IN THE HIGH COURT OF GUJARAT AT AHMEDABAD SPECIAL CIVIL APPLICATION No. 14600 of 2011 For Approval and Signature:
HONOURABLE THE CHIEF JUSTICE MR.BHASKAR BHATTACHARYA HONOURABLE MR.JUSTICE J.B.PARDIWALA ========================================================= 1 Whether Reporters of Local Papers may be allowed to see the judgment ?
2 To be referred to the Reporter or not ?
3 Whether their Lordships wish to see the fair copy of the judgment ?
Whether this case involves a substantial question 4 of law as to the interpretation of the constitution of India, 1950 or any order made thereunder ?
5 Whether it is to be circulated to the civil judge ?
========================================================= HARKAISH P.BHADORIA - Petitioner(s) Versus UNION OF INDIA THRO MINISTRY OF FINANCE, & 3 -
Respondent(s) ========================================================= Appearance :
MR VISHWAS K.SHAH for MR RIDDHESH TRIVEDI for Petitioner(s) : 1, MR PS CHAMPANERI for Respondent(s) : 1, MR VIRENDRA M GOHIL for Respondent(s) : 2, MR KAMAL B.TRIVEDI, ADVOCATE GENERAL with MR TARAK DAMANI for Respondent(s) : 2, NOTICE SERVED BY DS for Respondent(s) : 3 - 4.
========================================================= CORAM :
HONOURABLE THE CHIEF JUSTICE MR.BHASKAR BHATTACHARYA and HONOURABLE MR.JUSTICE J.B.PARDIWALA Date : 11/10/2012 CAV JUDGMENT (Per : HONOURABLE MR.JUSTICE J.B.PARDIWALA) By way of this petition under Article 226 of the Constitution of India, the petitioner, a debtor of the respondent no.2 Company, has prayed for the following reliefs :
“(a) Be pleased to direct the respondent to accept the amount of Rs.9,10,893/- and settle the account on reasonable terms and restore the possession of residential house.
(b) Be pleased to declare S.2(1)(m)(iv) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Notification empowering respondent no.2 to move under the Securitisation Act, 2002 as ultra vires the Constitution of India and without authority of law and null and void ab initio and struck off the same.
(c) Be pleased to declare S.45-I(f) of RBI Act, 1934 as ultra vires the Constitution of India and RBI Act, 1934 and struck off the same.
(d) Be pleased to quash and set-aside all action and deeds by respondent no.2 against petitioners under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(dd) Be pleased to quash and set-aside Sale Certificate dated 12.08.2011 under Securitisation Act, 2002 issued by respondent no.2 in favour of respondent no.4.
(e) Pending hearing, admission and final disposal of this petition, status-quo as on date of filing of petition be granted qua residential house of petitioner.
(a) Costs of this petition be awarded.
(b) Any other relief which Hon'ble Court may deem just, fit and equitable.”
The case as made out by the petitioner in this petition may be summarised as under :
The petitioner availed of a loan facility to the tune of Rs.8,25,000=00 from the respondent no.2 Company on 30th April 2008 vide Loan Account No.HHLAHE00035949. As there were defaults in repayment of the monthly installments, the loan account was declared as a Non-Performing Asset (NPA) and legal action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as, 'the SARFAESI Act') was initiated against the petitioner by the respondent no.2. The demand notice under Section 13(2) of the SARFAESI Act was issued to the petitioner on 15th May 2009, calling upon the petitioner to make the payment of Rs.9,10,893=00 within 60 days of the receipt of the notice. The said notice was also published in two newspapers as per the legal process. As the petitioner failed to pay the said amount, the symbolic possession of the mortgaged property was taken over by the respondent no.2 on 26th August 2010. Thereafter, an application under Section 14 of the SARFAESI Act was filed before the learned Chief Metropolitan Magistrate, Ahmedabad and the learned Chief Metropolitan Magistrate, Ahmedabad, vide order dated 9th May 2011, allowed the application and granted police protection to the respondent no.2. On 14th June 2011, the physical possession of the mortgaged property was taken over by the respondent no.2 with the help of the police officials of the concerned Police Station. The post possession notices were issued on 14th June 2011 to the petitioner and were also published in the two newspapers as per the legal process. The valuation report of the mortgaged property was prepared and the auction proceedings were accordingly initiated. The sale notice under Rule 8(6) of the Security Interest (Enforcement) Rules, 2002 was issued to the petitioner. The auction notice was published in 'Indian Express' (English edition) and 'Divya Bhaskar' (Gujarati edition) both dated 6th July 2011 and a reserve price of Rs.19,60,000=00 was fixed. The auction was successfully conducted by the respondent no.2 on 8th August 2011 and after receiving the entire payment from the highest bidder, a sale certificate was issued on 12th August 2011, which has been duly registered according to the provisions of law.
It is the case of the petitioner that a Securitisation Application No.65 of 2011 was filed before the Debts Recovery Tribunal-I at Ahmedabad on 3rd August 2011 for stay of the auction but the Presiding Officer, DRT-I, Ahmedabad, vide order dated 8th August 2011, disposed of the application at the interim stage itself without considering the submissions made on behalf of the petitioner.
It is also the case of the petitioner that the residential house worth Rs.35 lac was sold by the respondent no.2 Bank for an amount of Rs.21 lac. According to the petitioner, it was beyond his means to approach the appellate authority under the SARFAESI Act and, therefore, he has preferred this petition for appropriate relief to protect his residential house.
It is also the case of the petitioner that he is ready and willing to pay the reasonable legal dues but the attitude of the respondent no.2 has been one that of a private money lender.
According to the petitioner, a sum of Rs.8,25,000=00 was obtained by way of a loan from the respondent no.2 Company and the loan amount was to be repaid in 190 equal installments of Rs.1,154=00. At the time of filing the Securitisation Application before the DRT-I, Ahmedabad, the petitioner had already paid about Rs.2,95,592=00 to the respondent no.2 Company.
According to the petitioner, the measures taken by the respondent no.2 under Sections 13(2), 13(4) and 14 of the SARFAESI Act could be termed as illegal.
In the aforesaid factual background, the petitioner has prayed to declare Section 2(1)(m)(iv) of the SARFAESI Act as well as notification empowering the respondent no.2 to proceed under the SARFAESI Act, as ultra vires the Constitution of India and without the authority of law. The petitioner has also prayed to declare Section 45-I(f) of the Reserve Bank of India Act, 1934 (hereinafter referred to as, 'the RBI Act') as ultra vires the Constitution of India.
The petitioner has prayed that an appropriate writ, order or direction be issued to the respondent no.2 to accept the amount of Rs.9,10,893=00 and thereafter restore the possession of the residential house of the petitioner.
This Court, by order dated 27th January 2012, issued rule making it returnable after one month, and as the writ-petitioner challenged the provisions contained in Section 2(1)(m)(iv) of the SARFAESI Act as ultra vires on the ground that the Legislature has bestowed untrammeled discretion on the Central Government to pick and choose according to the notion of the individual, notice was issued upon the learned Advocate General. Since by that time, the respondent no.2 had also entered appearance, we called upon the respondent no.2 to clarify as to whether the respondent no.2 had been exempted from the provisions of Chapter III-B of the RBI Act by virtue of Master Certificate dated 2nd July 2007.
I. Stance of the Respondent no.2 - Indiabulls Housing Finance Limited :
The challenge made by the petitioner as regards the status of the respondent no.2 is based totally on incorrect, imaginary and inapplicable premises. The Central Government, in exercise of powers under sub-clauses (iv) of clause (m) of sub-section (1) of Section 2, is duly and lawfully entitled to declare a housing finance company registered under sub- section (5) of Section 29A of the National Housing Bank Act, 1987 with Tier-I of Rs.10 crore or above as a 'financial institution' for the purpose of the said sub-clause. Accordingly, vide Notification dated 19th September 2007, the respondent no.2 was specified by the Central Government as a 'financial institution' in exercise of the powers conferred by sub-clause (iv) of clause (m) of sub-section (1) of Section 2 of the SARFAESI Act.
For the purpose of resorting to the provisions of Section 13 of the SARFAESI Act, a lending institution should be a 'secured creditor' as defined under Section 2(zd) of the SARFAESI Act. As per the definition of the term 'secured creditor', a secured creditor includes any bank or financial institution. The term 'financial institution' has been defined in Section 2(1)(m) of the SARFAESI Act. As provided in Section 2(1)(m)(iv) of the SARFAESI Act, the Central Government has the discretion to specify any non-banking financial company as a 'financial institution' for the purposes of the SARFAESI Act.
