudicatory mechanism is provided before steps are taken under sub-section (4) of section 13. Suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icial 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. And if there be a body empowered by law to enquire into facts, makes estimates to impose a rate on a district, it would seem to me that the acts of such a body involving such consequence would be judicial acts. ****** 25. Applying the aforesaid principle, we are of the view that the presence of a lis or contest between the contending parties before a statutory authority, in the absence of any other attributes of a quasi-judicial authority is sufficient to hold that such a statutory authority is quasi-judicial authority. However, in the absence of a lis before a statutory authority, the authority would be quasi-judicial authority if it is required to act judicially." (p. 698) It is submitted that power to decide a lis is a judicial or quasi-judicial power and not purely an administrative power. Therefore a suitable forum has to be provided to decide all such disputes at an appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 page 735. He next referred to section 31 of the Act. It is submitted that the word security has not been defined under section 2 of the Act. Then refers to section 2(t) of the Act which defines the word property which means a movable, immovable, or any right to receive payment, receivable intangible assets etc. It is submitted that the Act not to apply to the legal liens. Further refers to Laws of Halsbury s , 4th Edition, Vol.28, pages 510-511 and section 48 of the Transfer of Property Act. It is submitted that if property is subject to several charge as first charge, second charge and third charge and so on property in relation to only one of them would be NPA and not in relation to other creditors having charge over the property. It is submitted that it is not clear in such a situation how the Act will be workable. 24. He also refers to section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld 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 section 17 of the Act it is adequate and the condition of deposit of 75% of the claim before the appeal could be entertained is not an unusual condition and it is to be found in other statutes also. It is then submitted that proviso to section 17 very clearly provides that on an application moved in that behalf the condition of deposit of the amount can be waived or the amount can be reduced. Therefore, it would not be correct to say that condition of pre-deposit is harsh as it can be relaxed in deserving cases. The bar of jurisdiction of the Civil Court was thought to be necessary to avoid lengthy legal process in realizing the amount due. It is then submitted that normally there should be a presumption in favour of validity of a legislation more so in regard to the laws relating to economic and financial matters and a few instances here and there of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 India. In so far the provisions contained under Section 15 of the Act and the challenge made to it, it is submitted that it is referable to section 9 and not to section 13(4)( a ) of the Act. 30. Shri Andhyarujina, learned senior counsel appearing for the Life Insurance Corporation of India stressed upon the background in which the impugned legislation was enacted pressed by circumstances, namely, over growing non-performing assets crippling the viability of financing by banking sector and financial institutions. It ultimately effects the process of industrialization and growth of national economy. It was difficult to get quick relief from the normal procedure of laws. The recovery through Debt Recovery Tribunals was also insignificant. Based on the recommendations of the Narasimham Committee, an expert committee recommended the legal framework co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but as the figures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debt Recovery Tribunals and appointing Presiding Officers, for a long time. Even after leaving that margin, it is to be noted that things in the concerned spheres are desired to move faster. In the present da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the recovery of dues of the advances made by the banks the committee observed that impact of such steps would be felt by the banks only over a period of time, in the meanwhile, the Committee also suggested for reconstruction of assets saying "the Committee has looked at the mechanism employed under similar circumstances in certain other countries and recommends the setting up of, if necessary by special legislation, a separate institution by the Government of India to be known as Assets Reconstruction Fund (ARF) with the express purpose of taking over such assets from banks and financial institutions and subsequently following up on the recovery of dues owed to them from the primary borrowers." While recommending for setting up of special Tribunals, the Committee observed : "Banks and financial institutions at present face considerab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Recovery of Debts Due to Banks and Financial Institutions Act was in operation it was uncalled for to nhave yet another legislation for the recovery of the mounting dues. Considering the totality of circumstances the financial climate world over, if it was thought as a matter of policy, to have yet speedier legal method to recover the dues, such a policy decision cannot be faulted with nor it is a matter to be gone into by the Courts to test the legitimacy of such a measure relating to financial policy. 