9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2015 (2) TMI 686 - SC - Companies LawThe Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002-The Constitutional validity of the amendment of the definition of the expression non-performing asset under Section 2(1) (o)- under the amended definition, such a classification of the account of a borrower by the CREDITOR is required to be made in accordance with the directions or guidelines issued by an authority or body either established or constituted or appointed by any law for the time being in force , in all those cases where the CREDITOR is either administered or regulated by such an authority (hereinafter referred to as the REGULATOR ). If the CREDITOR is not administered or regulated by any such REGULATOR then the CREDITOR is required to classify the account of a borrower as NPA in accordance with the guidelines and directions issued by the Reserve Bank of India. Held that- We are of the firm opinion that it is not necessary that legislature should define every expression it employs in a statute. If such a process is insisted upon, legislative activity and consequentially governance comes to a standstill. It has been the practice of the legislative bodies following the British parliamentary practice to define certain words employed in any given statute for a proper appreciation of or the understanding of the scheme and purport of the Act. But if a statute does not contain the definition of a particular expression employed in it, it becomes the duty of the courts to expound the meaning of the undefined expressions in accordance with the well established rules of statutory interpretation. Therefore, in our opinion, the function of prescribing the norms for classifying a borrower s account as a NPA is not an essential legislative function. The laying down of such norms requires a constant and close monitoring of the financial system demanding considerable amount of expertise in the areas of public finance, banking etc., and the norms may require a periodic revision. All that activity involves too much of detail and promptitude of action. Therefore, the submission that the amendment of the definition of the expression non-performing asset under Section 2(1) (o) is bad on account of excessive delegation of essential legislative function, in our view, is untenable and is required to be rejected. - Coming to the submission that by authorizing different REGULATORS to prescribe different norms for the identification of a NPA with reference to different CREDITORS amount to unreasonable classification is also required to be rejected for the reason that all the CREDITORS do not form a uniform/homogenous class. Appeal of the borrowers dismissed.
Issues Involved
1. Constitutional validity of the amended definition of "Non-Performing Asset" (NPA) under Section 2(1)(o) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). 2. Allegations of excessive delegation of legislative power by Parliament. 3. Allegations of violation of Article 14 of the Constitution of India due to different standards for classifying NPAs. 4. Procedural fairness in classifying an account as NPA. Detailed Analysis 1. Constitutional Validity of Amended Definition of NPA Background: The SARFAESI Act was enacted to facilitate the securitization of financial assets and the enforcement of security interests without court intervention. The definition of NPA under Section 2(1)(o) was amended by Act 30 of 2004, leading to different guidelines for classifying NPAs based on the regulator of the financial institution. Judgment: The Supreme Court upheld the constitutional validity of the amended definition of NPA under Section 2(1)(o) of the SARFAESI Act. The Court found no merit in the argument that the amendment was unconstitutional or ultra vires the object of the Act. The Court stated, "If the enactment is otherwise within the constitutionally permissible limits, the fact that there is a divergence between the objects appended to the Bill and the tenor of the Act cannot be a ground for declaring the law unconstitutional." 2. Allegations of Excessive Delegation of Legislative Power Background: It was argued that by allowing different regulatory bodies to frame guidelines for classifying NPAs, Parliament had abdicated its essential legislative function, resulting in excessive delegation. Judgment: The Court rejected the argument of excessive delegation, stating that defining the norms for classifying an account as NPA is not an essential legislative function. The Court emphasized that the responsibility of monitoring the financial system requires expertise and periodic revision, which is best handled by specialized regulatory bodies like the Reserve Bank of India (RBI). The Court noted, "The function of prescribing the norms for classifying a borrower's account as a NPA is not an essential legislative function." 3. Allegations of Violation of Article 14 of the Constitution Background: The borrowers argued that the amended definition of NPA created two classes of borrowers, leading to arbitrary and discriminatory treatment, which violated Article 14 of the Constitution. Judgment: The Court held that the classification of NPAs based on different regulatory guidelines does not amount to unreasonable classification under Article 14. The Court reasoned that all creditors do not form a uniform class due to differences in their legal structure, nature of loans, and terms and conditions of loans. The Court stated, "There are innumerable differences among the CREDITORS... There is nothing uniform about these CREDITORS or their activities." 4. Procedural Fairness in Classifying an Account as NPA Background: The borrowers contended that the Act did not provide a reasonable opportunity to demonstrate that the classification of their account as an NPA was untenable, making the power to classify arbitrary. Judgment: The Court dismissed this contention, highlighting that Section 13(3A) of the Act obligates secured creditors to consider any representation or objection made by the borrower upon receiving a notice under Section 13(2). The Court emphasized that creditors must examine such representations objectively and communicate reasons for non-acceptance. The Court stated, "Section 13(3A) obligates the SECURED CREDITORS to examine the representation/objection, if any, made by the borrower and communicate the reasons to the borrower if such a representation is not accepted." Conclusion The Supreme Court declared that the amended definition of "Non-Performing Asset" under Section 2(1)(o) of the SARFAESI Act is constitutionally valid. The Court dismissed all writ petitions and appeals filed by borrowers, while allowing the appeals of the creditors. The borrowers were directed to pay costs to the respective creditors calculated at 1% of the amount outstanding on the date of the notice under Section 13(2) of the Act.
|
