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PRESUMPTION IN FAVOR OF CONSTITUTIONALITY OF AN ENACTMENT

Other Topics - By: - Mr. M. GOVINDARAJAN - Dated:- 19-6-2015 - In Holystar Natural Resources (P) Limited V. Union of India - 2014 (1) TMI 1639 - DELHI HIGH COURT the petitioners challenged Section 2(1)(o) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFAESI Act for short) and the RBI circular dated 01.07.2013 as violative of articles 14 and 19(1)(g) of the Constitution of India. Section 2(1)(o) defines the term Non performing asse .....

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relating to assets classifications issued by the Reserve Bank. Clause 2.1.RBI guidelines dated 01.07.2013 defines the non performing assets. Clause 4.1 provides for categories of non performing assets as substandard assets, doubtful assets and loss assets. The petitioners submitted the following: Section 2(1)(o) of the Act was violative of article 19(1)(g) of the Constitution of India as it gave uncontrolled and arbitrary power in the hands of financial institution/RBI to declare any entity as .....

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or equal to 12 months. In other words, it was entirely left to the whim and fancy of the banks/financial institutions/RBI as to whether they wanted to declare an account to be an NPA when it had become a sub standard or doubtful or loss asset; No guideline had been laid or prescribed according to which the bank/financial institution had to decide whether an account is sub standard or not; Uncanalized/uncontrolled/arbitrary power to the banks/financial institutions to decide whether an NPA bec .....

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2002 and amended from time to time. The whole concept of classification an account as an NPA was further clarified; Amendment in Section 2(1)(o) of the Act to empower the concerned regulator who was administering or regulating such an entity to lay down classification norms for an NPA. The Parliament had not delegated any essential legislative function to RBI under Section 2 (1)(o) of the Act; Madras High Court in Signal Apparels (P) Limited V. Canara Bank held that Section 2 (1)(o) of the A .....

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Section 2(1)(o) of the Act and the RBI circular dated 01.07.2013 are violative of Articles 14 and 19(1)(g) of the Constitution of India?. The High Court relied on the following judgments: Chiranjit Lal Choudhari V. Union of India - 1950 (12) TMI 17 - SUPREME COURT OF INDIA; Municipal Corporation of City of Ahmeabad V. Jan Mohammed Usman Bhai - 1986 (4) TMI 330 - SUPREME COURT; R.K. Garg V. Union of India - 1981 (11) TMI 57 - SUPREME Court The High Court observed that it is trite that presump .....

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statute, there is no classification at all and no difference peculiar to any individual or class and not applicable to any individual or class and not applicable to any other individual or class and yet the law hits only a particular individual or class; The principle of equality does not mean that every law must have universal application for all persons who are not by nature, attainment or circumstances in the same position and the varying needs of different classes of persons often require s .....

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such classification must be based upon some real and substantial distinction bearing a reasonable and just relation to the object sought to be attained and the classification cannot be made arbitrary and without any substantial basis. The High Court observed that the apex court in the above cited judgment has laid down the guidelines when the classification is not discriminatory when equality can be claimed and how a classification becomes arbitrary. In the second case the Supreme Court held th .....

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