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TMI Blog2007 (7) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Securitisation Act including the very provisions which were challenged before us. The petitioners however contended that the judgment is per incuriam, having failed to notice the relevant provisions of the Constitution of India. 3. We have decided all the petitions by this common judgment though in some of them the constitutional validity of the Securitisation Act has not expressly been challenged as, a decision on that aspect in one petition would affect the outcome of the other petitions in any case. 4. The following contentions have been raised by the counsel for the petitioners: I. The Securitisation Act does not apply to co-operative banks including those constituted under the Maharashtra Co-operative Societies Act. II. The Securitisation Act, if applicable to co-operative banks, is arbitrary and violative of Article 14 of the Constitution of India as it deprives the borrowers such as the petitioners the right to challenge the action of the bank under Section 13. III. By adopting proceedings under the Securitisation Act the borrower is deprived the right to have the claim adjudicated under the provisions of the MCS Act. IV. If the exact amount is not me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in relation to, banking companies subject to the following modifications, namely : (c) in Section 5, - (i) after Clause (cc), the following clauses shall be inserted, namely: (cci) 'Co-operative Bank' means a State Co-operative Bank, a Central Co-operative Bank and a Primary Co-operative Bank; 7. It is clear therefore that on a conjoint reading of Section 2(1)(c)(v) of the Securitisation Act, the Notification dated 28-1-2003 and Section 56(c)(i) read with Section 5 of the B.R. Act, that the Securitisation Act also applies to cooperative banks. The learned Counsel appearing on behalf of the respondents were unable to indicate how on a plain reading of the aforesaid provisions, cooperative banks do not fall within the ambit of the said Act. They however relied upon the judgment of the Supreme Court in the case of Greater Bombay Cooperative Bank Ltd. v. United Yarn Tex. Pvt. Ltd. and Ors. 2007 AIR SCW 232. By this judgment, the Supreme Court overruled a judgment of the Full Bench of the Bombay High Court, to which one of us (S. J. Vazifdar, J.) was a party. 8. The question that falls for considerations in these petitions did not fall for consideration before the Supr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nings to it under Section 2(c) and one of which is 'banking company'. The Central Government is authorized by Section 2(c)(v) of the Act to specify any other bank for the purpose of the Act. In exercise of this power, the Central Government by Notification dated 28.01.2003, has specified co-operative bank as defined in Section 5(cci) of the BR Act as a bank by lifting the definition of 'co-operative bank' and 'primary co-operative bank' respectively from Section 56 Clauses 5(cci) and (ccv) of Part V. The Parliament has thus consistently made the meaning of 'banking company' clear beyond doubt to mean 'a company engaged in banking, and not a co-operative society engaged in banking' and in Act No. 23 of 1965, while amending the BR Act, it did not change the definition in Section 5(c) or even in 5(d) to include cooperative banks; on the other hand, it added a separate definition of 'cooperative bank' in Section 5(cci) and 'primary co-operative bank' in Section 5(ccv) of Section 56 of Part V of the BR Act. Parliament while enacting the Securitisation Act created a residuary power in Section 2(c)(v) to specify any other bank as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent was simply assigning a meaning to words; it was not incorporating or even referring to the substantive provisions of the BR Act. The meaning of 'banking company' must, therefore, necessarily be strictly confined to the words used in Section 5(c) of the BR Act. It would have been the easiest thing for Parliament to say that 'banking company' shall mean 'banking company' as defined in Section 5(c) and shall include 'co-operative bank' as defined in Section 5(cci) and 'primary co-operative bank' as defined in Section 5(ccv). However, the Parliament did not do so. There was thus a conscious exclusion and deliberate commission of co-operative banks from the purview of the RDB Act. The reason for excluding co-operative banks seems to be that co-operative banks have comprehensive, self- contained and less expensive remedies available to them under the State Co-operative Societies Acts of the States concerned, while other banks and financial institutions did not have such speedy remedies and they had to file suits in Civil Courts. 