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2022 Supreme(Bom) 2634
IN THE HIGH COURT OF BOMBAY
A.A. SAYED, MADHAV J. JAMDAR, JJ.
Prateek Pradeep Agarwal – Appellant
Versus
Union of India Through Department of Financial Services, Ministry of Finance and Others - Respondents.
Writ Petition (L) No. 5858 of 2020
Decided on : 30-05-2022
Act Referred
CONSTITUTION OF INDIA : Art.13, Art.14, Art.19, Art.245, Art.246, Art.300(a)
INFORMATION AND TECHNOLOGY ACT : S.79, S.79(3)(b)
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT : S.13(1), S.13(10), S.13(12), S.13(4), S.13(8)
SECURITY INTEREST ENFORCEMENT RULES : R.13(9), R.6(iii), R.8, R.8(1), R.8(2)(a), R.8(3), R.8(4), R.8(5), R.8(5)(d), R.8(6), R.8(7), R.8(8), R.9, R.9(1), R.9(2)
TRANSFER OF PROPERTY ACT : S.69, S.69(a)
Headnote
Constitution of India, 1950 – Article 14, 19, 300(A) – Security Interest (Enforcement) Rules, 2002 – Rule 8(5) – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Sections 4, 10, 12, 13 – Reliefs sought in Petition – Requirement of consent of borrower – Sale of secured assets – Held, However said terms cannot be arbitrarily fixed and such terms as settled between secured creditor and proposed purchaser in writing cannot be kept secret – Rules do not contemplate that such terms which are to be arrived at in writing between secured creditor and proposed purchaser are to be kept secret – In fact, such terms also will have to be in consonance with said Rules, sale cannot be below reserve price, sale cannot be without giving notice to borrower of 30 days (in case sale is at first instance) or of 15 days (for subsequent sale) and other mandatory requirements set out earlier – Court have already held that sale by private treaty under Rule 8(8) can be conducted only after sale by inviting tenders from public or by holding public auction fails – Court pass order.
Legal Category Hierarchy
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constitutional law
-
fundamental rights
- right to property
- article 14
- article 19
- article 300a
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delegated legislation
- validity of rules
- rule 8(8) challenge
-
fundamental rights
-
financial services law
-
securitisation and reconstruction of financial assets
-
sarfaesi act
- enforcement of security interest
- sale by private treaty
- public auction and tender
- borrower consent
- notice and valuation requirements
-
sarfaesi act
- debt recovery tribunal
-
securitisation and reconstruction of financial assets
-
administrative law
-
principles of statutory interpretation
- reading down
- presumption of constitutionality
- legislative intent
-
principles of statutory interpretation
Advocate Appeared:
For the Appellant :Mr. Nitin Thakker, Senior Advocate a/w. Mr. Rohit Gupta, Mr. Umang Mehta and Mr. Rishab Murali i/b. M/s. Taurus Legal
For the Respondent: Mr. Anil Singh, Additional Solicitor General a/w Mr. Sandesh Patil, Mr. Aditya Thakkar and Mr. D.P. Singh, Mr. Pravin Samdhani, Senior Counsel a/w. Mr. T.N. Tripathi, Ms. Kalyani Wagle i/b M/s. T.N. Tripathi & Co., Dr. Milind Sathe, Senior Counsel a/w. Mr. Subhash Jadhav, Mr. Rupesh Geete and Ms. Raksha Thakkar i/b. M/s. Parinam Law Associates
JUDGMENT :
Madhav J. Jamdar, J.
The Petitioner is the owner of Heritage Bungalow, Mittal Grandeur, Junction of Khatau Road and Captain Prakash Rehe Marg, C.S. No. 85, Colaba Division, Street No. 25, Cuffe Parade, Mumbai-400030 (hereinafter referred to as “the said property”). The Petitioner is also a co-borrower. The Petitioner, Respondent No. 4 and Respondent No. 5 availed financial assistance of aggregate amount of Rs. 111,15,22,899/- (Rs. One Hundred Eleven Crores Fifteen Lakhs Twenty Two Thousand Eight Hundred Ninety-Nine) from Respondent No. 2 by five different loans granted on various dates. The said property was mortgaged with Respondent No. 2 as security towards said loan. The Respondent No. 2 sold the said property to Respondent No. 6 by private treaty under Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as “the said Rules”). The said Rules are made by the Central Government in exercise of the powers conferred by sub-Section 1 and Clause (b) of sub-Section 2 of Section 38 read with sub-Sections 4, 10 and 12 of Section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as “the said Act”).
2. Reliefs sought in the Petition:—
3. The Petitioner by present Writ Petition has inter alia sought following relief:—
“(a) that this Hon'ble Court be pleased to hold the Rule 6(iii) of the Impugned Notification GSR 1046 (E) dated 9th November 2016 (Exhibit “A” hereto) insofar as it removes the requirement of consent of borrower for the purpose of sale of secured assets by way of private treaty is unconstitutional, illegal and void;”
4. By Rule 6(iii) of said Notification being G.S.R.1046 (E) dated 3rd November, 2016 (wrongly mentioned as 9th November 2016 in prayer clause) sub-Rule 8 of Rule 8 of said Rules is amended by substituting the words “between the parties in writing” by the words “between the secured creditor and proposed purchaser in writing”.
5. The original Rule 8(8) is as follows:—
“Rule 8(8) Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the parties in writing.” (Emphasis supplied)
The said original Rule 8(8) is interpreted by the Supreme Court in Mathew Varghese v. M. Amritha Kumar, (2014) 5 SCC 610 and General Manager Sri. Siddheshwara Co-operative Bank Ltd. v. Ikbal, (2013) 10 SCC 83 by holding that the word “parties must mean the secured creditor, borrower and auction purchaser”.
6. The amended Rule 8(8) as amended by impugned notification dated 3rd November, 2016 (hereinafter referred to as “the amended Rule”) is as follows:—
“Rule 8(8)
Sale by any methods other than public auction or public tender, shall be on such terms as may be settled between the secured creditor and the proposed purchaser in writing.”
(Emphasis supplied)
Thus, the Petitioner is challenging constitutional validity of amended Rule 8(8) as it removes the requirement of consent of borrower for the purpose of settlement of terms of sale for conducting the same by obtaining quotations or by private treaty of secured assets by secured creditor/authorized officer.
7. There are several reliefs sought in the petition. This Court by order dated 27th October 2020 (passed in LDVCIA No. 1 of 2020 in this Writ Petition) clarified that for other reliefs the remedy is before the Debt Recovery Tribunal and this Writ Petition is restricted to prayer regarding constitutional validity of Rule 8(8). All the parties before us agreed that the scope of Writ Petition is restricted only to the extent of examining the constitutional validity of Rule 8(8) as amended by Notification bearing No. GSR 1046(E) dated 3rd November 2016 and as far as other reliefs are concerned, the Petitioners are at liberty to pursue the Securitisation Application No. 116 of 2019 filed under Section 17 of the said Act pending before DRTI, Mumbai or to take appropriate proceedings in that behalf.
8. Factual background:—
Bef