After being declared as a financial institution for the purposes of the SARFAESI Act, the respondent no.2 is authorized to take recourse to the measures under Section 13 of the SARFAESI Act.
The first three words of Section 2(1)(m)(iv) of the SARFAESI Act, which read 'any other institution', clearly imply that the Central Government is vested with the authority to notify any other institution or non-banking financial company as defined in clause (f) of Section 45-I of the RBI Act as it may deem fit.
The respondent no.2 is a 'non-banking institution' registered as a company under the provisions of the Companies Act, 1956 and also as a 'housing finance institution' under Section 2(d) of the National Housing Bank Act, 1987, which primarily transacts the business of providing finance for housing.
According to the respondent no.2, Section 2(d) of the National Housing Bank Act, 1987 is to be read in consonance with Section 29A of the said Act, which deals with the issue of registration of such companies.
The Reserve Bank of India has, time and again, reiterated vide various circulars that housing finance institutions are exempted from the provisions of Chapter III-B of the RBI Act and has again done so vide Circulasr No.RBI/2010-11/DNBS.PD- CC No.228/03.2.2004/2011-12 dated 1st July 2011. The Circular referred to above clearly exempt the housing finance institutions, defined under Section 2(d) and registered under Section 29-A of the National Housing Bank Act, 1987 from the provisions of Chapter III-B of the RBI Act. These Circulars squarely cover the respondent no.2.
The respondent no.2 is essentially a housing finance company duly registered under the provisions of the National Housing Bank Act, 1987. It is under the said Act of 1987 that the housing bank is established, which is like a guardian company for housing finance activities and promoting low cost and affordable housing facilities all throughout the country. Even though regulatory measures laid down under the RBI Act are not applicable to a housing finance company, the self- imposed discipline evolved by the Reserve Bank of India always gets translated through its wholly owned subsidiary i.e. National Housing Bank, in regard to all the constituents duly registered under the National Housing Bank Act, 1987.
In the circumstances, the apprehension, if any, in the matter of applicability of the regulatory measures provided under the RBI Act in view of the exemption has been duly taken care of by various restrictions imposed under the National Housing Bank Act, 1987 with reference to all its registered constituents like the respondent no.2 Company, and which are sufficient safeguards for taking care of the interests of the public.
The respondent no.2 under the present proceeding is not the only housing finance institution which has been declared as a financial institution for the purpose of taking action under the provisions of the SARFAESI Act. The Central Government had, as a matter of fact, issued a Notification bearing No.SO 1282(E) dated 10th November 2003 under Section 2(1)(m)(iv) of the SARFAESI Act declaring 23 housing finance institutions registered under sub-section (5) of Section 29A of the National Housing Bank Act, 1987 to be treated as 'financial institutions' for the purpose of said sub-clause (iv) of clause (m) of sub- section (1) of Section 2 of the SARFAESI Act.
II. Contentions on behalf of the Petitioner :
Mr.Vishwas K.Shah, learned counsel appearing for the petitioner vehemently submitted that Section 2(1)(m)(iv) of the SARFAESI Act is ultra vires the Constitution of India, more particularly, Article 14 of the Constitution of India as there is no basis on which the Central Government is empowered to notify any institution as a financial institution. According to Mr.Shah, the respondent no.2, which is otherwise a non-banking financial company as defined in clause (f) of Section 45-I of the RBI Act, 1934, is not notified as a 'financial institution' for the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as, 'the RDDB Act').
It is submitted that Section 2(1)(m)(iv) of the SARFAESI Act confers untrammeled powers on the Central Government to notify any institution as a financial institution for the SARFAESI Act, without any basis and criteria laid down by the Parliament. According to Mr.Shah, it is preposterous to suggest that a particular NBFC, not notified as a financial institution so far as the RDDB Act, 1993 is concerned, could be notified as such so far as the SARFAESI Act is concerned, and by virtue of which drastic powers are conferred on the respondent no.2. According to Mr.Shah, there is no rationale or any basis to notify NBFC for the SARFAESI Act and not for the RDDB Act.
Mr.Shah further submitted that non-inclusion of respondent no.2 as a financial institution so far as the RDDB Act is concerned, is suggestive of the fact that the respondent no.2 is not fit to be a financial institution.
Mr.Shah further submitted that Section 2(1)(m)(iv) of the SARFAESI Act is arbitrary and unreasonable as first three clauses of the sub-section lay down specific material and criteria, but so far as the item (iv) is concerned, no criteria is given, on the basis of which an NBFC could be made a financial institution for the SARFAESI Act.
According to Mr.Shah, Section 2(1)(m)(iv) of the SARFAESI Act and Section 45-I(f) of the RBI Act deserve to be declared as ultra vires the Article 14 of the Constitution of India and also prayed to declare the Notification dated 19th September 2007 issued by the Central Government in exercise of the powers conferred by sub-clause (iv) of clause (m) of sub-section (1) of Section 2 of the SARFAESI Act specifying the respondent no.2 Company as a financial institution for the purposes of the SARFAESI Act as ultra vires.
In support of the contentions referred to above, Mr.Shah, the learned counsel for the petitioner, relied on the following case-law :
(1) Kunnathat Thathunni Moopil Nair v/s. State of Kerala and another, AIR 1961 SC 552;
(2) The State of Punjab v/s. M/s.Ramchander Jagdish Chander, AIR 1974 SC 543;
(3) A.N.Parasuraman v/s. State of Tamil Nadu, AIR 1990 SC 40;
(4) Authorised Officer, Indian Overseas Bank and another v/s.
M/s.Ashok Saw Mill, AIR 2009 SC 2420;
III. Contentions on behalf of the Respondent No.2 :
Mr.Kamal B.Trivedi, the learned Advocate General appearing with Mr.Tarak Damani, the learned advocate for the respondent no.2, submitted that there is no merit in the contention of the learned counsel appearing for the petitioner that Section 2(1)(m)(iv) of the SARFAESI Act is ultra vires the Article 14 of the Constitution of India as the same confers untrammeled and unbridled powers on the Central Government to notify any institution as financial institution for the purposes of the SARFAESI Act in the absence of any guidelines or any criteria by the Parliament.
Mr.Trivedi submitted that inspite of a very wide power being conferred on the Central Government to specify a company as a financial institution, such a section would still not be ultra vires, if guidelines could be gathered from the Preamble, Objects and Reasons and other provisions of the Acts and the Rules.
According to Mr.Trivedi, in testing the validity of such provision, the Courts have to discover, whether there is any legislative policy of the statute or indication of any clear will through its various provisions. If there be any, then according to Mr.Trivedi, this by itself would be a guiding factor to be exercised by the Government.
Mr.Trivedi further submitted that there is one and only one ground for declaring the provision in the Act to be invalid and, that is, if it clearly violates some provisions of the Constitution in so evident a manner as to leave no manner of doubt.
According to Mr.Trivedi, Section 2(1)(m)(iv) of the SARFAESI Act in no manner violates any of the provisions of the Constitution, much less the provision of Article 14 of the Constitution of India.
Mr.Trivedi further submitted that there is no merit in the submission of the learned counsel appearing for the petitioner that Section 45-I(f) of the RBI Act is ultra vires the Constitution of India. Mr.Trivedi submitted that the National Housing Bank Act, 1987 was enacted to establish a bank to be known as the National Housing Bank to operate as a principal agency to promote housing finance institutions, both at local and regional levels, and to provide financial and other support to such institutions and for matters connected therewith or incidental thereto.
Mr.Trivedi submitted that the respondent no.2 is a non- banking institution registered as a company under the provisions of the Companies Act, 1956 and also as a housing finance institution under Section 2(d) of the National Housing Bank Act, 1987, which primarily transacts the business of providing finance for housing. According to Mr.Trivedi, Section 2(d) of the National Housing Bank Act, 1987 is to be read in consonance with Section 29A of the said Act, which deals with the issue of registration of such companies.
Mr.Trivedi lastly submitted that a combined reading of Section 2(1)(m)(iv) of the SARFAESI Act with Section 45-I(f) of the RBI Act would make it clear that the Government of India has been vested with unfettered powers to notify any institution or non-banking financial company as a 'financial institution' for the purposes of the SARFAESI Act, by notification in the Official Gazette, which has been properly exercised in the present case by the Government of India. Thus, Mr.Trivedi, the learned Advocate General, urged that there being no merit in this petition preferred by a defaulter, the same be rejected.
