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KERALA HIGH COURT
Mohan M. Shantanagoudar, CJ. and Sathish Ninan, J.
Rojer Mathew —Appellant
versus
South Indian Bank Limited and Ors. —Respondents
WA.No.2349 of 2016 in WP(C).No.26290 of 2014
Decided on 20.1.2017
Result: Writ Appeal dismissed.
Key Points: - Section 13(5A) permits a secured creditor to bid for secured assets only when sale is adjourned due to no bid at or above the reserve price (!) (!) . - The right to bid is contingent and restricted to the reserve price, not below it (!) (!) . - The Act provides mechanisms for recovery while safeguarding borrower rights (!) (!) . - The valuation and reserve price fixation process under Rule 8(5) ensures adequate protection for the debtor (!) (!) . - The inclusion of Section 13(5A) is not arbitrary or irrational and does not violate Articles 300A and 21 (!) (!) . - Debtors have an appeal remedy under Section 17 of the Act (!) (!) . - The challenge to Section 13(5A) on constitutional grounds fails (!) . - Adequate shields are provided to mortgagor/debtor throughout the process (!) (!) . - The Act aims to expedite recovery of NPAs and support economic growth (!) . - The Writ Appeal is dismissed (!) .
Sathish Ninan, J.—In Mardia Chemicals v. Union of India ([2004] 4 SCC 311), the constitutional validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “the Act”) was upheld by the Apex Court. As per Act 1 of 2013, Section 13(5A) was incorporated into the Act with effect from 15.01.2013, permitting the secured creditor to bid for the secured assets. The vires of Section 13(5A) is under challenge in this writ proceedings on the ground that it is violative of Articles 300A and 21 of the Constitution of India.
2. Heard Shri P.Chandrasekhar, learned counsel for the appellant and Shri K.K. Chandran Pillai, learned Senior Counsel for the respondents.
3. The question to be considered is as to whether the power given to the secured creditor under Section 13(5A) of the Act is arbitrary, irrational and without any nexus to the object.
4. Section 13(5A) of the Act is as under:
“135A. Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale.”
The Section postulates the following:
(a) a secured asset is brought for sale;
(b) reserve price for the property has been fixed;
(c) there are no bidders for reserve price or above;
(d) sale is adjourned for want of bidders at or above the reserve price;
(e) at the postponed sale, any officer of the secured creditor, so authorised, can bid for the immovable property on behalf of the secured creditor.
The above provision is challenged as unconstitutional since it interferes with the fundamental rights of a citizen.
5. Article 300A of the Constitution of India is canvassed by the learned counsel for the appellant to contend that the constitutional right guaranteed under the said Article is violated by Section 13(5A) of the Act in so far as it is left to the whims and fancies of the secured creditor to purchase for itself the property that is mortgaged to secure a financial assistance availed from the bank. It would be relevant to refer to Article 300A:
“300A. Persons not to be deprived of property save by authority of law.- No person shall be deprived of his property save by authority of law.”
A citizen could be deprived of his property only under authority of law. It is beyond cavil that an involuntary sale of the property of a citizen by a mode permitted by law, necessitated for realisation of a legally recoverable debt, is a process under the authority of law. The provisions of the Act, in addition to the other remedies, provides a mechanism for the secured creditor, for realisation of its debts. Section 13(4) of the Act provides various modes for recovery under the Act, one of the modes being sale of the secured assets. The background which led to the enactment of the Act had been elaborately detailed by the Apex Court in Mardia Chemicals’ case (supra) and has been further adverted to in several cases thereafter. Suffice to observe, the Act was necessitated consequent to the failure of the ordinary Civil Courts and the Tribunal constituted under the Debts due to Banks and Financial Institutions Act, 1993 to meet the pace necessary for recovery of public money due to the banks. The Parliament enacted the legislation finding that the legal mechanism available till then was wholly insufficient for recovery of the alarming outstanding dues of banks and financial institutions which is public money. In Mardia Chemicals’ case (supra), it has been observed thus:
“...The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional in view of the fact that the object of the Act is to achiev
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