9. The judgment of the Supreme Court therefore, far from being of any assistance to the petitioners is, in fact, a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the judgment). (A). In paragraph 33 of the judgment, the Supreme Court formulated inter-alia, the following questions which fell for determination: 33. Taking an overall view of the rival contentions of the parties, we feel the main questions which broadly fall for consideration by us are: i) ... ii) Whether provisions as contained under Sections 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised by a borrower against the recovery, particularly in view of bar to approach the Civil Court under Section 34 of the Act? iii) Whether the remedy available under Section 17 of the Act is illusory for the reason it is available only after the action is taken under Section 13(4) of the Act and the appeal would be entertainable only on deposit of 75% of the claim raised in the notice of demand? iv) ... v) ... vi) Whether the provisions under Sections 13 and 17(2) of the Act are unconstitutional on the basis of the parameters laid down in different decisions of this Court ? (B). In paragraph 45 the Supreme Court stated that it would consider as to what forums or remedies were available to the borrow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bove perspective, we find what emerges from different provisions of the Act, is as follows: 1. Under Sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 days' notice before proceeding to take any of the measures as provided under Sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debts Recovery Tribunal under Section 17 of the Act, at that stage. 2. As already discussed earlier, on measures having been taken under Sub-section (4) of Section 13 and before the date of sale/auction of the property it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Act, the following was added after Sub-section (3), as Sub-section (3A): CHAPTER III ENFORCEMENT OF SECURITY INTEREST (3-A) If, on receipt of the notice under Sub-section (2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within one week of receipt of such representation or objection the reasons for non-acceptance of the representation or objection to the borrower: Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under Section 17 or the Court of District Judge under Section 17-A.; 16. Secondly, Sub-sections (2) and (3) of Section 17 were substituted as follows: CHAPTER III ENFORCEMENT OF SECURITY INTEREST 17. Right to appeal. - (1) ... (2) The Debts Recovery Tribunal shall consider whether any of the measures referred to in Sub-section (4) of Section 13 ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the Division Bench regarding the availability of the alternate remedy to the parties against whom the action is taken by the Bank under Section 13(2) of Securitisation Act. 24. So far as the constitutional validity of the Act is concerned, it is no more res integra, in view of the constitution Bench judgment of the Apex Court in the case of Mardia Chemicals Limited and Ors. v. Union of India and Ors. . Here we will not advert those challenges, as is impermissible for this Court to ponder on the challenges. 25. The learned Counsel for the petitioners still tried to raise the contentions regarding validity of the Securitisation Act. In respect of these challenges in our view, it will not be open for this Court to ponder on those contentions once again, in view of the law declared by the Apex Court in Mardia Chemicals (supra), Anil Kumar, Director Settlement and Suganthi Suresh Kumar (supra). Hence, we proceed to consider other contentions raised by the respective counsel. 18. In Trade Well and Anr. v. Indian Bank and Anr. Criminal Writ Petition No. 2767 of 2006 since reported in 2007(2) Mh.L.J. (Cri) 412 a Division Bench, by its judgment dated 2nd April, 2007 while con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case. The Division Bench held that once the Supreme Court decides the validity of a particular enactment, the High Court under Article 226 of the Constitution, cannot again reconsider the challenge. 21. We are also of the view that the submissions are founded on a fundamental misconception regarding the scope of an adjudication under Section 17 and the ambit of Section 13 of the Securitisation Act. 22. It is necessary at the outset, in this regard, to reiterate the statement of objects and reasons for the Securitisation Act, which read as under: Statement of Objects and Reasons.- The financial sector has been one of the key drivers in India's efforts to achieve success in rapidly developing its economy. While the banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world. There is no legal provision for facilitating securitisation of financial assets of banks and financial institutions. Further, unlike international banks, the banks and fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities and dealing with the same under Section 13. While considering this, it is not necessary for the Tribunal to finally adjudicate the exact amount due to the secured creditor. In other words, the purpose of an application under Section 17 is not the determination of the quantum of the claim per se. 25. This is best illustrated by the following example. Take for instance a case where the secured creditor takes possession of the secured assets with a view to realising its dues. If the Tribunal comes to the conclusion that the extent of indebtedness of a debtor is higher than the value of the security, it would, in the absence of any other defence, justify a rejection of the borrower's application under Section 17. It would not be necessary for the Tribunal in such a case to adjudicate the exact amount due by the borrower to the secured creditor. This is for the obvious reason that in that event there would be no prejudice to the borrower because its liability would be greater than the security which is sought to be realised. The extent by which the liability is greater than the value of the security would be irrelevant in such an enquiry under Section 17 where the onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n remotely suggests that a notice under Section 13(2) is bad if the amount stated therein as due is not the exact amount actually due. The learned Counsel for the petitioners were unable to substantiate this submission in any manner. In fact once the difference in the nature of proceedings under Section 17 and 13(10) are appreciated, the fallacy of this submission is evident. 