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TMI Blog2004 (4) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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. George, Ms. Kamini Jaiswal, Ms. Shomila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assistance by any bank or financial institution or w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 secured debt or any instalment thereof, and his account in respect of such debt is classified by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h 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 misapprehension that other ways and means have failed to recover the dues from the borrowers. 17. Referring to section 13 of the Act it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espect 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 suc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 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 sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 fou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntract 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 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 cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em. 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 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 suggeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire 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 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtgagor 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 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 claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cilitate 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. . . 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 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 li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice. 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 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 R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 reasona ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tageous 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties. 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 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stion 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 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 n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 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 econom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecessarily 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 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 pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lf, 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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