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TMI Blog2011 (3) TMI 1455X X X X Extracts X X X X X X X X Extracts X X X X ..... ra vires the Constitution of India and/or null and void. " 2. First, we shall take up the second prayer. At the very outset, we may note with profit that in Mardia Chemicals Ltd. v. Union of India AIR 2004 SC 23711 barring section 17(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act'), the entire Act was held to be constitutionally valid. After the said decision was rendered certain amendments were carried out in sections 13, 17 and 18 of the Act. 3. The unamended section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 reads as follows :- "18. Appeal to Appellate Tribunal.-(1) Any person aggrieved by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal. (2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less : Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso. (2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder." 6. Thus, the amended section imposes certain conditions as is perceivable from the 2004 amendment. 7. Mr. Jayant Bhushan, learned senior counsel appearing for the petitioner, assailing the validity of section 18 of the SARFAESI Act has contended that the said provision is violative of Article 14 and Article 19(1)(g) of the Constitution of India as it has not kept in view that in the event of an illegal and erroneous order passed by the Debts Recovery Tribunal, the physical possession of the factory premises is taken over by the respondent No. 1-Bank and the said factory premises is sold. It is further contended that the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act in the present case. We may refer to a decision of this Court reported in Smt. Ganga Bai v. Vijay Kumar (1974) 2 SCC 393, where in respect of original and appellate proceedings a distinction has been drawn as follows :- ". . . There is a basic distinction between the right of suit and the right of appeal. There is an inherent right in every person to bring a suit of civil nature and unless one's choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and, therefore, an appeal for its maintainability must have the clear authority of law. That explains why the right of appeal is described as a creature of statute." 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 per cent of the demand, at the initial proceeding itself sounds unreasonable and oppre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it 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 per cent 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 per cent 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." [Emphasis supplied] 10. After the said decision was rendered, the Parliament as stated earlier amended section 17 and also carried out certain amendments in section 18. We have already reproduced the amended section 18. The second proviso to section 18 stip ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of a statute and there is no reason why the Legislature while granting the right cannot impose conditions for the exercise of such right so long as the conditions are not so onerous as to amount to unreasonable restrictions rendering the right almost illusory (vide the latest decision in Anant Mills Ltd. v. State of Gujarat AIR 1975 SC 1234). Counsel for the appellants, however, urged that the conditions imposed should be regarded as unreasonably onerous especially when no discretion has been left with the appellate or revisional authority to relax or waive the condition or grant exemption in respect thereof in fit and proper cases and, therefore, the fetter imposed must be regarded as unconstitutional and struck down. It is not possible to accept this contention for more than one reason. In the first place, the object of imposing the condition is obviously to prevent frivolous appeals and revision that impede the implementation of the ceiling policy; secondly, having regard to sub-sections (8) and (9) it is clear that the cash deposit or bank guarantee is not by way of any exaction but in the nature of securing mesne profits from the person who is ultimately found to be in unl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es power to the Appellate Authority to dispense with such deposit unconditionally or subject to such conditions in cases of undue hardships. It is a matter of judicial discretion of the Appellate Authority." Thereafter, their Lordships, while dealing with the right of appeal, have opined thus : "Right to appeal is neither an absolute right nor an ingredient of natural justice the principles of which must be followed in all judicial and quasi-judicial adjudications. The right to appeal is a statutory right and it can be circumscribed by the conditions in the grant." 15. The submission of Mr. Jayant Bhushan, learned senior counsel, is that the condition imposed is totally onerous and, hence, illusory. In Mardia Chemicals Ltd.'s case (supra), their Lordships, while drawing a distinction between a proceeding at the first instance and an appeal, have also taken note of the fact that 75 per cent of the amount claimed by no means would be a meagre amount and the same was stated in the backdrop that there was no determination of the amount due by that stage and further the secured assets or its management with transferable interest had already taken over and under the control of the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e third proviso to section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ('the 1985 Act'). In the writ petition, the grounds that have been urged to challenge the said provision are that the said proviso is arbitrary and unreasonable and violative of Articles 14 and 19(1)(g) of the Constitution of India inasmuch as it confers unguided power on the secured creditors to deprive a sick company of its valuable rights under the said Act without reference to the statutory authority who is under obligation of ensuring the proper application of the provision of the said Act to give such unilateral powers to the secured creditors merely because they control more than 75 per cent of the secured debt of a sick company. It is also contended that the proviso abrogates the entire policy and the purpose of the statute by conferring full discretion on the question of rehabilitation on one category of stakeholders, namely, the creditors, in exclusion of all others including the statutory authority. It is also urged that the said provision offends Article 14 of the Constitution as there is no intelligible differentia in the classification and the object to be achieved inasmuc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n any measures to recover their secured debt under sub-section (4) of section 13 of that Act." 21. To appreciate the stand and stance put forth in the writ petition and the submissions canvassed by Mr. Jayant Bhushan, learned senior counsel supporting the said stand, it is appropriate to understand the purpose of the said Act being brought into existence. The relevant part of the statement of object and reasons of the 1985 Act reads as follows :- "The ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central and State Governments and locking up of investible funds of banks and financial institutions are of serious concern to the Government and the society at large. The concern of the Government is accentuated by the alarming increase in the incidence of sickness in industrial companies. It has been recognized that in order to fully utilize the productive industrial assets, afford maximum protection of employment and optimize the use of the funds of the banks and financial institutions, it would be imperative to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible. It wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tracts, etc. Section 32 reads as follows : "32. Effect of the Act on other laws.