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SOUMITRA PAL, J.
Core Ceramics Ltd. and Ors.
v.
Union of India and Ors.
G.A. No. 1190 of 2007 and W.P. No. 256 of 2004
Decided on : 8 -2 -2008.
SECURITISATION AND RECONSTRUCTION OF FINANCIAL ASSETS AND ENFORCEMENT OF SECURITY INTEREST ACT, 2002 - ACT VALIDITY - VALIDITY OF NOTICE - CLASSIFICATION OF ACCOUNT AS NON-PERFORMING ASSET - JURISDICTION OF WRIT COURT - INTERNAL MECHANISM - SECURED CREDITOR'S AUTHORITY - PRINCIPLES OF NATURAL JUSTICE - APPLICABILITY OF JUDGMENTS - WRIT PETITION - DISMISSAL.
Fact of the Case:
Writ petition challenged the validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (NPA Act) and the notice issued by Punjab National Bank (Bank) under the Act. The petitioner contended that the notice was vague, the account was not a non-performing asset (NPA), and the bank lacked jurisdiction to issue the notice.
Finding of the Court:
1. The Supreme Court in Mardia Chemicals Ltd. v. Union of India upheld the validity of the NPA Act except for sub-section (2) of Section 17, which was declared ultra vires Article 14 of the Constitution. Therefore, the challenge to the Act failed. 2. The notice under Section 13(2) was issued after classifying the account as NPA in accordance with the Reserve Bank of India (RBI) guidelines. The petitioner had understood the purport of the notice and had submitted a reply. 3. The petitioner's reliance on judgments relating to the principles of natural justice and fair play was misplaced as the bank had followed the procedure laid down in the NPA Act. 4. The judgments cited by the petitioner were distinguishable and not applicable to the facts of the case.
Issues: 1. Whether the NPA Act is valid? 2. Whether the notice issued by the bank was valid? 3. Whether the account was correctly classified as an NPA? 4. Whether the writ court had jurisdiction to intervene?
Ratio Decidendi: 1. The NPA Act, except for sub-section (2) of Section 17, was held to be valid by the Supreme Court in Mardia Chemicals Ltd. v. Union of India. 2. The notice issued by the bank was in accordance with the provisions of the NPA Act and the RBI guidelines. The petitioner had understood the purport of the notice and had submitted a reply. 3. The classification of the account as an NPA was based on the RBI guidelines, and the bank had the authority to do so under Section 2(o) of the NPA Act. 4. The writ court had no jurisdiction to intervene as the bank had followed the procedure laid down in the NPA Act and the petitioner had an alternative remedy under Section 17 of the Act.
Final Decision: The writ petition was dismissed. The interim order was vacated. The bank was directed to treat and consider the petitioner's representation or objection under Section 13(3A) of the Act within a week from the date of presentation of the certified copy of the order.
2. It is to be noted that during the pendency of the writ petition, petitions were moved before the Apex Court challenging the validity of the Act. The Supreme Court in the judgment of Mardia Chemicals Limited v. Union of India, reported in (2004) 4 SCC 311 : (AIR 2004 SC 2371) had upheld the validity of the Act and its provisions except sub-section (2) of Section 17 of the Act which was declared ultra vires Article 14 of the Constitution of India. Therefore, the challenge to the said Act fails. However, the learned senior advocate for the petitioner submitted that the writ petition is still maintainable since the notice does not fulfil the conditions precedent under Section 13(2) for invoking the provisions of the Act. In the instant case the notice dated 3rd November, 2003 issued under the Act is vague as it neither gives the details nor does it comply with the requirements under the Act. Though intricate questions of fact cannot be gone into in the writ jurisdiction, however, since the drawal was within the sanctioned limits and the account credited was much more than the interest debited there was no question of the account becoming non-performing asset (for short "NPA") and, thus, there was lack of jurisdiction on the part of the bank in issuing the notice impugned. Argument was fast track concept does not mean that it should be dehors the provisions of law. Though the bank was under a legal obligation to classify the asset as NPA, the notice under challenge does not disclose the basis of such declaration as in that event the asset should have been "out of order", Unless classification is done in accordance with the Reserve Bank of India (for short 'RBI') guidelines, the writ Court has the jurisdiction to intervene as there is no provision for preferring appeal against the decision making process and the decision. In such an event, the question of adhering to the alternative remedy under the Act does not arise. The learned advocate for the petitioner had relied on the following decisions of the Supreme Court :
1) Chaube Jagdish Prasad v. Ganga Prasad Chaturvedi, reported in AIR 1959 SC 492.
2) Ram Sarup Gupta (Dead) by LRs. v. Bishun Narain Inter College, reported in 1987 (2) SCC 555 : (AIR 1947 SC 1242).
3) Board of Technical Education, U.P. v. Dhanwantri Kumar, reported in AIR 1991 SC 271.
4) Whirlpool Corporation v. Registrar of Trade Marks, Mumbai, (1998) 8 SCC 1 : (AIR 1999 SC 22).
5) Syed Dastagir v. T.R. Gopalakrishna Setty, reported in (1999) 6 SCC 337 : (AIR 1999 SC 3029).
6) Food Corporation of India v. State of Punjab, reported in (2001) 1 SCC 291 : (AIR 2001 SC 250).
7. Commissioner of Central Excise, Bangalore v. Brindavan Beverages (P) Ltd., reported in (2007) 5 SCC 388 : (2007 AIR SCW 7747).
8) M/s. Transcore v. Union of India, reported in AIR 2007 SC 712.
9) ABL International Ltd. v. Export Credit Guarantee Corporation of India Ltd., reported in (2004) 3 SCC 553.
10) Subramania Desika Gnanasambanda Pandarasannidi v. State of Madras, reported in AIR 1965 SC 1578.
11) State of Orissa v. Dr. (Miss) Binapani Dei, reported in AIR 1967 SC 1269.
12) Srikant Kashinath Jituri v. Corproation of the City of Belgaum, reported in (1994) 6 SCC 572 : (AIR 1995 SC 288).
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