IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 10548 of 2012 For Approval and Signature:
HONOURABLE THE CHIEF JUSTICE
MR.BHASKAR BHATTACHARYA
AND HONOURABLE MR.JUSTICE J.B.PARDIWALA ========================================== ===============
========================================================= HARVINDERSINGH J VIJAN Versus AUTHORISED OFFICER INDUSIND BANK LTD & ANR.
========================================== =============== Appearance :
MR VISHWAS K SHAH with MR MASOOM K SHAH for Petitioner.
========================================== =============== Date : 13/08/2012
CAV JUDGMENT
(Per : HONOURABLE THE CHIEF JUSTICE MR.BHASKAR BHATTACHARYA)
1. By this application under Article 226 and 227 of the Constitution of India, the writ-petitioner, a debtor within the meaning of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [for brevity, the Act, hereafter] has prayed for a declaration that Section 13(4) of the Act is ultra vires the Constitution of India, and has further prayed for striking off Rules 8 and 9 of the Security Interest (Enforcement) Rules 2002 [for brevity, the Rules, hereafter] as ultra vires the Constitution of India as well as the Act.
2. According to the petitioner, section 13(4) of the Act does not speak of how the Bank or the Financial Institution will sell the secured assets, and as the sale of a property is a right of substantial nature, it must be reflected in the Act itself and on that ground, the Act is unreasonable. It is further contended that Section 13(4) of the Act is also arbitrary as no mode or procedure is depicted therein to exercise the rights of the secured creditor, and such right cannot be conferred by the Rules which is otherwise a piece of subordinate legislation. The petitioner has further contended that no rule having been framed for transfer by way of lease or assignment, the rules made for sale suffer from excessive delegation. Lastly, it is contended that the Act, which empowers Central Government to make Rules, does not authorize the Central Government to enact rules for Section 13 (4) of the Act.
3. In order to appreciate the aforesaid question, it will be profitable to refer to the provisions contained in Section 38 of the Act and rules 8 and 9 of the Rules, which are quoted below:
“38. Power of Central Government to make rules.-
(1). The Central Government may, by notification and in the Electronic Gazettee as defined in clause (s) of section 2 of the Information Technology Act, 2000 (21 of 2000), make rules for carrying out the provisions of this Act.
(2). In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:-
(a). the form and manner in which an application may be filed under sub-section (10) of section 13;
(b). the manner in which the rights of a secured creditor may be exercised by one or more of his officers under sub-section (12) of Section 13.
(ba). the fee for making an application to the Debts Recovery Tribunal under sub-section (1) of section 17;
(bb). the form of making an application to the Appellate Tribunal under sub-section (6) of section 17.
(bc). the fee for preferring an appeal to the Appellate Tribunal under sub-section (1) of section 18.
(c). the safeguards subject to which the records may be kept under sub-section (2) of section 22;
(d). the manner in which the particulars of every transaction of securitization shall be filed under section 23 and fee for filing such transaction;
(e). the fee for inspecting the particulars of transactions kept under section 22 and entered in the Central Register under sub-section (1) of section 26;
(f). the fees for inspecting the Central Register maintained in electronic form under sub-section (2) of section 26;
(g). any other matter which is required to be, or may be, prescribed, in respect of which provision is to be, or may be, made by rules.
(3). Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rules or both Houses agree that the rule should not be made, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.
Rules 8 and 9 of the Rules:
“8. Sale of immovable secured assets.-
(1). Where the secured asset is an immovable property, the authorized officer shall take or cause to be taken possession, by delivering a possession notice prepared as nearly as possible in Appendix IV to these rules, to the borrower and by affixing the possession notice on the outer door or at such conspicuous place of the property.
(2). The possession notice as referred to in sub-rule (1) shall also be published, as soon as possible but in any case not later than seven days from the date of taking possession, in two leading newspapers, one in vernacular language having sufficient circulation in that locality, by the authorized officer.
(3). In the event of possession of immovable property is actually taken by the authorized officer, such property shall be kept in his own custody or in the custody of any person authorized or appointed by him, who shall take as much care of the property in his custody, as a owner of ordinary prudence would, under the similar circumstances, take of such property.
(4). The authorized officer shall take steps for preservation and protection of secured assets and insure them, if necessary, till they are sold or otherwise disposed of.
(5). Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorized officer shall obtain valuation of the 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.
(6). The authorized officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):
Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include.-
(a). The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;
(b). the secured debt for recovery of which the property is to be sold;
(c). reserve price, below which the property may not be sold;
(d). time and place of public auction or the time after which sale by any other mode shall be completed;
(e). depositing earnest money as may be stipulated by the secured creditor;
[f]. any other thing which the authorized officer considers it material for a purchaser to know in order to judge the nature and value of the property.
(7). Every notice of sale shall be affixed on a conspicuous part of the immovable property and may, if the authorized officer deems it fit, put on the web-site of the secured creditor in the Internet.