-(1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than this Act. (2) Where there has been under any scheme under this Act an amalgamation of a sick industrial company with another company, the provisions of section 72A of the Income-tax Act, 1961 (43 of 1961), shall, subject to the modifications that the power of the Central Government under that section may be exercised by the Board without the Central Government under that section may be exercised by the Board without any recommendation by the specified authority referred to in that section, apply in relation to such amalgamation as they apply in relation to the amalgamation of a company owning an industrial undertaking wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umber 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 day global economy it may be difficult to stick to old and conventional methods of financing and recovery of dues. Hence, in our view, it cannot be said that a step taken towards securitisation of the debts and to evolve means for faster recovery of the NPAs was not called for or that it was superimposition of undesired law since one legislation was already operating in the field namely the Recovery of Debts Due to Banks and Financial Institutions Act. It is also to be noted that the idea has not erupted abruptly to resort to such a legislation. It appears that a thought was given to the problems and Narasimham Committee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Anwar Ali Sarkar's case 1952 SCR 284 : (AIR 1952 SC 75) and Suraj Mall Mohta's case (1955) 1 SCR 448 : (AIR 1954 SC 545) without any guidelines as to the class of cases in which either procedure is to be resorted to, the statute will be hit by Article 14. Even there, as mentioned in Suraj Mall Mohta's case, a provision for appeal may cure the defect. Further, in such cases it from the preamble and surrounding circumstances, as well as the provisions of the statute themselves explained and amplified by affidavits, necessary guidelines could be inferred as in Saurashtra case 1952 SCR 435 : (AIR 1952 SC 123) and Jyoti Pershad's case (1962) 2 SCR 125 : (AIR 1961 SC 1602) the statute will not be hit by Article 14. Then again where the statute itself covers only a class of cases as in Haldar's case (1960) 2 SCR 646 : (AIR 1960 SC 457) and Bajoria's case 1954 SCR 30 : (AIR 1953 SC 404) the statute will not be bad. The fact that in such cases the executive will choose which cases are to be tried under the special procedure will not be bad. The fact that in such cases the executive will choose which cases are to be tried under the special procedure will not affect the validity of the stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... category of industrial companies under section 22 under certain conditions. After the SARFAESI Act came into force, especially the second proviso divests the jurisdiction of the BIFR. The Legislature in its wisdom incorporated the said condition. On a reading of the proviso in a purposive manner, it cannot be said that this power conferred on the secured creditors is totally unfettered or unguided. The reference to the board was abated only if the secured creditors representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of the secured creditors have taken any measures to recover the secured debt under sub-section (4) of section 13 of the SARFAESI Act. The condition precedent is that the secured creditors must have three-fourth value of the amount outstanding against the financial assistance and must have taken action under sub-section (4) of section 13 of the SARFAESI Act. If we understand the object and reasons and the purpose of the SARFAESI Act, as has been stated by their Lordships in Mardia Chemicals Ltd.'s case (supra) and the conditions imposed, it is difficult to accept the submission of the learned c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... truct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the Judges have been overruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability." The Court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sensitive and complex, that many problems are singular and contingent, that laws are not abstract propositions and do not relate to abstract units and are not to be measured by abstract symmetry" that exact wisdom and nice adaptation of remedy are not always possible and that "judgment is largely a prophecy based on meagre and uninterrupted 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 and, therefore, it cannot provide for all possible situations or anticipate all possible abuses. There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , is unsustainable inasmuch as there is an intelligible differentia as the representation of three-fourth creditors in value itself qualifies to be an intelligible differentia. The purpose behind the legislation was to remedy a situation wherein the financial institutions and banking sector was confronted with not realizing their amount and not being allowed a level playing field. The legislative intention is also clear from the language employed in section 35 of the SARFAESI Act. To avoid inconsistency, the amendment was brought in the 1985 Act. It has a sacrosanct purpose which subserves the cause of economic growth. That apart it serves a public purpose. Therefore, the challenge on the bedrock of Article 14 of the Constitution is untenable. 35. As far as the challenge on the bedrock of Article 19(1)(g) and Article 21 of the Constitution are concerned, we really fail to fathom how the said provision really affects the right to carry out any trade or profession or creates a dent in the right to life. If an industrial company becomes sick, it cannot claim as a matter of right to carry on trade or profession by not paying back the loan. Trade and scruples and the purity of the econ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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