2011 (7) TMI 1003 - HC - Companies Law

Waiver under section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act Held that - condition has been imposed under the second proviso to sub-section (1) of section 18 by which an appeal cannot be entertained unless the borrower has deposited with the Appellate Tribunal 50 per cent of the amount debt due as claimed by the secured creditor, or as determined by the Tribunal, whichever is less. there were valid reasons why Parliament made a different provision in the Securitisation Act in the matter of the discretion of the Appellate Tribunal under section 18(1) in dispensing with the requirement of pre-deposit. It was open to Parliament, while conferring a discretion on the Appellate Tribunal to restrict the exercise of the discretion to reduce the quantum of deposit to not less than 25 per cent of the debt due under the second proviso to section 18(1). discretion does not require any interference under Article 226 of the Constitution and in any event neither the Appellate Tribunal nor this Court would be justified in granting a waiver in excess of the amount as mandated by the third proviso to section 18(1).

Issues Involved:
1. Constitutional validity of the first and second provisos to section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. Comparison with section 21 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993.
3. Discretion of the Appellate Tribunal under section 18(1) of the Securitisation Act.
4. Requirement of pre-deposit for entertaining an appeal.
5. Exercise of discretion by the Appellate Tribunal in the present case.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Provisos to Section 18:
The Petitioners challenged the constitutional validity of the first and second provisos to section 18 of the Securitisation Act, arguing that they are discriminatory. The court held that an appeal is a statutory creation and the legislature can impose conditions on its exercise. The Securitisation Act aims to regulate securitisation, reconstruction of financial assets, and enforcement of security interests to facilitate the recovery of dues by banks and financial institutions. The court referenced the Statement of Objects and Reasons accompanying the Act, which highlighted the need for a legal framework to address non-performing assets and facilitate the recovery of defaulting loans.

2. Comparison with Section 21 of the Recovery of Debts Act:
The Petitioners argued that the Securitisation Act is discriminatory compared to the Recovery of Debts Act, which allows the Appellate Tribunal to grant a complete waiver of the pre-deposit. The court noted that the Securitisation Act was enacted to enable banks and financial institutions to enforce their security interests expeditiously without requiring court intervention. The court emphasized that the Securitisation Act creates an additional remedy and that Parliament could impose conditions on the maintainability of an appeal under section 18, including the requirement of a pre-deposit.

3. Discretion of the Appellate Tribunal under Section 18(1):
The court referenced the judgment of the Supreme Court in Narayan Chandra Ghosh v. UCO Bank, which held that the right of appeal being a creation of statute, it was open to Parliament to condition that right subject to an order of deposit and to restrict the discretion of the Appellate Tribunal in granting a waiver. The Supreme Court noted that the conditions imposed by the provisos to section 18 are not onerous and are consistent with the object of the Act.

4. Requirement of Pre-deposit for Entertaining an Appeal:
The court highlighted that the second and third provisos to section 18(1) were inserted by Amending Act 30 of 2004 to discourage borrowers from postponing the repayment of their dues and to enable secured creditors to recover their debts speedily. The court referenced the judgment of the Supreme Court in Mardia Chemicals Ltd. v. Union of India, which declared as ultra vires a provision requiring a deposit of 75% of the amount claimed before an appeal could be entertained. The amendment was brought in view of this judgment to ensure that the requirement of a pre-deposit is not onerous.

5. Exercise of Discretion by the Appellate Tribunal:
In the present case, the Appellate Tribunal directed the Petitioners to deposit an amount of Rs. 7 Crores, considering the amount claimed in the notice under section 13(2) and the amount outstanding as of the date of the order. The court found that the exercise of discretion by the Appellate Tribunal was consistent with the discipline mandated by the second and third provisos to section 18(1) and did not require any interference under Article 226 of the Constitution. The court dismissed the Petition, stating that neither the Appellate Tribunal nor the court would be justified in granting a waiver in excess of the amount mandated by the third proviso to section 18(1).

Conclusion:
The court upheld the constitutional validity of the provisions of section 18(1) of the Securitisation Act and found no merit in the Petition. The court extended the time to effect the deposit by a further period of six weeks and directed the bank to maintain the status quo in respect of the secured assets for that period.

← Previous Next →