Delhi High Court

Satyavol Venkat Krishna Rao & Ors. vs Union Of India & Ors. on 13 September, 2010

Author: Dipak Misra,Chief Justice

*            HIGH COURT OF DELHI AT NEW DELHI

                               Judgment Reserved on : 10th July, 2010
%                              Judgment Pronounced on: 13th September, 2010


+     WP(C) No.4653/2010


      SATYAVOL VENKAT KRISHNA RAO & ORS. ..... Petitioners
                  Through  Mr. J.M. Bari with Ms. Shweta Bari,
                           Advocates

                      versus


      UNION OF INDIA & ORS.                                 ..... Respondents

                    Through               Ms. Maneesha Dhir with Ms. Preeti
                                          Dalal and Mr. K.P.S. Kohli, Advs. for
                                          R-1.
       CORAM:
       HON'BLE THE CHIEF JUSTICE
       HON'BLE MR. JUSTICE MANMOHAN

1. Whether reporters of the local papers be allowed to see the judgment? Yes
2. To be referred to the Reporter or not?                                 Yes
3. Whether the judgment should be reported in the Digest?                  Yes


DIPAK MISRA, CJ

Invoking the jurisdiction of this Court under Article 226 of the

Constitution of India, the petitioners have prayed for declaration of the

second proviso to Section 18 of the Securitisation and Reconstruction of

Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter

referred to as „the SARFAESI Act‟) as unconstitutional and further to issue a

writ of certiorari to quash the order dated 28th June, 2010 passed by the

Debts Recovery Appellate Tribunal, Delhi made in Inward No.293 of 2010.

Quite apart from the above, a prayer has been made to recast the proviso to

Section 18.

2. The facts which are essentially to be stated for adjudication of this

petition are that the petitioner No.1 is the director of the petitioner No.3, M/s

PRK Exports Private Limited and the proprietor of the petitioner No.4, M/s

Premier Overseas. A loan was granted to the petitioner No.1 by the

respondent No.2, the HDFC Bank, under the LAP scheme to the tune of

Rs.25 lakhs for which he had mortgaged certain properties.

3. On 13th April, 2007, the respondent bank enhanced the loan granted

after reviewing all the parameters of performance and timely repayment of

the dues towards the loan from the earlier amount. On 22nd December, 2007,

the bank accepted a request for fresh loan to the petitioner No.1 based upon

the need of fund on account of business expansion. A security agreement

was entered into on 1st January, 2008 between the petitioner No.1 and the

respondent No.2 bank whereby an equitable mortgage was created in respect

of secured asset by depositing the sale deed dated 14th October, 2005 of the

secured asset.

4. Be it noted, various averments have been made about the marital

status between the petitioner No.1 and his wife, the respondent No.3 and the

litigations that were initiated against each other which, we are disposed to

think, are totally irrelevant for the present petition. As set forth, the

respondent No.2 issued a demand notice on 13th June, 2009 under Section

13(2) of the SARFAESI Act claiming a sum of Rs.38,35,972/- towards dues

as on 8th June, 2009 in respect of the demand draft loan. The 3rd respondent

obtained an ex parte order dated 6th July, 2009 from the Court of

Metropolitan Magistrate (East), Karkardooma Courts, Shahdara under

Section 23 of the Protection of Women from Domestic Violence Act, 2005

whereby the petitioner No.1 had been restrained from creating any third

party interest in the secured asset. An application was moved by the

respondent No.2 bank before the Additional Chief Metropolitan Magistrate

(Special Acts) Central, Delhi under Section 14(2) of the SARFAESI Act for

providing assistance to the bank to obtain possession of the secured asset in

accordance with law. The receiver was appointed who was given a notice

on 10th November, 2009 for taking possession of the secured asset.

