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TMI Blog2011 (3) TMI 1455X X X X Extracts X X X X X X X X Extracts X X X X ..... s read as under : "( i )Proviso III to section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 be declared, unconstitutional, ultra vires the Constitution of India and/or null and void ; ( ii )Provisos II III to section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 be declared unconstitutional, ultra vires the Constitution of India and/or null and void. " 2. First, we shall take up the second prayer. At the very outset, we may note with profit that in Mardia Chemicals Ltd. v. Union of India AIR 2004 SC 2371 1 barring section 17(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ( SARFAESI Act ), the entire Act was held to be constitutionally valid. After the said decision was rendered certain amendments were carried out in sections 13, 17 and 18 of the Act. 3. The unamended section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 reads as follows : "18. Appeal to Appellate Tribunal. (1) Any person aggrieved by any order made by the Debts Reco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... along with such fee, as may be prescribed to an Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal: Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower : Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less : Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five per cent of debt referred to in the second proviso. (2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder." 6. Thus, the amended section imposes certain conditions as is perceivable from the 2004 amendment. 7. Mr. Jayant Bhushan, learned senior counsel appearing for the petitioner, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellate proceedings. It seems to be a misnomer. In fact that it is the initial action which is brought before a Forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in Civil Court. As a matter of fact proceedings under section 17 of the Act are in lieu of a civil suit which remedy is ordinarily available but for the bar under section 34 of the Act in the present case. We may refer to a decision of this Court reported in Smt. Ganga Bai v. Vijay Kumar (1974) 2 SCC 393, where in respect of original and appellate proceedings a distinction has been drawn as follows : ". . . There is a basic distinction between the right of suit and the right of appeal. There is an inherent right in every person to bring a suit of civil nature and unless one s choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it is enough that no statute bars the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... justification which has been sought to be given for the requirement of deposit is that the secured assets which may be taken possession of or sold may fall short of the dues therefore such a deposit may be necessary. We find no merit in this submission too. In such an eventuality the recourse may have to be taken to sub-section (10) of section 13 where a petition may have to be filed before the Tribunal for the purpose of making up of the short-fall. 64. The condition of pre-deposit in the present case is bad rendering the remedy illusory on the grounds that ( i ) it is imposed while approaching the adjudicating authority of the first instance, not in appeal ( ii ) there is no determination of the amount due as yet ( iii ) the secured assets or its management with transferable interest is already taken over and under control of the secured creditor ( iv ) no special reason for double security in respect of an amount yet to be determined and settled ( v ) 75 per cent of the amount claimed by no means would be a meager amount ( vi ) it will leave the borrower in a position where it would not be possible for him to raise any funds to make deposit of 75 per cent of the undetermin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ust surrender to custody before his appeal against the sentence of imprisonment would be entertained. Likewise, it is permissible to enact a law that no appeal shall lie against an order relating to an assessment of tax unless the tax had been paid." 13. The Constitution Bench in Nand Lal v. State of Haryana AIR 1980 SC 2097, while dealing with the conditions imposed in preferring an appeal or revision, has ruled thus : "It is well-settled by several decisions of this Court that the right of appeal is a creature of a statute and there is no reason why the Legislature while granting the right cannot impose conditions for the exercise of such right so long as the conditions are not so onerous as to amount to unreasonable restrictions rendering the right almost illusory ( vide the latest decision in Anant Mills Ltd. v. State of Gujarat AIR 1975 SC 1234). Counsel for the appellants, however, urged that the conditions imposed should be regarded as unreasonably onerous especially when no discretion has been left with the appellate or revisional authority to relax or waive the condition or grant exemption in respect thereof in fit and proper cases and, therefore, the fett ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Although the section does not expressly provide for rejection of the appeal for non-deposit of duty or penalty, yet it makes it obligatory on the appellant to deposit the duty or penalty, pending the appeal, failing which the Appellate Tribunal is fully competent to reject the