In support of the contentions referred to above, Mr.Trivedi, the learned Advocate General relied on the following case-law :
(1) Pushpadevi and others v/s. Milkhi Ram (Dead) by his LRs, (1990)2 SCC 134;
(2) Bhavesh D.Parish and others v/s. Union of India and another, (2000)5 SCC 471;
(3) Consumer Action Group and another v/s. State of Tamil Nadu and others, (2000)7 SCC 425;
(4) Transcore v/s. Union of India and another, (2008)1 SCC 125;
(5) A.Manjula Bhashini and others v/s. Managing Director, A.P. Women's Cooperative Finance Corporation Ltd. And another, AIR 2010 SC 3143.
We have bestowed our thoughtful consideration to the submissions made on either side and before adverting to the rival submissions, we propose to look into few relevant provisions of law applicable in the present case.
THE SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002
Statement of Objects and Reasons
The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with international prudential norms and accounting practices there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow place of recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions. Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable banks and financial institutions to realise long- term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.
Section 2(1)(m)(iv) of the SARFAESI Act defines the term 'financial institution'. The definition of the term 'financial institution' under the SARFAESI Act reads as under :
“2(1)(m) 'financial institution' means-
(i). ..... ......
(ii). ..... ......
(iii). ..... ......
(iv) any other institution or non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934), which the Central Government may, by notification, specify as financial institution for the purposes of this Act.”
For the purposes of resorting to the provisions of Section 13 of the SARFAESI Act, a lending institution should be a 'secured creditor', as defined under Section 2(zd) of the SARFAESI Act. Section 2(zd) of the SARFAESI Act reads as under:
“2(zd) 'secured creditor' means any bank or financial institution or any consortium or group of banks or financial institutions and includes-
(i) debenture trustee appointed by any bank or financial institution; or
(ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be, or
(iii) any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance;”
THE RESERVE BANK OF INDIA ACT, 1934 The term 'financial institution' as defined under Section 45-I(c) of the RBI Act reads as under :
“45.I. Definition.- In this Chapter, unless the context otherwise requires,-
(a). ..... ......
(b). ..... ......
(c) 'financial institution' means any non-banking institution which carries on as its business or part of its business any of the following activities, namely:-
(i) the financing, whether by way of making loans or advances or otherwise, of any activity other than its own;
(ii) the acquisition of shares, stock, bonds, debentures or securities issued by a Government or local authority or other marketable securities of a like nature;
(iii) letting or delivering of any goods to a hirer under a hire-purchase agreement as defined in clause (c) of section 2 of the Hire-Purchase Act, 1972 (26 of 1972);
(iv) the carrying on of any class of insurance business;
(v) managing, conducting or supervising, as foreman, agent or in any other capacity, of chits or kuries as defined in any law which is for the time being in force in any State, or any business, which is similar thereto;
(vi) collecting, for any purpose or under any scheme or arrangement by whatever name called, monies in lump sum or otherwise, by way of subscriptions or by sale of units, or other instruments or in any other manner and awarding prizes or gifts, whether in cash or king, or disbursing monies in any other way, to persons from whom monies are collected or to any other person, but does not include any institution, which carries on as its principal business,-
(a) to (c) ...... ”
A 'non-banking institution' as defined under Section 45- I(e) of the RBI Act reads as under :
“45.I. Definition.- In this Chapter, unless the context otherwise requires,-
(a) to (d) ...... ......
(e) 'non banking institution' means a company, corporation, or co-operative society.”
Section 45-I(f) of the RBI Act defines the term 'non-
banking financial company'. A 'non-banking financial company as defined under the RBI Act reads as under :
“45-I. Definition.- In this Chapter, unless the context otherwise requires,-
(a) to (e) ...... ......
(f) 'non-banking financial company' means-
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner;
(iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette.”
NATIONAL HOUSING BANK ACT, 1987 “2. In this Act, unless the context otherwise requires.-
(a) to (c) ...... ......
(d) 'housing finance institution' includes every institution, whether incorporated or not, which primarily transacts or has as one of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly.”
“Section 29A. Requirement of registration and net owned fund. (1) Notwithstanding anything contained in this Chapter or in any other law for the time being in force, no housing finance institution which is a company shall commence or carry on the business of a housing finance institution without -
(a) obtaining a certificate of registration issued under this Chapter; and
(b) having the net owned fund of twenty five lakh rupees or such other higher amount, as the National Housing Bank may, by notification, specify.
(2) Every such housing finance institution shall make an application for registration to the National Housing Bank in such form as may be specified by the National Housing Bank.”
NOTIFIED FINANCIAL INSTITUTIONS U/S.2(1)(m)(iv):
Notification No.S0 1282(E), dated 10th November 2003, issued by Department of Economic Affairs.
In exercise of the powers conferred under sub-clause (iv) of clause (m) of sub-section (1) of Section 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), the Central Government hereby specifies the following housing finance companies registered under sub-section (5) of Section 29A of the National Housing Bank Act, 1987 and with Tier I capital of Rs.10 crore (Rupees Ten Crore) or above as per their audited balance sheet for the year ended 31st March 2003 to be treated as 'financial institution' for the purpose of the said sub- clause :-
In our opinion, in considering whether a particular legislation is invalid, the writ-court should follow the principles as laid down by the Supreme Court in the case of State of Madhya Pradesh vs. Rakesh Kohli and another, reported in (2012) 6 SCC 312, wherein the Apex Court considered various earlier decisions of the said court laying down the circumstances in which a writ-court can declare a statutory provision as ultra vires in the following manner:
“24. While dealing with the aspect as to how and when the power of the court to declare the statute unconstitutional can be exercised, this Court referred to the earlier decision of this Court in Rt. Rev. Msgr. Mark Netto v. State of Kerala [(1979) 1 SCC 23] and held in para 46 of the Report as under: (P. Laxmi Devi case, [(2008) 4 SCC 720] SCC p. 740) “46. In our opinion, there is one and only one ground for declaring an Act of the legislature (or a provision in the Act) to be invalid, and that is if it clearly violates some provision of the Constitution in so evident a manner as to leave no manner of doubt. This violation can, of course, be in different ways e.g. if a State Legislature makes a law which only Parliament can make under Schedule VII List I, in which case it will violate Article 246(1) of the Constitution, or the law violates some specific provision of the Constitution (other than the directive principles). But before declaring the statute to be unconstitutional, the court must be absolutely sure that there can be no manner of doubt that it violates a provision of the Constitution. If two views are possible, one making the statute constitutional and the other making it unconstitutional, the former view must always be preferred. Also, the court must make every effort to uphold the constitutional validity of a statute, even if that requires giving a strained construction or narrowing down its scope vide Rt. Rev. Msgr. Mark Netto v. State of Kerala [(1979) 1 SCC 23], SCC para 6 : AIR para 6. Also, it is none of the concern of the court whether the legislation in its opinion is wise or unwise.”
Then in paras 56 and 57, the Court stated as follows: (P. Laxmi Devi case [(2008) 4 SCC 720], SCC p.744) “56. In our opinion adjudication must be done within the system of historically validated restraints and conscious minimisation of the Judges’ personal preferences. The court must not invalidate a statute lightly, for, as observed above, invalidation of a statute made by the legislature elected by the people is a grave step. As observed by this Court in State of Bihar v. Kameshwar Singh [AIR 1952 SC 252] (AIR p. 274, para 52) ‘52. … The legislature is the best judge of what is good for the community, by whose suffrage it comes into existence….’ 57. In our opinion, the court should, therefore, ordinarily defer to the wisdom of the legislature unless it enacts a law about which there can be no manner of doubt about its unconstitutionality.”
25. The Constitution Bench of this Court in Mohd. Hanif Quareshi v. State of Bihar [AIR 1958 SC 731] while dealing with the meaning, scope and effect of Article 14, reiterated what was already explained in earlier decisions that to pass the test of permissible classification, two conditions must be fulfilled, namely,
(i). the classification must be founded on an intelligible differentia which distinguishes persons or things that are grouped together from others left out of the group, and
(ii). such differentia must have rational relation to the object sought to be achieved by the statute in question.
The Court further stated that classification might be founded on different basis, namely, geographical, or according to objects or occupations or the like and what is necessary is that there must be a nexus between the basis of classification and the object of the Act under consideration.