30. The above submissions are therefore rejected. Re : VI. Assuming that the Securitisation Act applies only to Cooperative Banks it is to that extent without legislative competence as the Parliament has no legislative competence to enact the Securitisation Act with respect to Co-operative Banks. 31. The submission is based on Schedule VII List I Entry 43 and Schedule VII List II Entry 32 of the Constitution, which read as under: Schedule 7 List I. Union List 43. Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations but not including co-operative societies. Schedule 7 List 2. State List 32. Incorporation, regulation and winding up of corporations, other than those specified in List 1, and universities; unincorporated trading, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision Bench that though the Supreme Court had upheld the constitutional validity of the Securitisation Act in Mardia Chemicals, certain points of challenge were not before the Supreme Court. It was contended that though the entire Act was challenged, the Supreme Court referred to certain aspects which were not answered. (B). The contention was rejected by the Division Bench inter-alia in paragraphs 22 to 25 of the judgment which we have set out earlier. The Division Bench held that once the Apex Court had decided the validity of the Securitisation Act in Mardia's case, it was not open to the High Court to reconsider the challenge on some different ground/point and for the High Court to consider the validity of the Securitisation Act once again. (C). We are bound by the judgment of the Division Bench. The contention must be rejected on this ground alone. 35. In Asha Oil Food Pvt. Ltd. v. Jalgaon Co-operative Bank Ltd. 2005 (7) L.J. Soft 130 : 2006 M.C.R. 25, the petitioners sought a declaration that the provisions of the Securitisation Act cannot be applicable to them. It was contended that once a recovery certificate was issued under the M.C.S. Act, the Bank had no aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under Section 13 of the Securitisation Act since recourse will render the scheme of the recovery of dues under Section 101 of the Act redundant, is a submission which is based on total illusion. No question of such nature is now left open for any further adjudication in view of Manila Chemicals case. 36. Although the question raised before us is not identical to the questions which were raised before the Division Bench, it is important to note that the Division Bench held that in view of Section 37, the Securitisation Act has a overriding effect over the D.R.T. Act as well the M.C.S. Act. 37. In Marathwada Gramin Bank v. Maharashtra State Co-operative Bank Ltd. and Ors. 2007 (2) Mh.L.J. 594 : 2007 (2) L.J. Soft 20, it was contended inter-alia that the winding up provisions under the M.C.S. Act are a superior efficacious remedy. Reliance was placed on Entry 32 List II of Schedule VII which covers the winding up of co-operative societies. In such a position, reliance was placed on Entry 43 of List I of the Seventh schedule wherein co-operative societies are specifically and distinctly excluded. It was therefore, submitted that the winding up of Co-operative Societies was cover ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court in Greater Bombay Co-operative Bank Ltd. v. United Yarn Text Pvt. Ltd. 39. The question that falls for consideration in this petition did not even fall for the consideration of the Supreme Court in Greater Bombay Co-operative Bank Ltd. We have already noted that one aspect of the matter before the Supreme Court in Greater Bombay Co-operative Bank Ltd., was the applicability of the RBD Act to co-operative banks. The Full Bench of the Bombay High Court held that on and from the date on which the D.R.T. was constituted under the RBD Act, the Courts and the Authorities under the M.C.S. Act as also the Multi State Co-operative Societies Act, 2002, would cease to have jurisdiction to entertain applications submitted by the Co-operative Banks for recovery of their dues. The Full Bench of this High Court upheld the legislative competency of the State Legislature to enact the M.C.S. Act. The Supreme Court was also concerned with the Civil Appeal filed against the judgment of the Full Bench of the Andhra Pradesh High Court. The Full Bench of the Andhra Pradesh High Court inter alia held that the recovery of moneys due to the institutions including co-operative banks fell in core an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recovery of debts due to banks and financial institutions would be defeated. The Co-operative Societies Acts on the one hand and RDB Act on the other cannot be regarded as supplemental to each other viz., the provisions of the said Acts cannot be said to be pari-materia. 