Bombay High Court

Pvt. Ltd. & Ors. Ig vs Union Of India & Ors on 14 November, 2011

Bench: Dr. D.Y. Chandrachud, A.A. Sayed

dmt                                  1                                              wp1956




                                                                             
       IN THE HIGH COURT OF JUDICATURE AT BOMBAY




                                                     
             ORDINARY ORIGNAL CIVIL JURISDICTION




                                                    
                     WRIT PETITION NO. 1956 OF 2011

      M/s. Sea Poly Plast India




                                            
      Pvt. Ltd. & Ors.      ig                            ..  Petitioners.

            versus
                          
      Union of India & Ors.                               ..  Respondents.
                                         .....

      Mr.  Vishwas Shah with Mr. K.I. Shah and Mr. Jeetendra 
        


                  Ranawat i/by Mr. Manoj Kadam for Petitioners.
     



      Mr. M.S. Bhardwaj with Mr. Rajinderkumar for R. No. 1.

                                         ......





                             CORAM :  DR.D.Y.CHANDRACHUD &
                                        A. A. SAYED, JJ.

14 November 2011.

ORAL JUDGMENT : (PER DR. D.Y.CHANDRACHUD, J.)

The Petitioners have challenged the constitutional

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validity of Rule 8 (5) of the Security Interest (Enforcement)

Rules, 2002. These Rules have been framed by the Central

Government in exercise of powers conferred by the

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002.

2. A notice under Section 13 (2) was issued to the

Petitioners on 20 January 2011 demanding an amount of Rs.

268 crores. The Petitioners raised objections on 14 March 2011

which were disposed of on 12 May 2011. Symbolic possession

of the secured assets has been taken on 17 June 2011. The

Petitioners have a remedy available under Section 17 of the Act

of moving the Debt Recovery Tribunal. In these proceedings

the Petitioners have questioned the constitutional validity of

Rule 8 (5) which reads as follows :-

8 (5) Before effecting sale of the immovable

property referred to in sub-rule (1) of rule 9, the

authorised officer shall obtain valuation of the

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property from an approved valuer and in

consultation with the secured creditor, fix the

reserve price of the property and may sell the

whole or any part of such immovable secured asset

by any of the following methods :-

(a) by obtaining quotations from the persons

dealing with similar secured assets or otherwise

interested in buying the such assets; or

(b) by inviting tenders from the public;

                    (c)    by holding public auction;  or
        


                    (d)    by private treaty.

3. The ground of challenge to Rule 8 (5) is that the

authorised officer is empowered in consultation with the

secured creditor to fix the reserve price. According to the

Petitioners, Rule 8 (5) does not contemplate that the borrower

should be consulted. Hence, according to the Petitioners, the

Rule is ultra vires.

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4. Under Rule 8(5), the authorised officer has to obtain

a valuation of the property from an approved valuer before

effecting a sale under sub-rule (1) of Rule 9. The reserve price

of the property is required to be fixed in consultation with the

secured creditor by the authorised officer. Sub-rule (5) then

provides the methods by which the property can be sold. Sub-

rule (6) of Rule 8 stipulates that the authorised officer shall

serve to the borrower a notice of 30 days for the sale of the

immovable secured assets under sub-rule (5). Under Sub-rule

(1) of Rule 9, no sale of immovable property can take place

before the expiry of 30 days from the date on which a public

notice of the sale is published in the newspapers or a notice of

sale has been served upon the borrower.

5. Section 13 (8) of the Act stipulates that 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

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secured assets shall not be sold or transferred to the secured

creditor and no further steps shall be taken by him for transfer

or sale of the secured assets. The object of giving a notice to

the borrower under sub-rule (6) of Rule 8 is not only to enable

the borrower to exercise the option which is conferred upon

him of paying the dues of the secured creditor together with

the costs, charges and expenses incurred. Undoubtedly such a

right is given to the secured creditor under Section 13 (8). The

right can be exercised prior to the date fixed for sale or

transfer. But, on receipt of the notice under Sub-rule (6) of

Rule 8 a borrower can also raise objections to the valuation

submitted under Rule 8(5). Hence, though Rule 8 (5)

contemplates consultation with the secured creditor before the

reserved price is fixed, the scheme under the Rules, when read

in its entirety, would indicate that sufficient safeguards have

been provided to the borrower to whom a notice is issued

under sub-rule (6) of Rule 8. The issuance of a notice is not

without purpose. One of the purposes is to enable the

borrower to repay the dues of the secured creditor together

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with the costs, charges and expenses under Section 13 (8). The

borrower can also object to the valuation upon receipt of a

notice under rule 8(6). This is implicit in Rule 8(6).

6. In view of this legal position, there is no merit in

the constitutional challenge to Rule 8(5). The view which we

have taken accords with the law laid down in a judgment of

the Gujarat High Court in Kanha International & Ors. v. Union

of India & Ors, AIR 2011 Guj 108. A Division Bench of the

Gujarat High Court consisting of Mr. Justice S.J. Mukhopadhaya,

(as His Lordship then was) and Mr. Justice J.B. Pardiwala

while interpreting Rule 8(5) and Rule 8 (6) held as follows.

"13. According to us, Rule 8(6) of the Rules of

2002 provides the necessary safeguard if the action

is taken in arbitrary and unreasonable manner and

if the valuation of the property is not properly

fixed. The whole object of Rule 8 (6) of the Rules

of 2002 appears to be that the borrower gets clear

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thirty days' notice before the sale takes place.

During this period, the borrower can raise

objections and can also point out before the

appropriate forum as regards the correct and true

valuation of the property. The essential purpose of

sub-rule (5) of Rule 8 of the Rules of 2002 is to see

that there is proper valuation by an approved

valuer, who would be considered as an expert, and

the view of the secured creditor on the aspect of

fixation of reserved price is taken into consideration

by the authorized officer. Just because the

borrower is excluded from Rule 8 (5) of the Rules

of 2002 or has no voice at the time when the

valuation is fixed and the reserved price is also

fixed, by itself will not render Rule 8 (5)

unconstitutional."