26. In Mohd. Hanif Quareshi [AIR 1958 SC 731], the Constitution Bench further observed that there was always a presumption in favour of constitutionality of an enactment and the burden is upon him, who attacks it, to show that there has been a clear violation of the constitutional principles. It stated in para 15 of the Report as under: (AIR pp. 740-41) “15. … The courts, it is accepted, must presume that the legislature understands and correctly appreciates the needs of its own people, that its laws are directed to problems made manifest by experience and that its discriminations are based on adequate grounds. It must be borne in mind that the legislature is free to recognise degrees of harm and may confine its restrictions to those cases where the need is deemed to be the clearest and finally that in order to sustain the presumption of constitutionality the court may take into consideration matters of common knowledge, matters of common report, the history of the times and may assume every state of facts which can be conceived existing at the time of legislation.”
27. The above legal position has been reiterated by a Constitution Bench of this Court in Mahant Moti Das v. S.P. Sahi [AIR 1959 SC 942]
28. In Hamdard Dawakhana v. Union of India [AIR 1960 SC 554], inter alia, while referring to the earlier two decisions, namely, Bengal Immunity Co. Ltd. [AIR 1955 SC 661] and Mahant Moti Das [AIR 1959 SC 942], it was observed in para 8 of the Report as follows: (Hamdard Dawakhana case [AIR 1960 SC 554], AIR p. 559) “8. Therefore, when the constitutionality of an enactment is challenged on the ground of violation of any of the articles in Part III of the Constitution, the ascertainment of its true nature and character becomes necessary i.e. its subject-matter, the area in which it is intended to operate, its purport and intent have to be determined. In order to do so it is legitimate to take into consideration all the factors such as history of the legislation, the purpose thereof, the surrounding circumstances and conditions, the mischief which it intended to suppress, the remedy for the disease which the legislature resolved to cure and the true reason for the remedy….”
In Hamdard Dawakhana, the Court also followed the statement of law in Mahant Moti Das and the two earlier decisions, namely, Charanjit Lal Chowdhury v. Union of India [AIR 1951 SC 318] and State of Bombay v. F.N. Balsara [AIR 1951 SC 318] and reiterated the principle that presumption was always in favour of constitutionality of an enactment.
29. In one of the recent cases in Karnataka Bank Ltd., [(2008) 2 SCC 254] while referring to some of the above decisions, in para 19 of the Report, this Court held as under: (SCC pp. 262-63) “19. The rules that guide the constitutional courts in discharging their solemn duty to declare laws passed by a legislature unconstitutional are well known. There is always a presumption in favour of constitutionality, and a law will not be declared unconstitutional unless the case is so clear as to be free from doubt; ‘to doubt the constitutionality of a law is to resolve it in favour of its validity’. Where the validity of a statute is questioned and there are two interpretations, one of which would make the law valid and the other void, the former must be preferred and the validity of law upheld. In pronouncing on the constitutional validity of a statute, the court is not concerned with the wisdom or unwisdom, the justice or injustice of the law. If that which is passed into law is within the scope of the power conferred on a legislature and violates no restrictions on that power, the law must be upheld whatever a court may think of it. (See State of Bombay v. F.N. Balsara. [AIR 1951 SC 318])”
Bearing the aforesaid principle in mind, we now proceed to consider the main question as to whether Section 45-I(f) of the RBI Act and Section 2(1)(m)(iv) of the SARFAESI Act are ultra vires the Constitution of India or not.
The National Housing Bank Act, 1987 was enacted to establish a bank to be known as 'the National Housing Bank' to operate as a principal agency to promote housing finance institutions both at local and regional levels and to provide financial and other support to such institutions and for matters connected therewith or incidental thereto.
As referred to above in the preceding paragraphs, a 'housing finance institution' as defined by the Act of 1987 under Section 2(d) includes every institution, whether incorporated or not, which primarily transacts or has as one of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly.
In the present case, the respondent no.2 was granted certificate of registration dated 28th December 2005 by the National Housing Bank in exercise of the powers conferred on the National Housing Bank by Section 29A of the National Housing Bank Act, 1987 to commence/carry on the business of a housing finance institution, without accepting public deposits and subject to other conditions. Thus, it is evident that the respondent no.2 is a 'non-banking institution' registered as a company under the provisions of the Companies Act, 1956 and also as a 'housing finance institution' as defined under Section 2(d) of the National Housing Bank Act, 1987, which primarily transacts the business of providing finance for housing. The SARFAESI Act appears to have been enacted in view of the grave financial position in the country that huge amounts of loans of banks or financial institutions are outstanding, which the borrowers have avoided to repay by various devices. Unless loans of the banks are repaid, the banks or the financial institutions cannot again advance money to someone else. It is a trite principle of economics that money must be kept in circulation, but that is not possible if loans are not repaid.
We do not find any merit in the submission of Mr.Shah, the learned counsel appearing for the petitioner, that a particular non-banking financial company is not notified as a financial institution so far as the RDDB Act, 1993 is concerned, but is notified as such for the SARFAESI Act by virtue of which drastic powers are conferred on the respondent no.2 Company. We also do not find any merit in the submission of Mr.Shah that there is no basis as to why an NBFC will be notified for a Draconian Act like the SARFAESI Act and not for the Act of 1993.
The SARFAESI Act itself mentions the class of cases which will be covered by Section 13 of the said Act. In the first place, there must be a secured interest created in favour of a secured creditor. Secondly, there must be a secured agreement under which the borrower will have the liability. Thirdly, the borrower must make a default for repayment of a secured debt or any installment thereof and then again such debt has to be classified by the secured creditor as a non-performing asset. A non-performing asset has been defined in Section 2(o) of the SARFAESI Act as follows :
“Section 2(o) 'non-performing asset' means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset,-
(a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body;
(b) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank.”
The SARFAESI Act is thus a special Act and it will override any provision to the contrary in the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 or any other earlier Act of Parliament or the State Legislature pertaining to the field it covers.
It may be noted that under Section 13(2) of the SARFAESI Act, a secured creditor has to first classify the debt as a non- performing asset and only then an action can be taken under Section 13(4) of the SARFAESI Act. There is no such requirement in the RDDB Act, 1993. In fact, the RDDB Act, 1993 is not restricted to non-performing assets. Thus, the field covered by the SARFAESI Act and the RDDB Act are different. The RDDB Act does not refer to non-performing assets at all, and such assets have not to be classified in accordance with the Reserve Bank of India guidelines and directives.
The obvious purpose of enacting the SARFAESI Act was that the loans of banks and financial institutions were not being recovered promptly and this was adversely affecting the financial position of the nation. Unless loans are repaid promptly and speedily money will not remain in circulation, and the banks and financial institutions may get into trouble.
Keeping in mind the objects with which the SARFAESI Act was enacted, the Government of India issued Notification dated 19th September 2007 declaring the respondent no.2 Company as a 'financial institution' for the purposes of the SARFAESI Act in exercise of the powers conferred by sub-clause (iv) of clause (m) of sub-section (1) of Section 2 of the SARFAESI Act.
A 'non-banking financial company' as defined under the RBI Act means, 'a financial institution which is a company; a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner'. The main business of the respondent no.2 company is to lend money for the purpose of housing. The main plank of Mr.Shah's submission is that the words in Section 45-I(f)(iii) 'such other non-banking institutions or class of such institutions' are words of wide import and the use of the words 'such other' by itself is sufficient to declare Section 45-I(f) as ultra vires the Constitution of India on the ground that it is arbitrary or unreasonable conferring unbridled powers on the Government to declare any 'non-banking institution or class of such institution' as a 'non-banking financial company'.
It is by now well-settled that if an enactment is challenged as violative of Article 14, it can be struck down only if it is found that it is violative of the equality clause/equal protection clause enshrined therein. Similarly, if an enactment is challenged as violative of any of the fundamental rights guaranteed by clauses (a) to (g) of Article 19(1), it can be struck down only if it is found not saved by any of the clauses (2) to (6) of Article 19 and so on. No enactment can be struck down by just saying that it is arbitrary or unreasonable. Some or other constitutional infirmity has to be found before invalidating any provision in an Act. A provision in an enactment cannot be struck down on the ground that courts think it to be unjustified or arbitrary. Parliament and the Legislatures composed as they are of the representatives of the people, are supposed to know and be aware of the needs of the people and what is good and bad for them. This Court, in exercise of its writ-jurisdiction under Article 226 of the Constitution of India, cannot sit in judgment over their wisdom.