62. This Court in Virendra Pal Singh v. District Assistant Registrar directly deals with the question of the legislative competence relating to a co-operative society doing banking business. This decision in clear terms has laid down in para 10 as under: 10. We do not think it necessary to refer to the abundance of authority on the question as to how to determine whether a legislation falls under an entry in one list or another entry in another list. Long ago in Prafulla Kumar Mukherjee and Ors. v. Bank of Commerce Ltd., the Privy Council was confronted with the question whether the Bengal Money-Lenders Act fell within Entry 27 in List II of the Seventh Schedule to the Government of India Act, 1935, which was 'money lending', in respect of which the Provincial Legislature was competent to legislate, or whether it fell within Entries 28 and 38 in the List I which were 'promissory notes' and ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... societies in Entry 43 of List I and the express inclusion of co-operative societies in Entry 32 of List II separately and apart from but along with corporations other than those specified in List I and universities, clearly indicated that the constitutional scheme was designed to treat co-operative societies as institutions distinct from Corporations. Co-operative Societies, incorporation, regulation and winding up are State subjects in the ambit of Entry 32 of List II of Seventh Schedule to the Constitution of India. Co-operatives form a specie of genus 'corporation' and as such cooperative societies with objects not confined to one State read in with the Union as provided in Entry 44 of List I of the Seventh Schedule of the Constitution, MCS Act, 2002 governs such multi-state co-operatives. 40. Firstly, as we have already noted, the point which falls for consideration did not fall for the consideration of the Supreme Court in this judgment. This was not denied by the petitioners. They however, submitted that their submissions are a logical consequence of the aforesaid observations. Apart from the fact that we do not agree with this contention, such an approach is not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder. 43. It is important to note that Section 17(3) does not make the recovery proceedings under the RBD Act applicable to co-operative societies. It merely provides that the application under Section 17(1) would be disposed of in accordance with the provisions of the RBD Act which is a different thing altogether. In other words, the forum constituted under the RBD Act is made available for the adjudication, not of recovery proceedings per se, but for determining the validity of the act of the secured creditor under Section 13 which is without the intervention of the Court. The procedure under the RBD Act is made applicable for the determination of such an application and the machinery under the Act for recovery of dues per se, is not made applicable. In the case of co-operative banks, the right to institute necessary proceedings would be under the relevant State law including the MCS Act. 44. If the petitioner's arguments were to be accepted, even the provisions to the Banking Regulation Act, 1949 would have to be declared as constitutionally invalid. 45. Parliament was therefore consc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force. It was submitted that only Central legislations are referred to in Section 37 and, therefore, the words or under any other law... must be read as limited only to Central enactments and not to State enactments. 48. The Petitioner relied upon the judgment of the Supreme Court in Jang Ram v. State of Haryana . The judgment does not support the petitioner's contention. In fact, the Supreme Court held that if a provision is plain and unambiguous and the legislative intent is clear, there is no option to call into aid the ejusdem generis rule and that the rule should be applied with caution. Relying upon the judgment in Lilavati Bai v. The State of Bombay (1957) SCR. 721, the Supreme Court held that the restricted meaning based on the said principle has to be given to words of general import only where the context of the whole scheme of legislation requires it and that where the context and the object of the enactment do not require a restricted meaning to be attached to words of general import, it becomes the duty of the Court to giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 53. There is therefore, no question of any conflict between the two enactments. They operate not only in distinct fields but in an altogether different manner. 54. In the circumstances, we reject the above contentions of the petitioners. 55. This leaves for consideration the preliminary objection raised by the respondent regarding the maintainability of the Petition. It was contended that the Writ Petition is not maintainable as the respondent banks are neither State nor an instrumentality of the State within the meaning of Article 12 of the Constitution of India, as held inter-alia by the Full Bench of this High Court in Shyamrao Vitthal Co-operative Bank Ltd. and Anr. v. Padubidri Pattadhiran Bhatt and Anr. . This point must be answered in favour of the petitioners in view of the judgment of the Division Bench of this Court in Ghanshamdas (Paragraph 47) where it was held: In our view, the petitions as filed are not maintainable as the Full Bench of this Court in Shamrao Vithal (supra) and the Apex Court in General Manager, Kisan Sahkari Chini Mills Ltd. (supra) held that the Cooperative Society is not a State within the meaning of Article 12 of the Constitution and it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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