2002 (3) TMI 942 - SC - Indian Laws

Summary

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. Whether the Act violates Article 14 of the Constitution.
4. Jurisdiction and powers of the Tribunals established under the Act.
5. Appointment and independence of the Presiding Officers of the Tribunals.
6. Procedural aspects and natural justice principles under the Act.
7. Validity of specific provisions such as Sections 17, 18, 19, 25, 28, 31, and 34 of the Act.

Detailed Analysis:

1. Constitutional Validity of the Act:
The Supreme Court addressed the challenge to the constitutional validity of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, on grounds of being unreasonable and violative of Article 14 of the Constitution. The Act was enacted to remedy the difficulties faced by banks and financial institutions in recovering loans and enforcing securities, which had led to significant funds being blocked.

2. Legislative Competence of the Parliament:
The Court examined whether the Parliament had the competence to enact the Act. It was noted that the power of the Parliament to enact a law not covered by an Entry in List II and List III is absolute. The Court concluded that Entry 45 of List I, which pertains to "Banking," provided the Parliament with the legislative competence to enact the Act. The recovery of debts due to banks is an essential function of banking operations, and the establishment of Tribunals for this purpose falls within the ambit of Entry 45.

3. Violation of Article 14:
The Act was challenged as being violative of Article 14 on grounds of being irrational, discriminatory, and arbitrary. The Delhi High Court had previously held the Act unconstitutional for eroding the independence of the judiciary and being arbitrary. However, the Supreme Court disagreed, stating that the Act and its provisions are not arbitrary or bad in law. The amendments made to the Act and the framing of new rules addressed any previous lacunae or infirmities.

4. Jurisdiction and Powers of the Tribunals:
The Act establishes Tribunals with jurisdiction over debts exceeding Rs. 10 lakhs, while civil courts retain jurisdiction for claims below this threshold. 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. The Supreme Court upheld the jurisdiction of the Tribunals, noting that the establishment of specialized Tribunals does not erode the independence of the judiciary.

5. Appointment and Independence of Presiding Officers:
The Court addressed concerns regarding the appointment and independence of the Presiding Officers of the Tribunals. The amended rules provide for a Selection Committee, including the Chief Justice of India or a nominated Supreme Court Judge, ensuring fair and impartial selection. The Presiding Officers of the Tribunals and Appellate Tribunals are qualified individuals, ensuring competent and independent adjudication.

6. Procedural Aspects and Natural Justice Principles:
The Act stipulates that Tribunals and Appellate Tribunals are guided by the principles of natural justice and are not bound by the Code of Civil Procedure. The procedural rules allow for the filing of applications, issuance of summons, and the right to claim set-off and counter-claims. The Court emphasized that the Tribunals must adhere to natural justice principles while regulating their procedures.

7. Validity of Specific Provisions:
The Court examined the validity of specific provisions, including Sections 17, 18, 19, 25, 28, 31, and 34. The amendments to the Act and rules addressed concerns regarding procedural fairness and the powers of the Recovery Officers. The Court upheld the validity of these provisions, noting that they provide sufficient safeguards against arbitrary actions and ensure an effective debt recovery mechanism.

Conclusion:
The Supreme Court allowed the appeals of the Union of India and the Banks, holding that The Recovery of Debts Due to Banks and Financial Institutions Act, 1993, is a valid piece of legislation. The writ petitions and appeals challenging the validity of the Act were dismissed, and the parties were directed to raise contentions on the merits of their cases before the Tribunals constituted under the Act. The judgment emphasized the importance of specialized Tribunals in the judicial system and upheld the Act's provisions as being in accordance with constitutional principles.