We have also examined the matter from one another angle. The words 'such other' as they figure in Section 45-I(f) (iii) means, 'all the same kind'. For the purposes of interpretation of Section 45-I(f)(iii), the principle ejusdem generis can be applied. Ejusdem generis is a Latin expression which means, 'of the same kind', for example, where a law lists specific classes of persons or things and then refers to them in general, the general statements only apply to the same kind of persons or things specifically listed. In other words, it means the words of similar class. According to Black's Law Dictionary (8th Edition, 2004), the principle of ejusdem generis is where general words follow an enumeration of persons or things, by words of a particular and specific meaning, such general words are not to be construed in their widest extent, but are to be held as applying only to persons or things of the same kind or class as those specifically mentioned. It is a cannon of statutory construction that where general words follow the enumeration of particular classes of things, the general words will be construed as applying only to things of the same general class as those enumerated.
Keeping the above principle in mind, the words 'such other' as used in Section 45-I(f)(iii) is to be read along with the subject matter in which they have been used, and most importantly, keeping in mind the Preamble, Objects and Reasons and other provisions of the Act.
The rule of ejusdem generis has come to be interpreted in the various decisions of the Apex Court reported in (1991)2 SCC 119, Assistant Collector of Central Excise v/s. Ramdev Tobacco Co., (1991)3 SCC 655, K.Veeraswami v/s. Union of India, (1991)2 SCC 229, G.Claridge and Co. Ltd. v/s. CCE, 1993 Supp(3) SCC 716, Oswal Argo Mills Ltd. v/s. CCE, (1994)5 SCC 690, Calcutta Municipal Corporation v/s. East India Hotels Ltd. The gamut of all these decisions is when particular words pertaining to a class, category or genus are followed by general words, the general words are construed as limited to things of the same kind as those specified. This rule which is known as the rule of ejusdem generis reflects an attempt 'to reconcile incompatibility between the specific and general words in view of the other rules of interpretation that all words in a statute are given effect if possible, that a statute is to be construed as a whole and that no words in a statute are presumed to be superflous' (Tribhuwan Prakash Nayyar v/s. Union of India, AIR 1970 SC 540). The rule applies when '(1) the statute contains an enumeration of specific words; (2) the subjects of enumeration constitute a class or category; (3) that class or category is not exhausted by the enumeration; (4) the general terms follow the enumeration and (5) there is no indication of a different legislative intent' (Amar Chandra v/s. Collector of Excise, Tripura, AIR 1972 SC 1863 and Housing Board of Haryana v/s. Haryana Housing Board Employees Union.
At this stage, it would be profitable to refer to a decision of the Supreme Court in the case of United Bank of India v/s. Pijush Kanti Nandy and others, reported in 2010 AIR SCW 145. In the said case, the Supreme Court considered the principle of ejusdem generis and made the following observations :
“In Siddeshwari Cotton Mills (P) Ltd. v. Union of India (UOI) and Anr. [(1989) 2 SCC 458] : (AIR 1989 SC 1019), the Supreme Court, while discussing the definition of 'manufacture' under section 2(f) of the Central Excises and Salt Act, 1944 whether the relevant process fall within 'any other process" thereby within the provision of section 2(f)(v), looked at the meaning of the expression 'ejus-dem-generis' which means 'of the same kind or nature'...signifies a principle of construction whereby words in a statute which are otherwise wide but are associated in the text with more limited words are, by implication, given a restricted operation and are limited to matters of the same class or genus as preceding them. If a list or string or family of genus-describing terms is followed by wider or residuary or sweeping-up words, then the verbal context and the linguistic implications of the preceding words limit the scope of such words.
The Court also discussed various other texts while looking at the term.
In 'Statutory Interpretation' Rupert Cross says:
“...The draftsman must be taken to have inserted the general words in case something which ought to have been included among the specifically enumerated items had been omitted...”
The principle underlying this approach to statutory construction is that the subsequent general words were only intended to guard against some accidental omission in the objects of the kind mentioned earlier and were not intended to extend to objects of a wholly different kind. This is a presumption and operates unless there is some contrary indication. But the preceding words or expressions of restricted meaning must be susceptible of the import that they represent a class. If no class can be found, ejusdem generis rule is not attracted and such broad construction as the subsequent words may admit will be favoured. As a learned author puts it:
“...if a class can be found, but the specific words exhaust the class, then rejection of the rule may be favoured because its adoption would make the general words unnecessary; if however, the specific words do not exhaust the class, then adoption of the rule may be favoured because its rejection would make the specific words unnecessary.”
Bearing the aforesaid principle in mind, it could easily be said that 'such other non-banking institutions or class of such institutions' means, essentially a non-banking institution which is a company and which has its principal business of lending in any manner. In the present case also, the principal business of the respondent no.2 is to lend money or give finance for the purpose of housing.
The same analogy as discussed above would also apply so far as Section 2(1)(m)(iv) of the SARFAESI Act is concerned. For the purpose of the SARFAESI Act, a 'financial institution' would mean, 'a non-banking financial company' as defined in clause (f) of Section 45-I of the RBI Act, which the Central Government may, by notification, specify as financial institution for the purposes of the SARFAESI Act.
We find merit in the submission of Mr.Trivedi, the learned Advocate General appearing for the respondent no.2 Company, that the power of the Government to declare a non-banking institution, having its principal business of lending as a 'non- banking financial company' could be said to be controlled through the Preamble, Objects and Reasons and various provisions of the SARFAESI Act and the Rules.
In Consumer Action Group and another v/s. State of Tamil Nadu and others, reported in (2000)7 SCC 425, as relied upon by Mr.Trivedi, the question before the Supreme Court was with regard to the constitutional validity of Section 113 of the Tamil Nadu Town and Country Planning Act, 1971. It was argued before the Supreme Court that Section 113 of the Tamil Nadu Town and Country Planning Act, 1971 was ultra vires Articles 14 and 21 of the Constitution of India as the powers conferred upon the Government to exempt any land or building or class of lands and buildings from all or any of the provisions of the Act or Rules or Regulations made thereunder, were one of the widest amplitude with no inbuilt check revealed from Section 113 of the Act. The Supreme Court, after considering various earlier judgments and while upholding the constitutional validity of Section 113 of the Act, passed the following observations :
“The catena of decisions referred to above concludes unwaveringly in spite of very wide power being conferred on delegatee that such a section would still not be ultra vires, if guideline could be gathered from the Preamble, Object and Reasons and other provisions of the Acts and Rules. In testing validity of such provision, the Courts have to discover, whether there is any legislative policy purpose of the statute or indication of any clear will through its various provisions, if there be any, then this by itself would be a guiding factor to be exercised by the delegatee. In other words, then it cannot be held that such a power is unbridled or uncanalised. The exercise of power of such delegatee is controlled through such policy. In the fast changing scenario of economic, social order with scientific development spawns innumerable situations which Legislature possibly could not foresee, so delegatee is entrusted with power to meet such exigencies within the in built check or guidance and in the present case to be within the declared policy. So delegatee has to exercise its powers within this controlled path to subserve the policy and to achieve the objectives of the Act. A situation may arise, in some cases where strict adherence to any provision of the statute or rules may result in great hardship, in a given situation, where exercise of such power of exemption is to remove this hardship without materially effecting the policy of the Act, viz., development in the present case then such exercise of power would be covered under it. All situation cannot be culled out which has to be judiciously judged and exercised, to meet any such great hardship of any individual or institution or conversely in the interest of society at large. Such power is meant rarely to be used. So far decisions relied by the petitioner, where the provisions were held to be ultra vires, they are not cases in which Court found that there was any policy laid down under the Act. In A.N.Parasuraman (AIR 1990 SC 40) (supra) Court held Section 22 to be ultra vires as the Act did not lay down any principle or policy. Similarly, in Kunnathat Thathunni Moopil Nair (AIR 1961 SC 552) (supra) Section 7 was held to be ultra vires as there was no principle or policy laid down.
In this background we find the preamble of the Act laid down :-
“An Act to provide for planning the development and use of rural and urban land in the State of Tamil Nadu and for purposes connected therewith.”
The preamble clearly spells out policy which is for planning and development of the use of the rural and urban land in the State. The Statement of Objects and Reasons also indicates towards the same. The relevant portion of which is quoted hereunder.
“The Tamil Nadu Town Planning Act, 1920 (Tamil Nadu Act VII of 1920) which is based on the British Town and Country Planning and Housing Act, 1909, has been in force in the State for nearly five decades. The said Act provides for matters relating to the development of towns to secure to their present and future inhabitants, sanitary conditions, amenity and convenience. It was left necessary to make comprehensive amendments to the Act as the Act had several shortcomings and defects.”
