2017 (1) TMI 1693 - HC - Indian Laws

Constitutional validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002 - Permission to secured creditor to bid for the secured assets - vires of Section 13(5A) is under challenge in this writ proceedings on the ground that it is violative of Articles 300A and 21 of the Constitution of India - whether the power given to the secured creditor under Section 13(5A) of the Act is arbitrary irrational and without any nexus to the object? HELD THAT - In terms of Rule 8(5) of the Rules the authorised officer of the secured creditor is to get the secured assets valued by an approved valuer and accordingly fix the reserve price of the property. The secured assets could be brought for sale only after fixing the reserve price as above. Rule 8(6) of the Rules provides that sufficient public notice be given regarding the sale of the secured assets in the manner as stated therein. Therefore the interest of the debtor is adequately guarded and protected. In terms of Section 13(5A) of the Act the secured creditor is entitled to participate in the bid only in the absence of any bidders for a value equal to or above the reserve price and the sale is postponed due to that contingency - It is further to be noted that the sale of the property as above is amenable to an appeal under Section 17 of the Act before the Debt Recovery Tribunal. The only conclusion that could be arrived at is that the rights of the mortgagor/defaulter has been adequately safeguarded and protected under the Act. Right is given to the secured creditor to bid for the secured assets only on the arising of a particular contingency viz. adjournment of sale for want of a bid at or above the reserve price; in which event also the secured creditor could bid the property only at the reserve price and not below. There is no reason to conclude that the provision is arbitrary irrational or in any manner violative of the fundamental rights of the appellant/petitioner. The challenge on the vires of Section 13(5A) fails and is turned down. Apart from the challenge on the constitutional validity of the Section no other contentions are urged. Appeal dismissed.

Summary

Issues:
Constitutional validity of Section 13(5A) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.

Analysis:
1. The issue at hand pertains to the constitutional validity of Section 13(5A) of the Act, challenged on the grounds of violating Articles 300A and 21 of the Constitution of India. The provision allows a secured creditor to bid for immovable property at a sale if no bidders meet the reserve price. The appellant argues that this provision interferes with the fundamental rights of citizens.

2. Article 300A guarantees that no person shall be deprived of their property except by authority of law. The Act provides a legal mechanism for secured creditors to recover debts, including through the sale of secured assets. The enactment of the Act was necessary due to the inadequacy of existing legal mechanisms for the recovery of outstanding dues of banks and financial institutions.

3. The introduction of Section 13(5A) aimed to address situations where no bidders meet the reserve price at a sale of secured assets. The provision allows a secured creditor to bid only if certain conditions are met, ensuring that the debtor's rights are protected. Additionally, Rule 8(5) of the Security Interest (Enforcement) Rules, 2002, mandates the fixing of a reserve price and public notice before the sale of secured assets.

4. The Act provides for an appeal process before the Debt Recovery Tribunal if the owner of the secured assets is aggrieved by the sale proceedings. The rights of the mortgagor/debtor are adequately safeguarded under the Act, and the inclusion of Section 13(5A) does not violate fundamental rights. The judgment cites precedents emphasizing the importance of adhering to the Act's prescriptions when dealing with secured assets.

5. The challenge against the validity of Section 13(5A) is dismissed as it is found to be constitutional and not arbitrary or irrational. The judgment concludes that the provision does not infringe on the fundamental rights of the appellant. No other contentions were raised, leading to the dismissal of the Writ Appeal.

In summary, the Kerala High Court upheld the constitutional validity of Section 13(5A) of the Act, ruling in favor of the respondent. The judgment emphasizes the importance of legal mechanisms for debt recovery while ensuring the protection of the rights of debtors and mortgagors.