5. As pleaded, the bank issued a demand notice on 13 th November, 2009

under Section 13(2) of the SARFAESI Act claiming a sum of

Rs.30,46,554.31 towards dues as on 8th June, 2009 in respect of the demand

draft loan. It is urged that the said notice has not been received by the

petitioners. The third respondent filed an application on 16th November,

2009 under Section 17 of the SARFAESI Act before the Debt Recovery

Tribunal-III, Delhi (DRT) which was registered as SA No.324 of 2009. The

petitioners filed the reply to SA No.324 of 2009 highlighting the illegalities

committed by the 3rd respondent for claiming the secured property being her

permanent residence and matrimonial home. The DRT disposed of SA

No.324 of 2009 by order dated 18th May, 2010 directing that on clearing the

dues of the Standard Chartered Bank in respect of certain properties which

have been acquired by the petitioner No.1 in the joint names of the petitioner

No.1 and his wife, the respondent No.3, the respondent No.3-wife would

become the absolute owner with a right to sell the property and on payment

of dues of the respondent No.2 bank, the original title deed of the secured

asset would be delivered to the respondent No.3. Being grieved by the said

order dated 18th May, 2010, the petitioners preferred an appeal under Section

18 of the SARFAESI Act before the Debt Recovery Appellate Tribunal,

Delhi (for short „the appellate tribunal‟). By order dated 28th June, 2010, the

tribunal directed the petitioner-appellant to deposit a sum of 25% of the

total principal amount within four weeks failing which the appeal would

stand dismissed. The said order, as put forth, has been passed in terms of the

third proviso to Section 18 of the SARFAESI Act. It is contended that under

these circumstances, the petitioners are compelled to challenge the

constitutional validity of the aforesaid provision.

6. It is propounded in the petition that the provisions are unconstitutional

as the Parliament has not taken into consideration the diverse kinds of

appeals to be filed by the borrowers. The conditions of pre-deposit in all

kinds of appeals are onerous and oppressive and further, the same being

arbitrary hits at the root of Article 14 of the Constitution of India. It is also

urged that such kind of stipulations for pre-deposit in all kinds of appeals

does not achieve the desired objectives of the SARFAESI Act.

7. It is contended that unless there is determination, the provisions of

Section 18 of the SARFAESI Act would not reasonably be attracted and

such rigorous and onerous provisions tantamount to failure of justice. It is

averred that such stringent conditions would defeat the very purpose of the

appeal and hence, invites the frown of Article 14 of the Constitution of

India. It is asserted that the Parliament should have conferred the appellate

tribunal with the power to waive the full amount depending upon the nature

of the case and the same not having been provided, the provision is ultra

vires Article 14 of the Constitution. It is asseverated that the concept of

undue hardship has not been kept in view and further, the various

circumstances are not being taken into consideration which makes the

legislation unconstitutional. Additionally, it is urged that there is possibility

of abuse of power and unworkability of the provision.

8. We have heard Mr. J.M. Bari along with Ms. Shweta Bari, learned

counsel for the petitioners, and Ms. Maneesha Dhir along with Ms. Preeti

Dalal and Mr. K.P.S. Kohli, learned counsel for the respondent No.1. It is

worth noting that regard being had to the nature of the prayer made, the

learned counsel for the parties advanced their contentions and the learned

counsel for the respondent No.1 fairly stated that she does not want to file

the counter-affidavit.

9. Section 18 of the SARFAESI Act deals with the provision of appeal to

the appellate tribunal. The said provision reads as under:-

"18. Appeal to Appellate Tribunal.- (1) Any person aggrieved, by order made by the Debts Recovery Tribunal [under section 17, may prefer an appeal along with such fee, as may be prescribed] to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal.

[Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower:]

[Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent. of the amount of debt due from 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."

10. The 3rd and 4th provisos to sub-section (1) were brought into the

statute book by the Act of 30 of 2004 with effect from 11 th November, 2004.

On a perusal of the said provisions, it is luminescent that the appellate

tribunal has been conferred with the power to reduce the amount not less

than 25%. The submission of Mr. Bara, learned counsel for the petitioners,

is that the aforesaid provision is unconstitutional as an onerous condition is

imposed while providing a remedy for appeal and secondly, the legislature

has not visualised the various categories of appeals which could be preferred

before the tribunal but has only provided that the borrower is required to

deposit the amount.