appeal. See, in this connection, the observations of this Court in respect of section 129 prior to substitution of Chapter XV by the Finance Act, 1980 in Navin Chandra Chhotelal v. Central Board of Excise Customs 1981 (8) ELT 679 (SC). The proviso, however, gives power to the Appellate Authority to dispense with such deposit unconditionally or subject to such conditions in cases of undue hardships. It is a matter of judicial discretion of the Appellate Authority." Thereafter, their Lordships, while dealing with the right of appeal, have opined thus : "Right to appeal is neither an absolute right nor an ingredient of natural justice the principles of which must be followed in all judicial and quasi-judicial adjudications. The right to appeal is a statutory right and it can be circumscribed by the conditions in the grant." 15. The submission of Mr. Jayant Bhushan, learned senior counsel, is tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per cent of the amount of debt due. The debt due comes into existence only after determination by the Debts Recovery Tribunal. The condition of pre-deposit is also reducible to 25 per cent. In our considered opinion, in the scheme of things and regard being had to the statement of objects and reasons and the purpose of the legislation, we are inclined to think that the condition pertaining to pre-deposit does not invite the frown either of Article 14 or Article 19(1)( g ) of the Constitution of India. 19. Presently, we shall proceed to deal with the constitutionality of the third proviso to section 15(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 ( the 1985 Act ). In the writ petition, the grounds that have been urged to challenge the said provision are that the said proviso is arbitrary and unreasonable and violative of Articles 14 and 19(1)( g ) of the Constitution of India inasmuch as it confers unguided power on the secured creditors to deprive a sick company of its valuable rights under the said Act without reference to the statutory authority who is under obligation of ensuring the proper application of the provision of the said Act to give such unila ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sets have been acquired by any securitization company or reconstruction company under sub-section (1) of section 5 of that Act : Provided also that on or after the commencement of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, where a reference is pending before the Board for Industrial and Financial Reconstruction, such reference shall abate if the secured creditors, representing not less than three-fourth in value of the amount outstanding against financial assistance disbursed to the borrower of such secured creditors, have taken any measures to recover their secured debt under sub-section (4) of section 13 of that Act." 21. To appreciate the stand and stance put forth in the writ petition and the submissions canvassed by Mr. Jayant Bhushan, learned senior counsel supporting the said stand, it is appropriate to understand the purpose of the said Act being brought into existence. The relevant part of the statement of object and reasons of the 1985 Act reads as follows : "The ill effects of sickness in industrial companies such as loss of production, loss of employment, loss of revenue to the Central and State G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equal to or exceeding its entire net worth. Explanation. For the removal of doubts, it is hereby declared that an industrial company existing immediately before the commencement of the Sick Industrial Companies (Special Provisions) Amendment Act, 1993, registered for not less than five years and having at the end of any financial year accumulated losses equal to or exceeding its entire net worth, shall be deemed to be a sick industrial company." 23. Chapter III provides for references, inquiries and schemes. Section 15 deals with reference to the Board. Section 22 stipulates suspension of legal proceedings, contracts, etc. Section 32 reads as follows : "32. Effect of the Act on other laws. (1) The provisions of this Act and of any rules or schemes made thereunder shall have effect notwithstanding anything inconsistent therewith contained in any other law except the provisions of the Foreign Exchange Regulation Act, 1973 (46 of 1973) and the Urban Land (Ceiling and Regulation) Act, 1976 (33 of 1976) for the time being in force or in the Memorandum or Articles of Association of an industrial company or in any other instrument having effect by virtue of any law other than ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the SARFAESI Act being enacted. In paragraph 34, their Lordships have stated thus : "34. Some facts which need be taken note of are that the banks and the financial institutions have heavily financed the petitioners and other industries. It is also a fact that a large sum of amount remains unrecovered. Normal process of recovery of debts through Courts is lengthy and time taken is not suited for recovery of such dues. For financial assistance rendered to the industries by the financial institutions, financial liquidity is essential failing which there is a blockade of large sums of amounts creating circumstances which retard the economic progress followed by a large number of other consequential ill-effects. Considering all these circumstances, the Recovery of Debts Due to Banks and Financial Institutions Act was enacted in 1993 but as the figures show it also did not bring the desired results. Though it is submitted on behalf of the petitioners that it so happened due to inaction on the part of the Governments in creating Debt Recovery Tribunals and appointing Presiding Officers, for a long time. Even after leaving that margin, it is to be noted that things in the concerned s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission of Mr. Jayant Bhushan, learned senior counsel, is that the unbridled and unfettered power has been conferred on the secured creditors without any guidance. It is also urged that the said proviso creates a classification between the two categories of industrial companies, which avail the benefit of the 1985 Act and which are deprived of such benefit. 