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Issues: Challenge to the constitutional validity of section 13 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002; Allegations of violation of fundamental principles of law and Article 14 of the Constitution; Interpretation of provisions related to secured creditors and enforcement of security interest without court intervention; Dispute regarding the application of section 13(9) of the Act.
Challenge to Constitutional Validity of Section 13: The writ petition challenged the constitutional validity of section 13 of the Act, seeking a writ of mandamus to declare it ultra vires and quash related notices. The petitioners alleged that the Act's provisions were against fundamental legal principles and Article 14 of the Constitution. The petition argued that the Act empowered banks as secured creditors to enforce security without court intervention, denying borrowers a fair adjudicatory forum and an opportunity to be heard. Interpretation of Secured Creditors and Enforcement Provisions: The petition highlighted the requirement under section 13(9) that secured creditors representing not less than 3/4 of the outstanding amount must agree before exercising rights under section 13(4). The petitioners contended that the notices issued by the State Bank of India without the consent of the main lender, U.P. Financial Corporation, were invalid. The court analyzed the definition of secured creditors under the Act and affirmed the applicability of section 13 to the respondent bank as a secured creditor. Enforcement Procedure and Opportunity of Hearing: The court clarified that borrowers do have an opportunity of hearing under the Act before action is taken under section 13(4). Citing precedent, the court emphasized that issuing a notice to pay dues, failing which possession of property will be taken, fulfills the requirements of natural justice. Borrowers can provide explanations in response to such notices, which must be considered by the secured creditor before proceeding under section 13(4). Application of Section 13(9) and Dispute Resolution: Regarding the petitioners' plea related to section 13(9), the court noted that no secured creditor can exercise rights under section 13(4) without the consent of secured creditors representing at least three-fourth of the outstanding amount. The court acknowledged the petitioners' reliance on the U.P. Financial Corporation's reluctance to take action under section 13(4) against the petitioner. While not delving into factual controversies, the court emphasized that action under section 13(4) must comply with the requirements of section 13(9. Conclusion: The court upheld the constitutional validity of section 13 of the Act, emphasizing its necessity in addressing the issue of non-repayment of bank loans. The judgment highlighted the Act's salutary purpose in ensuring prompt loan recovery for the financial health of institutions. While dismissing the challenge to section 13, the court clarified the requirements for secured creditors' actions under the Act and the importance of compliance with statutory provisions. The petition was disposed of with these observations, emphasizing the need for adherence to the Act's stipulations in enforcing security interests.
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