Not only 'Preamble' and 'Objects and Reasons' of the Act clearly indicate its policy but it is also revealed through various provisions of the enactment. Sub-section (13) of Section 2 defines "development" for carrying out any of the works contemplated in the regional and master plan etc. Section 9-C defines functions and powers of the Metropolitan Development Authority, Section 12 refers to functions and powers of the Appropriate Planning Authorities, Section 15 refers to regional planning. Section 16 is for preparation of land and building map, Section 17 refers to the Master plans, Section 18 refers to new town development plan, Section 19 refers to the declaration of intention to make or adopt a detailed development plan, Section 20 refers to the contents of detailed development plan, Section 47 refers to use and development of land to be in conformity with development plan, Section 48 refers to the restrictions on building and lands in the area of the planning authority. Each of them contributes for subserving the policy of the Act, and clearly declares the purpose of the Act. Hence Section 113 cannot be held to be unbridled, as Government has to exercise its power within this guideline. Hence we hold Section 113 to be valid.”
In Bhaiji v/s. Sub-Divisional Officer, Thandla, reported in (2003)1 SCC 692, the Supreme Court referred to Principles of Statutory Interpretation by Justice G.P.Singh (8th Edition, 2001) and observed :
“Reference to the Statement of Objects and Reasons is permissible for understanding the background, the antecedent state-of-affairs, the surrounding circumstances in relation to the statute, and the evil which the statute sought to remedy. The weight of judicial authority leans in favour of the view that the Statement of Objects and Reasons cannot be utilized for the purpose of restricting and controlling the plain meaning of the language employed by the legislature in drafting a statute and excluding from its operation such transactions which it plainly covers.”
In B.Banerjee v/s. Smt.Anita Pan, reported in (1975)1 SCC 166, the Supreme Court approved the view expressed by the Calcutta High Court that the Statement of Objects and Reasons contained in the West Bengal Premises Tenancy (Second Amendment) Bill, 1969 and proceedings of the Legislature including the speech made by the Minister at the time of introducing the Bill could be looked into for understanding the true character of the Amendment and observed :
“The explosive import of neglecting such a distressing urban development reasonably obliges the State to impose drastic restrictions on landlords' right to property. And when circumvention of wholesome legal inhibitions is practised on a large scale the new challenge is met by clothing the law with more effective armour and that is the rationale of the Amendment Act. The learned Judges rightly refer to the legislative proceedings, notorious common knowledge and other relevant factors properly brought to their ken. The 'sound-proof theory' of ignoring voices from Parliamentary debates, once sanctified by British tradition, has been replaced by the more legally realistic and socially responsible canon of listening to the legislative authors when their aircraft is being interpreted.”
Reference could also be made to the decision of the Supreme Court in A.Manjula Bhashini and others v/s. Managing Director, A.P.Women's Cooperative Finance Corporation Ltd. and another, reported in AIR 2010 SC 3143, wherein the Supreme Court proceeded to observe :
“The proposition which can be culled out from the aforementioned judgments is that although the Statement of Objects and Reasons contained in the Bill leading to enactment of the particular Act cannot be made the sole basis for construing the provisions contained therein, the same can be referred to for understanding the background, the antecedent state of affairs and the mischief sought to be remedied by the statute. The Statement of Objects and Reasons can also be looked into as an external aid for appreciating the true intent of the legislature and/or the object sought to be achieved by enactment of the particular Act or for judging reasonableness of the classification made by such Act.”
We also find merit in the submission of Mr.Trivedi, the learned Advocate General appearing for the respondent no.2 Company, that if the Central Government, having regard to the principal business carried on by the respondent no.2 Company being lending money for the purpose of housing and also taking into consideration the fact that the respondent no.2 Company was issued a certificate of registration to commence/carry on the business of a housing finance institution by the National Housing Bank in exercise of the powers conferred on the National Housing Bank by Section 29A of the National Housing Bank Act, 1987, and keeping in mind the object with which the SARFAESI Act was enacted, if thought fit to declare the respondent no.2 Company as a 'financial institution' in exercise of the powers conferred by sub-clause (iv) of clause (m) of sub-section (1) of Section 2 of the SARFAESI Act, then under such circumstances, it could be said that it is a question of economic policy of the Government as it involves regulation of economic activities by different constituents. In such matters of economic policy, this Court, in exercise of powers under Article 226 of the Constitution of India, should not interfere with the decisions of the experts body which has examined the matter. The following observations of the Supreme Court passed in Bhavesh D.Parish and others v/s. Union of India and another, reported in (2000)5 SCC 471, made in paragraphs 23 and 26, are appropriate.
In the said case, the challenge was to the constitutional validity of Section 9 of the RBI Act as amended by the Amendment Act, 1997, on the ground that the said provision was violative of Articles 14 and 19(1)(g) of the Constitution of India. The grievance of the appellants in that case was that the firms of or individual shroffs, as a result of amendment to Section 45-S, would not be allowed to accept any deposit from the public for the purposes of their business activities. A complete ban or prohibition was imposed on 'Sharafi' transactions (mutual current account transactions) which had formed the bedrock of the financing activities of the shroffs. Challenging the vires of Section 45-S, it was submitted before the Supreme Court that shroffs provided the facility of deposit and loan transactions 24 hours a day and such facility was traditionally extended to customers like agriculturists, such as cotton farmers, tobacco farmers, vegetable producers, etc. who had a seasonal need for finance and a periodical surplus of investible funds. It was also submitted that the impugned provisions were violative of the appellant's right to carry on their trade and business guaranteed under Article 19(1)(g) of the Constitution of India. Elaborating the aforesaid contention, it was urged before the Supreme Court that though it was open to the Government to impose reasonable restrictions in the public interest under Article 19(6) of the Constitution of India, still the impugned provisions neither met the test of reasonableness nor public interest. It was also submitted that the impugned provisions were violative of Article 14 of the Constitution of India being arbitrary, discriminatory and unreasonable. The Supreme Court, while repelling the submissions and upholding the constitutional validity of the amended Section 45-S of the Act, observed as under :
“23. It was further submitted that the amendments were introduced after taking into account the recommendations of successive committees, appointed by the Bank and Government of India, which had studied the functioning of these bodies. The question of restricting such financial activity by unincorporated bodies, is a question of economic policy as it involves regulation of economic activities by different constituents. In such matters of economic policy, this Hon'ble Court does not interfere with the decision of the expert bodies which have examined the matter. The following observations of this Hon'ble Court made in R.K.Garg v. Union of India (1981)4 SCC 675 at pp.690-91, para 8 are appropriate :
“8. Another rule of equal importance is that laws relating to economic activities should be viewed with greater latitude than laws touching civil rights such as freedom of speech, religion etc. It has been said by no less a person than Holmes, J. that the legislature should be allowed some play in the joints, because it has to deal with complex problems which do not admit of solution through any doctrinaire or straight-jacket formula and this is particularly true in case of legislation dealing with economic matters, where, having regard to the nature of the problems required to be dealt with greater play in the joints has to be allowed to the legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud (1957) 354 US 457 where Frankfurter, J. said in his inimitable style :
“In the utilities, tax and economic regulation cases, there are good reasons for judicial self- restraint if not judicial deference to legislative judgment. The legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. 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 uninterpreted 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.”
At page 706, para 19, it is further held :
“That would depend upon diverse fiscal and economic considerations based on practical necessity and administrative expediency and would also involve a certain amount of experimentation on which the Court would be last fitted to pronounce. The Court would not have the necessary competence and expertise to adjudicate upon such an economic issue. The Court cannot possibly assess or evaluate what would be the impact of a particular immunity or exemption and whether it would serve the purpose in view or not.”
“26. The services rendered by certain informal sectors of the Indian economy could not be belittled. However, in the path of economic progress, if the informal system was sought to be replaced by a more organised system, capable of better regulation and discipline, then this was an economic philosophy reflected by the legislation in question. Such a philosophy might its merits and demerits. But these were matters of economic policy. They are best left to the wisdom of the legislature and in policy matters the accepted principle is that the Courts should not interfere. Moreover in the context of the changed economic scenario the expertise of people dealing with the subject should not be lightly interfered with. The consequences of such interdiction can have large scale ramifications and can put the clock back for a number of years. The process of rationalisation of the infirmities in the economy can be put in serious jeopardy and, therefore, it is necessary that while dealing with economic legislations, this Court, while not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all.”
We shall now deal with the decisions relied upon by learned counsel appearing for the petitioner.