11. To appreciate the controversy, it is apposite to refer to Section 17 of

the SARFAESI Act. Section 17 provides for an appeal to be preferred by

any person including a borrower aggrieved by any of the measures referred

to in sub-section (4) of Section 13 taken by the secured creditor or his

authorised officer. Sub-section (2) of Section 17 initially provided that such

appeals shall not be entertained by the DRT unless the borrower has

deposited with the DRT 75% of the amount claimed in the notice referred to

in sub-section (2) of Section 13. There is a stipulation that the tribunal may,

for reasons to be recorded in writing, waive or reduce the amount to be

deposited under the said Section. The constitutional validity of the said

provision came to be assailed. This came to be dealt with by their Lordships

in Mardia Chemicals Ltd. , etc. etc. V. Union of India and others etc. etc.,

AIR 2004 SC 2371. While dealing with the stipulation as regards the

condition of pre-deposit under Section 17 of the Act, their Lordships have

held thus:-

"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 Art.14 of the Constitution."

12. In the said decision, in paragraph 82, their Lordships have held thus:-

"We, therefore, subject to what is provided in paragraph 80 above, uphold the validity of the act and its provisions

except that of sub-section (2) of Section 17 of the Act, which is declared ultra vires of Article 14 of the Constitution of India."

13. In view of the aforesaid, it is vivid that the validity of the Section was

upheld. In this context, we may refer with profit to the discussion in Mardia

Chemicals Ltd. (supra) wherein their Lordships referred to the decisions in

Seth Nandlal v. State of Haryana, AIR 1980 SC 2097, Vijay Prakash D.

Mehta v. Collector of Customs (Preventive), Bombay, AIR 1988 SC 2010

and Shyam Kishore v. Municipal Corporation of Delhi, AIR 1992 SC 2279

wherein it has been held that the right of appeal is a creature of the statute

and while granting the right, the legislature can 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.

Their Lordships treated the appeal to the DRT, as provided under Section

17, as an approach to the adjudicating authority in the first instance and not

in appeal and, accordingly, held the imposition of conditions to be invalid

and all other provisions of the SARFAESI Act were declared to be valid.

14. In view of the aforesaid enunciation of law, there can be no trace of

doubt that Section 18 which provides for appeal to the Debts Appellate

Recovery Tribunal and is hedged by reasonable conditions cannot be treated

to be ultra vires.

15. The learned counsel for the petitioners suggested that the second

proviso to Section 18 should be substituted and for the sake of completeness,

we reproduce the said suggestion:-

"Provided further that no appeal shall be entertained unless the borrower who wants to save the secured asset from sale by the secured creditor, has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, which is less."

16. It is well established principle of law that the Courts of law can

neither substitute legal provisions nor legislate. In this context, we may

refer with profit to the decisions in Chandigarh Administration and others

v. Manpreet Singh and others, (1992) 1 SCC 380, the Apex Court has held

that the High Court can strike down an offending rule on stated ground of

invalidity and direct the authority to re-frame it and act accordingly but

cannot itself re-frame it and issue directions.

17. In Saurabh Chaudri and others v. Union of India and others (2003)

11 SCC 146, the Apex Court in paragraph 72 has held thus:

"77. The courts are normally reluctant to issue any direction to the Central Government for making law. Following our practice, we refrain ourselves from issuing any direction in this regard. We hope and trust that the Central Government expeditiously considers making of a legislation or taking such steps as are necessary in this behalf keeping in view the requirement of coordination in higher education in terms of Entry 66 List I of the Seventh Schedule of the Constitution of India."

18. In Municipal Committee, Patiala v. Model Town Residents Assn.

and others, (2007) 8 SCC 669, it has been held thus:

"27. It is so well settled and needs no restatement at our hands that the legislature is supreme in its own sphere under the Constitution subject to the limitations provided for in the Constitution itself. It is for the legislature to decide as to when

and in what respect and of what subject-matter the laws are to be made. It is for the legislature to decide as to the nature of operation of the statutes."

In view of our aforesaid analysis, the prayer made on this score is

absolutely unsustainable and is hereby rejected.

19. The next limb of challenge of the learned counsel for the petitioners is

that the order dated 28th June, 2010 requiring him to deposit a sum of 25% is

totally unjustified. It is not in dispute that the appellants had preferred an

appeal before the Debts Appellate Recovery Tribunal. The tribunal, while

entertaining the application for waiving, has followed the language

appearing in the second proviso to Section 8. The said proviso clearly lays

down that the appellate tribunal may, for reasons to be recorded in writing,

reduce the amount to not less than twenty-five per cent of the debt referred

to in the second proviso. On a bare reading of the aforesaid provision, it

becomes clear that the tribunal has no jurisdiction to reduce the amount