37. Next we come to the question as to whether it is on whims and fancies of the financial institutions to classify the assets as non-performing assets, as canvassed before us. We find it not to be so. As a matter of fact a policy has been laid down by the Reserve Bank of India providing guidelines in the matter for declaring an as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... riate 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 proper asset classification may be fixed by the banks. The system should ensure that doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per extant guidelines." From what is quoted above, it is quite evident that guidelines as laid down by the Reserve Bank of India which are in more details but not necessary to be reproduced here, laying down the terms and conditions and circumstances in which the debt is to be classified as non-performing asset as early as possible. Therefore, we find no substance in the submission made on behalf of the petitioners that there are no guidelines for treating the debt as a non-performing asset. 38. We may now conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 Chapter, may prefer an appeal to the Debts Recovery Tribunal having jurisdiction in the matter within forty-five days from the date on which such 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 cent of the amount claimed 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 town or area which the State Government may, by notification in the Official Gazette, specify in his behalf. (2) No such power shall be exercised unless and until ( a )notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors and default has been made in payment of the principal money, or of part thereof, for three months after such service; or ( b )some interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after becoming due. (3) When a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorize the sale, or that due notice was not gi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 section 13(1) of the Act provides that notwithstanding anything contained in section 69 a secured interest can be enforced without intervention of the court. That is to say it overrides the provision as contained under section 69 where it is said that in no cases, other than those as enumerated in clauses ( a ), ( b ) and ( c ), a mortgage shall be enforced without intervention of the court. Once the said condition, as noted above, in section 69 of the Transfer of Property Act, the general law on the subject, has been overridden by the special enactment namely the Securitisation Act, it would not make much of a difference as to whether the transactions in question are akin to or amount to English mortgage or not, since irrespective of the kind of the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. . . economic conditions have vastly changed since the enactment of the Transfer of Property Act in 1882. The role of the unscrupulous money lenders dominating in the field of credit is no longer valid, with our reliance on institutionalization of credit, the banks another financing institutions are the major moneylenders of credit today. In their dealings with their mortgagors, it is anachronistic to assume that they will adopt the unscrupulous moneylenders. (Paragraph 1.2.19). In fact in extending credit, the necessity for suitable safeguards to banks and other financing institutions is now rightly stressed. It is understandable that the legal framework is essentially conceived to deal with unscrupulous moneylenders is no longer appropriate t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ling 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 financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub-section (4) of section 13. At the same time, more importantly we must make it clear unequivocally that communication of the reasons not accepting the objections taken by the secured borrower may not be taken to give an occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndhyarujina 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. Otherwise as provided under sub-section (3) of section 69 a mortgagor shall only be entitled to the damages for the wrongful or irregular sale of the property. Whereas, it is submitted, under the Securitisation rules it is provided that before putting the property on sale the authorized officer has to obtain the valuation of immovable property, a reserved price is to be fixed and a notice of 30 days before sale is to be served on the borrower. In this connection, Rule 9, the relevant rule, of the Security Interest (Enforcement) Rules, 2002 is quoted : "9. Time of sale, issues of sale certificate and delivery of possession, etc.- (1) No sale of immovable property under these rules shall take place before the expiry of thirty days from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or their claim may be so absurd and untenable which may not require any probe, whatsoever or to say precisely to the extent the scope is permissible to bring an action in the civil court in the cases of English mortgages. We find such a scope having been recognized in the two decisions of the Madras High Court which have been relied upon heavily by the learned Attorney General as well appearing for the Union of India, namely V. Narasimhachariar s case ( supra ) a judgment of the learned Single Judge where it is observed as follows in : "22. The remedies of a mortgagor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 right of redemption of property is completely lost. In cases where no such dispute is there, the right can be exercised and in other cases the question of difference in amount may be kept open and got decided before sale of property. 