2007 (6) TMI 538 - HC - Indian Laws

Summary

Issues Involved:
1. Constitutional validity of Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002 (as amended by Act 30 of 2004).
2. Scope and jurisdiction of Debt Recovery Tribunal (DRT) under Section 17 of the Act.
3. Compliance with Supreme Court judgment in Mardia Chemicals Limited vs. Union of India.

Summary:

Issue 1: Constitutional Validity of Section 17 of the Act
The petitioners challenged the constitutional validity of Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement Security Interest Act, 2002, as amended by the Enforcement of Security Interest and Recovery of Debts Laws (Amendment Act) Ordinance 2004 (Act 30 of 2004), under Article 226 of the Constitution of India. The Supreme Court in Mardia Chemicals Limited vs. Union of India, 2004 (4) S.C.C 311, upheld the constitutional validity of the Act, except for Sub-section (2) of Section 17, which was deemed oppressive, onerous, and arbitrary.

Issue 2: Scope and Jurisdiction of Debt Recovery Tribunal (DRT)
The petitioners contended that the amended Section 17 restricts the jurisdiction of the DRT to merely ascertaining compliance with the provisions of the Act, thereby reducing the remedy to an empty formality. They argued that this limitation is arbitrary and violative of Article 14 of the Constitution of India. However, the court clarified that Section 17(1) provides a remedy for borrowers, guarantors, and mortgagors to challenge the actions of banks under Section 13(4) before the DRT. The DRT is empowered to decide whether the bank's actions comply with the Act and its rules. Grounds such as barred claims by limitation, incorrect interest calculations, and non-reflection of payments can be raised before the DRT.

Issue 3: Compliance with Supreme Court Judgment in Mardia Chemicals Limited vs. Union of India
The petitioners argued that the amended Section 17 contradicts the Supreme Court's judgment in Mardia Chemicals, which held that proceedings under Section 17 are in lieu of a civil suit. The court noted that the Supreme Court observed that Section 17 proceedings are not appellate but initial actions akin to filing a suit in a civil court. The court held that the amended Section 17 does not contravene the Supreme Court's judgment, as it still allows borrowers to challenge the bank's actions before the DRT.

Conclusion:
The court dismissed the writ petitions, stating that the amended Section 17 of the Act provides adequate remedies for borrowers to challenge the actions of banks and financial institutions before the DRT. The court granted liberty to the petitioners to raise all permissible contentions before the DRT. No costs were awarded, and connected miscellaneous petitions were closed.