2002 (3) TMI 825 - SC - Companies Law

Whether the Parliament has the competence to enact a law for establishing such the Banking Tribunals? Held that - Now an appellate forum has been provided against any orders of the recovery officer which may not be in accordance with law. There is, therefore, sufficient safeguard which has been provided in the event of the recovery officer acting in an arbitrary or an unreasonable manner. The provisions of sections 25 and 28 are, therefore, not bad in law. For the aforesaid reasons, while allowing the appeals of the Union of India and the Banks, it is held that the Act is a valid piece of legislation. As a result thereof, the writ petitions or appeals filed by various parties challenging the validity of the said Act or some of the provisions thereof, are dismissed. It would be open to the parties to raise other contentions on the merits of their cases before the authority constituted under the Act and, only thereafter, should a High Court entertain a petition under article 226 and/or 227 of the Constitution. Transferred Cases stand disposed of accordingly. Parties to bear their own costs.

Issues Involved:
1. Constitutional validity of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.
2. Legislative competence of the Parliament to enact the Act.
3. Jurisdiction and authority of the Tribunals established under the Act.
4. Erosion of the independence of the judiciary.
5. Procedural aspects under the Act, including counter-claims and cross-examination of witnesses.
6. Validity of sections 25 and 28 concerning modes of recovery of debts.

Issue-Wise Detailed Analysis:

1. Constitutional Validity of the Act:
The challenge to the constitutional validity of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, was primarily on the grounds that it was unreasonable, violative of Article 14 of the Constitution, and beyond the legislative competence of the Parliament. The Delhi High Court had held that the Act was unconstitutional as it eroded the independence of the judiciary and was irrational, discriminatory, unreasonable, and arbitrary. The Supreme Court, however, found that the Act was a valid piece of legislation, emphasizing that the amendments and rules framed under the Act addressed any previous lacunae or infirmities.

2. Legislative Competence of the Parliament:
The Supreme Court examined whether the Parliament had the competence to enact the Act. It concluded that the power of the Parliament to enact a law is absolute if it is not covered by an Entry in List II or List III. The Court held that Entry 45 of List I, which pertains to 'Banking,' covers the types of legislation enacted. The term 'Banking' includes all aspects of banking operations, including the recovery of debts due to banks, thus falling within the legislative competence of the Parliament.

3. Jurisdiction and Authority of the Tribunals:
The Act provides for the establishment of Tribunals and Appellate Tribunals with jurisdiction over debts exceeding Rs. 10 lakhs. Section 18 of the Act bars other courts from exercising jurisdiction over matters within the Tribunal's purview, except for the High Courts and the Supreme Court under Articles 226 and 227 of the Constitution. The Supreme Court found this provision to be reasonable and necessary for expeditious adjudication and recovery of debts.

4. Erosion of the Independence of the Judiciary:
The Delhi High Court had held that the Act eroded the independence of the judiciary by truncating the jurisdiction of civil courts and vesting it in the Tribunals. The Supreme Court disagreed, noting that the establishment of specialized Tribunals does not erode judicial independence. The Court emphasized that the Presiding Officers of the Tribunals are qualified individuals, and the decisions of the Appellate Tribunals are subject to judicial review by the High Courts under Articles 226 and 227.

5. Procedural Aspects Under the Act:
The Act and its amendments provide a comprehensive procedure for the recovery of debts. Section 19 allows for counter-claims and cross-claims by defendants, ensuring that their rights are protected. The Supreme Court clarified that the Tribunals are guided by the principles of natural justice and are not bound by the Code of Civil Procedure. Rule 12 of the Debts Recovery Tribunal (Procedure) Rules, 1993, allows for evidence to be taken by affidavit, with provisions for cross-examination if necessary. The Court found these procedural aspects to be fair and in line with the principles of natural justice.

6. Validity of Sections 25 and 28:
Sections 25 and 28 of the Act, which provide for the modes of recovery of debts, were challenged as being arbitrary and unreasonable. The Supreme Court found that these sections, as amended, are not arbitrary or unreasonable. They provide clear guidelines and procedures for the recovery of debts, including attachment and sale of property, arrest, and appointment of a receiver. The Court also noted that the provisions of the Second and Third Schedules to the Income-tax Act, 1961, are applicable, ensuring a detailed and fair procedure for recovery.

Conclusion:
The Supreme Court upheld the validity of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, dismissing the challenges to its constitutional validity and legislative competence. The Court found that the Act provides a fair and reasonable mechanism for the recovery of debts, with adequate safeguards to protect the rights of defendants. The establishment of specialized Tribunals does not erode judicial independence, and the procedural aspects of the Act are in line with the principles of natural justice. The appeals of the Union of India and the Banks were allowed, and the writ petitions challenging the Act were dismissed.

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