30. In this context, we may refer with profit to Magan Lal Chhagganlal (P.) Ltd. v. Municipal Corpn. of Greater Bombay AIR 1974 SC 2009 wherein it has been held thus : "Where a statute providing for a more drastic procedure different from the ordinary procedure covers the whole field covered by the ordinary procedure, as in Anwar Ali Sarkar s case 1952 SCR 284 : (AIR 1952 SC 75) and Suraj Mall Mohta s case (1955) 1 SCR 448 : (AIR 1954 SC 545) without any guidelines as to the class of cases in which either procedure is to be resorted to, the statute will be hit by Article 14. Even there, as mentioned in Suraj Mall Mohta s case, a provision for appeal may cure the defect. Further, in such cases it from the preamble and surrounding circumstances, as well as the provisions of the statute themselves explained and amp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such companies. The purpose of the enactment was expeditious enforcement of the measures so determined and for matters connected therewith or incidental thereto. There was also the object to fully utilize the productive industrial asset by affording maximum protection of employment and optimising the use of the funds of the bank and financial institution. The purpose was to revive and rehabilitate the potentially viable sick industrial companies as quickly as possible and to salvage the productive assets and realize the amount due to the banks and the financial institutions to the extent possible from the non-viable sick industrial companies through liquidation of those companies. Protection was granted to the said category of industrial companies under section 22 under certain conditions. After the SARFAESI Act came into force, especially the second proviso divests the jurisdiction of the BIFR. The Legislature in its wisdom incorporated the said condition. On a reading of the proviso in a purposive manner, it cannot be said that this power conferred on the secured creditors is totally unfettered or unguided. The reference to the board was abated only if the secured creditors r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... regard to the nature of the problems required to be dealt with greater play in the joints has to be allowed to the Legislature. The Court should feel more inclined to give judicial deference to legislative judgment in the field of economic regulation than in other areas where fundamental human rights are involved. Nowhere has this admonition been more felicitously expressed than in Morey v. Doud [1957] 354 US 457 where Frankfurter, J. said in his in imitable style: "In the utilities, tax and economic regulation cases, there are good reasons for judicial self-restraint if not judicial deference to legislative judgment. The Legislature after all has the affirmative responsibility. The Courts have only the power to destroy, not to reconstruct. When these are added to the complexity of economic regulation, the uncertainty, the liability to error, the bewildering conflict of the experts, and the number of times the Judges have been overruled by events self-limitation can be seen to be the path to judicial wisdom and institutional prestige and stability." The Court must always remember that "legislation is directed to practical problems, that the economic mechanism is highly sens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to curb arbitrary action or unconstitutional legislation, should interfere only in those few cases where the view reflected in the legislation is not possible to be taken at all." 34. If the validity of the present proviso is tested on the touchstone of aforesaid enunciation of law, it is noticed that Legislature in its wisdom legislated that the reference shall abate if a representation is made by particular number of secured creditors. If the creditors, who are three-fourth in value, make a representation, the reference abates. The industrial company, if such an application is not filed, would not come under the purview of the proviso. The contention of Mr. Jayant Bhushan as to the discriminatory classification in our considered opinion, is unsustainable inasmuch as there is an intelligible differentia as the representation of three-fourth creditors in value itself qualifies to be an intelligible differentia. The purpose behind the legislation was to remedy a situation wherein the financial institutions and banking sector was confronted with not realizing their amount and not being allowed a level playing field. The legislative intention is also clear from the language e ..... X X X X Extracts X X X X X X X X Extracts X X X X
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