(8). Sale by any method other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.
9. Time of sale, issues of sale certificate and delivery of possession, etc.-
(1). No sale of immovable property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower.
(2). The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor;
Provided that no sale under this rule shall be confirmed, if the amount offered by sale price is less than the reserve price, specified under sub-rule (5) of rule 9:
Provided further that if the authorized officer fails to obtain a price higher than the reserve price, he may, with the consent of the borrower and the secured creditor effect the sale at such price.
(3). On every sale of immovable property, the purchaser shall immediately pay a deposit of twenty-five per cent of the amount of the sale price, to the authorized officer conducting the sale and in default of such deposit, the property shall forthwith be sold again.
(4). The balance amount of purchase price payable shall be paid by the purchaser to the authorized officer on or before the fifteenth day of confirmation of sale of the immovable property or such extended period as may be agreed upon in writing between the parties.
(5). In default of payment within the period mentioned in sub- rule (4), the deposit shall be forfeited and the property shall be resold and the defaulting purchaser shall forfeit all claim to the property or to any part of the sum for which it may be subsequently sold.
(6). On confirmation of sale by the secured creditor and if the terms of payment have been complied with, the authorized officer exercising the power of sale shall issue a certificate of sale of the immovable property in favour of the purchaser in the form given in Appendix V to the rules.
(7). Where the immovable property sold is subject to any encumbrances, the authorized officer may, if he thinks fit, allow the purchaser to deposit with him the money required to discharge the encumbrances and any interest due thereon together with such additional amount that may be sufficient to meet the contingencies or further cost, expenses and interest as may be determined by him;
Provided that if after meeting the cost of removing encumbrances and contingencies there is any surplus available out of the money deposited by the purchaser such surplus shall be paid to the purchaser within fifteen days from the date of finalization of the sale.
(8). On such deposit of money for discharge of the encumbrances, the authorized officer shall issue or cause the purchaser to issue notices to the persons interested in or entitled to the money deposited with him and take steps to make the payment accordingly.
(9). The authorized officer shall deliver the property to the purchaser free from encumbrances known to the secured creditor on deposit of money as specified in sub-rule (7) above.
(10). The certificate of sale issued under sub-rule (6) shall specifically mention that whether the purchaser has purchased the immovable secured asset free from any encumbrances known to the secured creditor or not.
4. After going through section 38(1) of the Act, we find that the Parliament has authorized the Central Government to make rules for carrying out the provisions of the Act and in sub-section (2), without prejudice to the generality of the power conferred under sub-section (1), specific circumstances have been enumerated where such rules may be framed.
5. Mr. Shah, the learned advocate appearing on behalf of the petitioner, contended before us that in sub-section (2) of Section 38 of the Act, no provision has been made for making rule in respect of provisions contained in Section 13(4) of the Act, and, therefore, rules 8 and 9 of the Rules are ultravires the Act.
6. We are afraid, we are unable to accept the aforesaid contention of Mr. Shah. It appears that in sub-section (1) of section 38 of the Act, full power has been conferred to make rules for carrying out the provisions of the Act, which includes Section 13(4) of the Act, and sub-section (2) of Section 38 of the Act specifically provides that sub- sections (a) to (g) mentioned therein are without prejudice to the generality of the power conferred under section 38(1) of the Act. Therefore, even if there is no mention of Section 13(4) of the Act in Section 38 of the Act, the residuary provisions of sub-sections (g) of Section 38(2) are wide enough to include any other matter which is required to be, or may be, prescribed, in respect of which provision is to be, or may be, made by the rules.
7. Therefore, sub-section (1) of Section 38 of the Act, and in particular, sub-sections (g) of Section 38 (2) of the Act authorizes the Central Government to make rules in respect of sale of secured debt provided for in Section 13 (4) of the Act.
8. We do not find that any unbridled power has been conferred on the Central Government under section 38 of the Act, and, as it appears from sub-section (3) of Section 38 of the Act that any rule made under section 38 of the Act shall be laid before both the Houses of Parliament for scrutiny.
9. We, thus, find that the contention raised by Mr. Shah as regards invalidity of the Rules is not tenable.
10. As regards the invalidity of the Act itself, no other specific ground has been taken, and in view of the decision of the Supreme Court in the case of MARDIA CHEMICALS LTD. vs. UNION OF INDIA reported AIR 2004 SC 2371, there is no further scope of argument that the provisions of the Act regarding mode of recovery as provided in Section 13(4) of the Act is unreasonable or arbitrary.
11. We, therefore, find no substance in this writ-application, and the same is dismissed summarily.
12. We make it clear that apart from the question of validity of the Rules and the Act, we have not gone into the other questions including the question of notice of sale, and dismissal of this application will not stand in the way of the petitioner in challenging the notice before appropriate forum in accordance with law if he is so entitled.
[BHASKAR BHATTACHARYA, C.J.] mathew [J.B.PARDIWALA. J.]