In Kunnathat Thathunni Moopil Nair (supra), the challenge in a petition under Article 32 of the Constitution of India was to the constitutional validity of the Travancore-Cochin Land Tax Act (XV of 1955). In that case, the petitioners owned forests in certain part of Palghat Taluk in Palghat District, which was part of the State of Madras before the reorganization of the States. Such forests were later on part of the State of Kerala. Upto the time such forests were in the State of Madras, as it then was, the Madras Preservation of Private Forests Act, Madras Act XXVII of 1949 governed such forests. By Section 9, Section 3 of the Madras Revenue Recovery Act, 1864 was substituted in the following terms :
“3.Landholder when and to whom to pay kist.- Every landholder shall pay to the Collector or other officer empowered by him in this behalf the land tax due from him on or before the day fixed for payment under the rules framed under S.16 of the Land Tax Act, 1955.”
It was contended before the Supreme Court that the provisions of the Act were clearly discriminatory in character and effect and were one infringing Article 14 of the Constitution of India. It was also submitted that as the Act did not had any regard to the quality of the land or its productive capacity, and a tax at a flat rate of Rs.2/- per acre was proposed to be levied under the Act, such imposition was very unreasonable restriction on the right to hold property and could be termed as an invasion on the rights guaranteed to the petitioners of that case under Article 19(1)(f) of the Constitution of India. It was submitted that the Act was one of an arbitrary character and, thus, was wholly repugnant to the guaranteed rights of the petitioners. It was also submitted that Section 7 gave uncanalized, unlimited and arbitrary powers to the Government to pick and choose in the matter of grant of total or partial exemption from the provisions of the Act. The Supreme Court, after examining the entire scheme of the Act and all other relevant aspects, held that the provisions of the Act laid down in barest outline the policy to impose a uniform and a low rate of land tax on all lands in the State of Kerala. The Supreme Court also noticed that unlike taxing statute, it did not make any provision for issue of notice to the assessee, nor was there any provision for submission of a return by the assessee. By Section 5A, it authorized the Government to make a 'provisional assessment' in respect of land, which had not been surveyed, and such provisional assessment was made payable by the person made liable under the Act. It also did not make any provision for any appeal in cases where the assessee might feel dissatisfied with the assessment. The Supreme Court also observed that the Act could not even cast in more general terms and the proceedings under the Act could not have been more summary. The Supreme Court, in the facts of that case and more particularly keeping in mind the provision which was under challenge, held that inequality was writ large on the Act and was inherent in the very provisions of the taxing Section and there was no attempt at classification in the provisions of the Act. The Supreme Court held that the provision was one of those cases where the lack of classification created inequality and was clearly hit by the prohibition to deny equality before the law contained in Article 14 of the Constitution of India. Such being the position, the Supreme Court, with the opinion of the majority, declared the whole Act as invalid as its main provisions were unconstitutional.
In our opinion, the principle laid down by the Supreme Court after examining the Act and its provisions which were under challenge, would not be applicable in the present case because it could not be said that Section 45-I(f)(iii) of the RBI Act or Section 2(1)(m)(iv) of the SARFAESI Act confers uncanalized, unlimited or arbitrary powers to the Government to pick and choose a 'non-banking financial company' for being declared as a 'financial institution' for the purpose of the SARFAESI Act.
In the case of State of Punjab (supra), the Full Bench of the Punjab High Court had struck down Section 2 of the East Punjab Movable Property (Requisitioning) Act, 1947 on the ground of being violative of Article 14 of the Constitution of India. The Full Bench of the Punjab High Court held that Section 2 was not severable from the rest of the Act and the other provisions of the Act were merely ancillary to the powers of requisitioning and acquisition of the property contained in Sections 2 and 3 of the Act. The High Court accordingly held the entire Act to be unconstitutional and void. Being dissatisfied with the judgment of the Full Bench of the Punjab High Court, the State of Punjab preferred appeal before the Supreme Court. The Supreme Court examined the provisions of the Act and noticed that under the provisions of the Act not only the State Government but also the officers to whom such powers may be delegated by the State Government could take possession of a private vehicle on the ground that such vehicle was necessary to carry road material for famine work. The Supreme Court also noticed that the compensation for the use of such vehicle would be paid to the owner at the rate fixed by the Government. After examining the entire scheme of the Act, more particularly, Sections 2, 3 and 4 of the Act, the Supreme Court held that the Act conferred uncontrolled power on the State Government or the officers authorized by it to requisition any movable property. The only property excluded from the purview of the Act was one used for the purpose of religious worship or an aircraft or anything forming part of an aircraft or connected with the operation, repair or maintenance of an aircraft. The Supreme Court also noticed that no guidelines had been laid down in the Act regarding the object or the purpose for which the State Government or the officers authorized by it would consider it necessary or expedient to requisition a movable property. The Supreme Court also noticed that there was no provision in the Act that the power of requisitioning a movable property could be exercised under the Act only for a public purpose nor was there any provision that the powers under the Act could be exercised only in an emergency or in some special contingency. It was open under the provisions of the Act for an officer authorized under the Act to requisition movable property for any purpose whatsoever. The Supreme Court observed that having regard to the wide powers conferred under the Act, the District Magistrate, who was an authorized officer under the Act, would be permissible to even requisition furniture of anyone within the district for use in the office of the District Magistrate. Likewise, it would be permissible for the District Magistrate to requisition any private car which could have caught his fancy for his own use. After taking into consideration the drastic and unusual features of the Act, the Supreme Court held that the Act conferred arbitrary powers for requisitioning of movable property upon the authorities under the Act and that no guidelines whatsoever had been prescribed for the exercise of the powers of requisitioning. The Supreme Court proceeded to observe that the total absence of guidelines for the exercise of powers of requisitioning of movable property vitiated Section 2 of the Act and the arbitrariness and the power to discriminate were writ large on the face of the said provision of the Act and, therefore, fell within the mischief, which Article 14 of the Constitution of India is designed to prevent. The Supreme Court passed the following observations which, in our view, are worth quoting :
“We may state that the vesting of discretion in authorities in the exercise of power under an enactment does not by itself entail contravention of Article 14. What is objectionable is the conferment of arbitrary and uncontrolled discretion without any guidelines whatsoever with regard to the exercise of that discretion. Considering the complex nature of problems which have to be faced by a modern State, it is but inevitable that the matter of details should be left to the authorities acting under an enactment. Discretion has, therefore, to be given to the authorities concerned for the exercise of the powers vested in them under an enactment. The enactment must, however, prescribe the guidelines for the furtherance of the objects of the enactment and it is within the framework of those guidelines that the authorities can use their discretion in the exercise of the powers conferred upon them. Discretion which is absolute uncontrolled and without any guidelines in the exercise of the powers can easily degenerate into arbitrariness. When individuals act according to their sweet-will. there is bound to be an element of 'pick and choose' according to the notion of the individuals. If a legislature bestows such untrammeled discretion on the authorities acting under an enactment, it abdicates its essential function for such discretion is bound to result in discrimination which is the negation and antithesis of the ideal of equality before law as enshrined in Article 14 of the Constitution. It is the absence of any principle or policy for the guidance of the authority concerned in the exercise of discretion which vitiates an enactment and makes it vulnerable to the attack on the ground of violation of Article 14. It is no answer to the above that the executive officers are presumed to be reasonable men who do not stand to gain in the abuse of their power and can be trusted to use "discretion" with discretion.”
In our opinion, the principle as laid down by the Supreme Court in the aforesaid case would not be applicable in the present case as it could not be said that the enactment with which we are dealing with fails to prescribe guidelines for the furtherance of the objects of the enactment or that the Central Government is conferred with arbitrary and uncontrolled discretion without any guidelines whatsoever to declare a 'non- banking financial company' as a 'financial institution' for the purpose of the SARFAESI Act.