55. We may then turn to the arguments raised on behalf of the petitioners that the remedy before the Debt Recovery Tribunal under section 17 of the Act, is illusory burdened with onerous and oppressive condition of deposit of 75% of the amount of the demand notice before an appeal can be entertained by the Tribunal. We feel that it would be difficult to brush aside the challenge made to the condition of such a deposit. Sub-section (2) of section 17 itself says that no app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose 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 the purpose was to prevent frivolous appeals and revisions which impedes the implementation of the ceiling policy. Referring to yet another decision in Vijay Prakash D. Mehta v. Collector of Customs (Preventive) Bombay [1988] 4 SCC 402, it is submitted that right to appeal is neither an absolute right nor an ingredient of natural justice which principles are to be followed in judicial and quasi-judicial proceedings. A right of appeal is a statutory right and it can be circumscribed by the conditions. We also find that there are further observations to the effect that the condition is for the purpose to act in torrorem to make the people comply with the provisions of the law. Shyam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceeding 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 not cure the inherent infirmity leaning one-sidedly in favour of the party, who, so far has alone been the party to decide the amount and the fact of default and classifying the dues as NPAs without participation/association of the borrower in the process. Such an onerous and oppressive condition should not be left operative in expectation of reasonable exercise of discretion by the concerned authority. Placed in a situation as indicated above, where it may not be possible for the borrower to raise any amount to make the deposit, his secured assets having already been taken possession of or sold, such a rider to approach the Tribunal at the first instance of proceedings, cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 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 reason for double security in respect of an amount yet to be determined and settled ( v ) 75% of the amount claimed by no means would be a meager amount ( vi ) it will leave the borrower in a position where it would not be possible for him to raise any funds to make deposit of 75% of the undetermined demand. Such conditions are not alone onerous and oppressive but also unreasonable and arbitrary. Therefore, in our view, sub-section (2) of section 17 of the Act is unreasonable, arbitrary and violative of Article 14 of the Constitution. 65 . Shri Salve, learned senior counsel, appearing on behalf of the respondents, submits that so far it relates t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 transactions more particularly when financing is through banks and financial institutions utilizing the money of the people in general namely, the depositors in the banks and public money at the disposal of the financial institutions. Therefore, wherever public interest to such a large extent is involved and it may become necessary to achieve an object which serves the public purposes, individual rights may have to give way. Public interest has always been considered to be above the private interest. Interest of an individual may, to some extent, be affected but it cannot have the potential of taking over the public interest having an impact in the socio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at 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 affected here and there, that would not impinge upon the validity of the Act which otherwise serves the larger interest. 68 . The main thrust of the petitioners as indicated in the earlier part of this judgment to challenge the validity of the impugned enactment is that no adjudicatory mechanism is available to the borrower to ventilate his grievance through an independent adjudicatory authority. Access to the justice, it is submitted, is hall-mark of our system. section 34 of the Act bars the jurisdiction of the civil courts to entertain a suit in matters of recovery of loans. The remedy of appeal available unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties 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 recovery of debts and bar of jurisdiction of the civil court to entertain any dispute in respect of such matters. Hence, it cannot be pleaded that the petitioners cannot complaint of the conduct of the banking companies and financial institutions for whatever goes in between the two is absolutely a matter of contract between private parties, therefore, no adjudication may be necessary. 70 . At this stage we may also take note of the arguments raised on behalf of the petitioners that in the present day world concept of lender s liability has also developed which cannot be ignored. We have alr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are directed to problems made manifest by experience... Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method... There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot. . . be converted into Tribunals for relief from such crudities and inequities. The Court must therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 correctives and the possible harm flowing from the wrong orders. 75 . In relation to the argument on behalf of the petitioners that they are entitled to be heard before a notice under sub-section (2) of section 13 is issued failing which there is denial of principles of natural justice, a reference has been made to certain decisions to submit that in every case, it is not necessary to make a provision for providing a hearing. For example, in the case of a licensing statute - Kishan Chand Arora s case ( supra ). The other decisions referred t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating 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 issue. We hope it was not meant to be said that all those who defaulted according to the banks and financial institutions must be condemned unheard who might not deserve any hearing to place their side of the case, unless they must go through the crushing pre-conditions of deposit of 75% of the amount demanded over and above their secured assets already having been taken possession of. We feel this can well be one example of hitting below the belt. 79 . Some submissions have been made pointing out that in certain circumstanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) 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 to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the publ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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