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IN THE HIGH COURT OF JUDICATURE AT BOMBAY
S. J. Vazifdar and P.R. Borkar, JJ.
KHAJA INDUSTRIES - Petitioner.
vs.
STATE OF MAHARASHTRA and another - Respondents.
W. P. Nos. 2672, 2751, 3049, 3170, 3195, 3338 and 3412 of 2007 Decided on 3-7-2007
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 - APPLICABILITY TO CO-OPERATIVE BANKS - CONSTITUTIONAL VALIDITY - INTERPRETATION OF PROVISIONS - RATIO DECIDENDI - FINAL DECISION:
Fact of the Case:
The petitioners, debtors of respondent co-operative banks, challenged the action of the banks under the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitisation Act) on merits, applicability of the Act to co-operative banks, and the constitutional validity of the Act.
Finding of the Court:
1. The Securitisation Act applies to co-operative banks, including those constituted under the Maharashtra Cooperative Societies Act (MCS Act). 2. The provisions of the Securitisation Act, if applicable to co-operative banks, are not arbitrary and do not violate Article 14 of the Constitution of India as they provide a mechanism for the adjudication of objections raised by borrowers. 3. The right to challenge the action of banks under section 13 of the Securitisation Act is not denied as an appeal can be filed under section 17 of the Act. 4. The exact amount due to the secured creditor need not be mentioned in the notice under section 13 of the Securitisation Act. 5. A final adjudication of the quantum of the claim is not a prerequisite for taking action under section 13 of the Securitisation Act. 6. Parliament has legislative competence to enact the Securitisation Act with respect to co-operative banks. 7. The Securitisation Act is constitutionally valid.
Issues: 1. Applicability of the Securitisation Act to co-operative banks. 2. Constitutionality of the Securitisation Act. 3. Whether the provisions of the Securitisation Act violate Article 14 of the Constitution of India. 4. Whether the right to challenge the action of banks under section 13 of the Securitisation Act is denied. 5. Whether the exact amount due to the secured creditor must be mentioned in the notice under section 13 of the Securitisation Act. 6. Whether a final adjudication of the quantum of the claim is a prerequisite for taking action under section 13 of the Securitisation Act. 7. Legislative competence of Parliament to enact the Securitisation Act with respect to co-operative banks.
Ratio Decidendi: 1. The Securitisation Act is applicable to co-operative banks by virtue of section 2(c)(v) of the Act and the notification issued by the Central Government on 28-1-2003. 2. The provisions of the Securitisation Act are not arbitrary and do not violate Article 14 of the Constitution of India as they provide a mechanism for the adjudication of objections raised by borrowers under section 17 of the Act. 3. The right to challenge the action of banks under section 13 of the Securitisation Act is not denied as an appeal can be filed under section 17 of the Act. 4. The exact amount due to the secured creditor need not be mentioned in the notice under section 13 of the Securitisation Act as the purpose of the notice is to inform the borrower of the bank's intention to enforce the security and not to determine the quantum of the claim. 5. A final adjudication of the quantum of the claim is not a prerequisite for taking action under section 13 of the Securitisation Act as the purpose of the Act is to enable banks to enforce their security without the intervention of the Court. 6. Parliament has legislative competence to enact the Securitisation Act with respect to co-operative banks as the Act deals with the field of banks or banking, which is a subject matter of Entry 43 of List I of the Seventh Schedule of the Constitution of India. 7. The Securitisation Act is constitutionally valid as it does not violate any of the provisions of the Constitution of India.
Final Decision: The writ petitions challenging the applicability, constitutionality, and provisions of the Securitisation Act were dismissed.
S.J. VAZIFDAR, J.:- The petitioners have challenged the action of the respondent banks under the provisions of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the Securitisation Act”) on merits, the applicability of the said Act to co-operative banks including those constituted under the Maharashtra Cooperative Societies Act (hereinafter referred to as the MCS Act) and the constitutional validity of the said Act.
2. There is little, if anything, to be said in favour of the petitioners on merits. They are debtors of the respondent co-operative banks and, prima-facie at least, there appears to be no defence to the claim of the respondent banks on merits. The petitioners have however challenged the Constitutional validity of the Securitisation Act. In Mardia Chemicals Ltd. and ors. vs. Union of India and ors., 2004(2) Mh.L.J. (SC) 1090 the Supreme Court upheld the constitutional validity of the Securitisation Act including the very provisions which were challenged before us. The petitioners however contended that the judgment is per incur am, having failed to notice the relevant provisions of the Constitution of India.
3. We have decided all the petitions by this common judgment though in some of them the constitutional validity of the Securitisation Act has not expressly been challenged as, a decision on that aspect in one petition would affect the outcome of the other petitions in any case.
4. The following contentions have been raised by the counsel for the petitioners:-
I. The Securitisation Act does not apply to co-operative banks including those constituted under the Maharashtra Co-operative Societies Act.
II. The Securitisation Act, if applicable to co-operative banks, is arbitrary and violative of Article 14 of the Constitution of India as it deprives the borrowers such as the petitioners the right to challenge the action of the bank under section 13.
III. By adopting proceedings under the Securitisation Act the borrower is deprived the right to have the claim adjudicated under the provisions of the MCS Act.
IV. If the exact amount is not mentioned in the notice under section 13, the same is bad and illegal.
V. Unless there is first a final adjudication of the quantum of the claim, no action under section 13 of the Securitisation Act can be taken.
VI. Assuming that the Securitisation Act applies to co-operative banks it is to that extent without legislative competence as Parliament has no legislative competence to enact the Securitisation Act with respect to co-operative banks.
Re : I. The Securitisation Act does not apply to co-operative banks including those constituted under the Maharashtra Co-operative Societies Act.
5. (A) A consideration of the provisions of the Securitisation Act establishes beyond doubt that the same is made applicable to co-operative banks. Section 2(1)(c) of the Securitisation Act reads as under:-
“2. Definitions.- (1) In this Act unless the context otherwise requires.-
(a) ..............................................
(b) ..............................................
(c) “bank” means
(i) a banking company; or
(ii) a corresponding new bank; or
(iii) the State Bank of India; or
(iv) a subsidiary bank; or
(v) such other bank which the Central Government may, by notification, specify for the purposes of this Act;”
(B). In exercise of its powers conferred under section 2(1)(c)(v), the Central Government issued a notification dated 28-1-2003, which reads as under:”
NOTIFICATION UNDER SECTION 2(1)(c)(v):
NOTIFICATION NO. SO l05 (E), DATED 28-1-2003 In exercise of the powers conferred under item (v) of clause (c) of Sub-section (1) of section 2 of the Securitisation and Reconstruction of Financial Asset and Enforcement of Security Interest Act, 2002 (54 of 2002), the Central Government hereby specifies "Co-operative Bank" as defined in clause (cci) of section 5 of Banking Regulation Act, 1949 (10 of 1949) as ‘bank’
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