In A.N.Parasuraman (supra), the challenge was to the vires of the Tamil Nadu Private Educational Institution (Regulation) Act, 1966. The appellants of that case were interested in running educational institution, which were covered by the expression 'private educational institution' within the meaning of Section 2(f) of the Act. The main challenge was directed against Sections 2(c), 3(a), 3(b), 6, 7 read with Sections 15, 22 and 28. The High Court had struck down Section 28 and had uphold the other sections. The Act was impugned on the ground that it did not lay down any guidelines for the exercise of the power by the delegated authority, as a result of which the authority was in a position to act according to its whims. It was also submitted before the Supreme Court that as the Act failed to indicate the conditions for exercise of power, the decision of the competent authority was bound to be discriminatory and arbitrary. It was also argued that the restrictions which were put by the Act on the appellants, who were running tutorial institutions, were unreasonable and could not be justified under sub-clause (g) of Article 19(1) of the Constitution of India. The Supreme Court noticed that Section 3 mandatorily required a private educational institution to obtain the permission of the competent authority for the purpose of running it. Section 4 provided that the Manager of such an institution shall have to make an application for permission in the prescribed form accompanied by a fee and Section 6 laid down the power of the competent authority to deal with such an application on certain terms. The Supreme Court, after examining the entire scheme of the Act and the relevant provisions, noticed that the purpose of the Act was to regulate the private educational institutions but did not give any idea as to the manner in which the control over the institutions could be exercised. The Supreme Court also noticed that the Preamble which described the Act 'for regulation' was also not helpful. It was submitted on the part of the State that the Objects and the Reasons for the Act were to eradicate corrupt practices in private educational institutions. The expression 'private educational institution' had been defined as meaning any college, school or other institution 'established and run with the object of preparing, training or guiding its students for any certificate, degree or diploma'. The Supreme Court noticed that the purpose of the Act was to see that such institutions do not exploit the students; and while they impart training and guidance to students of a standard which may effectively improve their knowledge so as to do well at the examination, such institutions do not charge exorbitantly for their services. The Supreme Court posed a question as to how such objective could be achieved. Section 6 which empowered the competent authority to grant or refuse to grant the permission for establishing and running an institution, did not give any idea as to the conditions which it had to fulfill before it could apply for permission under the Act nor were the tests indicated for refusing permission or cancelling under Section 7 of an already granted permission. Ultimately, the Supreme Court held that the authority concerned had been left with unrestricted and unguided discretion which rendered the provisions unfair and discriminatory. The principle as laid down by the Supreme Court in the facts of that case would not be applicable in the present case. Therefore, this judgment of the Supreme Court would also not be of any help to the client of Mr.Shah.
In the case of Authorized Officer, Indian Overseas Bank (supra), the question which fell for determination of the Supreme Court was, whether the DRT would have jurisdiction to consider and adjudicate with regard to post 13(4) events or whether its scope in terms of Section 17 of the SARFAESI Act would be confined to the stage contemplated under Section 13(4) of the Act. The Supreme Court, while answering the aforesaid question, held that while enacting the SARFAESI Act the Legislature was concerned with the measures to regulate securitisation and reconstruction of financial assets and enforcement of security interest. The Act also enabled the banks and financial institutions to realise long-term assets, manage problems of liquidity, asset liability mismatches and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. The Supreme Court observed further that the provisions of Section 13 enabled the secured creditors, such as banks and financial institutions, not only to take possession of the secured assets of the borrower, but also to take over the management of the business of the borrower, including the right to transfer by way of lease, assignment or sale for realizing secured assets, subject to the conditions indicated in the two provisos to clause (b) of sub-section (4) of Section 13. The Supreme Court held that the intention of the Legislature was, therefore, clear that while the banks and financial institutions had been vested with stringent powers for recovery of their dues, safeguards had also been provided for rectifying any error or wrongful use of such powers by vesting with the Debts Recovery Tribunal with authority after conducting an adjudication into the matter to declare any such action invalid and also to restore possession even though possession might have been made over to the transferee. The Supreme Court proceeded to observe that the consequences of the authority vested in the Debts Recovery Tribunal under sub-section (3) of Section 17 necessarily implied that the Debts Recovery Tribunal was entitled to question the action taken by the secured creditor and the transactions entered into by virtue of Section 13(4) of the Act. The Legislature, by including sub-section (3) in Section 17, had gone to the extent of vesting the Debts Recovery Tribunal with authority to even set-aside a transaction including sale and to restore possession to the borrower in appropriate cases. Taking the aforesaid view, the Supreme Court held that it was not possible to accept the submission made on behalf of the bank that the Debts Recovery Tribunal had no jurisdiction to interfere with the action taken by the secured creditor after the stage contemplated under Section 13(4) of the Act. The Supreme Court held that the law was otherwise and it contemplated that the action taken by a secured creditor in terms of Section 13(4) was open to scrutiny and could not only be set-aside but even a status quo ante could be restored by the Debts Recovery Tribunal.
The aforesaid judgment of the Supreme Court has been relied upon by Mr.Shah in support of his submission that though the possession of the property was taken over from his client and the property was put to auction and sold off, this Court may direct the bank to accept the amount of Rs.9,10,893=00 and thereby settle the account and restore the possession of the residential house.
There cannot be any dispute with regard to the principle laid down by the Supreme Court in each of the aforesaid decisions relied upon by the petitioner. However, in the facts and circumstances of the case and more particularly in the absence of any glaring illegality or irregularity at the end of the respondent no.2 Company in taking the action against the petitioner under Section 13 of the SARFAESI Act, we are not inclined to accede to the request made by Mr.Shah to direct the bank to accept a sum of Rs.9,10,893=00 and restore the possession of the residential house of the petitioner, as the record reveals that the notice under Section 13(2) of the Act was issued to the petitioner way back on 15th May 2009. However, the petitioner failed to make payment of Rs.9,10,893=00 as on the date of the issuance of the notice. Further, the physical possession of the mortgaged property was also taken over by the respondent no.2 Company on 14th June 2011 and thereafter the property was put to auction which was conducted on 8th August 2011. The highest bidder was also issued a sale certificate on 12th August 2011. Thus, third party rights have also been created. In the facts and circumstances of the case, no case has been made out by the petitioner so far as restoring of the possession of the property in question is concerned even on payment of certain amount.
We are of the view that none of the decisions relied upon on behalf of the petitioner is helpful in any manner in fortifying the submissions made by the learned counsel appearing for the petitioner.
Reference could be made to a decision of the Supreme Court in the case of Ashwani Kumar Singh v/s. U.P.Public Service Commission and others, reported in (2003)11 SCC 584, in which the Supreme Court has explained as to how courts should place reliance on precedents. Observations made in paragraphs 10, 11, 12 and 13 are referred to hereinbelow:
“10. Courts should not place reliance on decisions without discussing as to how the factual situation fits in with the fact situation of the decision on which reliance is placed. Observations of Courts are not to be read as Euclid's theorems nor as provisions of the statute. These observations must be read in the context in which they appear. Judgments of Courts are not to be construed as statutes. To interpret words, phrases and provisions of a statute, it may become necessary for Judges to embark into lengthy discussions, but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments. They interpret words of statutes; their words are not to be interpreted as statutes. In London Graving Dock Co. Ltd. v. Horton (1951 AC 737 at p. 761), Lord Mac Dermot observed :
“The matter cannot, of course, be settled merely by treating the ipsissima vertra of Willes, J. as though they were part of an Act of Parliament and applying the rules of interpretation appropriate thereto. This is not to detract from the great weight to be given to the language actually used by that most distinguished Judge.”
“11. In Home Office v. Dorset Yacht Co. (1970 (2) All ER 294) Lord Reid said, "Lord Atkin's speech . . . . . . . . is not to be treated as if it was a statute definition. It will require qualification in new circumstances.”
Megarry, J. in Shepherd Homes Ltd. v. Sandham (No. 2) ((1971) 1 WLR 1062) observed :
“One must not, of course, construe even a reserved judgment of Russell, L. J. as if it were an Act of Parliament.”
In Herrington v. British Railways Board (1972 (2) WLR 537) Lord Morris said :
“There is always peril in treating the words of a speech or judgment as though they are words in a legislative enactment, and it is to be remembered that judicial utterances made in the setting of the facts of a particular case.”
12. Circumstantial flexibility, one additional or different fact may make a world of difference between conclusions in two cases. Disposal of cases by blindly placing reliance on a decision is not proper.
13. The following words of Lord Denning in the matter of applying precedents have become locus classicus :
“Each case depends on its own facts and a close similarity between one case and another is not enough because even a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cordozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.”
xxx xxx xxx xxx xxx “Precedent would be followed only so far as it marks the path of justice, but you must cut the dead wood and trim off the side branches, else you will find yourself lost in thickets and branches. My plea is to keep the path to justice clear of obstructions which could impede it.”
In the aforesaid view of the matter, we are of the opinion that there is no merit in the challenge to Section 45-I of the RBI Act and Section 2(1)(m)(iv) of the SARFAESI Act. It may be mentioned that there is always a presumption in favour of the constitutional validity of an Act or a provision of an Act and a heavy burden lies on the person who challenges the constitutional validity of a statute, and the petitioner in the present case has failed to discharge such burden. We do not see any constitutional invalidity in Section 45-I of the RBI Act and Section 2(1)(m)(iv) of the SARFAESI Act.
In the result, this petition fails and the same is hereby rejected.
On the facts and in the circumstances of the case, however, there shall be no order as to costs.
(BHASKAR BHATTACHARYA, CJ.)
/MOIN
(J.B.PARDIWALA, J.)