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TMI Blog2014 (2) TMI 1333X X X X Extracts X X X X X X X X Extracts X X X X ..... 2003, the opposite party No. 6 was not a financial institution within the meaning of Section 2(m)(iv) of the Act. Since it was not a financial institution, it was not a secured creditor and it cannot invoke the provisions of the said Act in respect of a loan transaction of a prior date. The provisions of the SARFAESI Act apply to existing debts even if loan was advanced earlier similarly, as soon as by a notification of Central Government, a financial institution is notified for purposes of Section 2(m), the machinery of the Act becomes available to recover any outstanding and legally recoverable debt even if such loan was advanced earlier - appeal allowed. - W.P. (C) No. 9518 of 2005 - - - Dated:- 14-2-2014 - A.K. Goel, C.J., C.R. Dash and Dr. Akshaya Kumar Rath, JJ. For the Appellant : Mr. Ramesh Sahoo For the Respondents : Mr. S.K. Nayak-1, Sr. Advocate for Opp. Party No. 1, Mr. R.K. Mohapatra, Govt. Advocate as Amicus Curiae and Mr. T. Sahu JUDGMENT A.K. Goel, C.J. 1. The question referred for consideration of this Bench is whether provisions of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cus Curiae. 7. It would be appropriate to refer to the background of the legislation in question. The Act is aimed at speedy recovery of defaulted loans in the light of international experience highlighted by Expert Committee known as Andhyarujina Committee and Narasimham Committee, constituted by the Central Government for examining banking sector reforms. The said Committees suggested new law empowering financial institutions to take possession of the securities and sell the same without intervention of the Court. Earlier, for speedy disposal of claims of the bank for recovery of loans, the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (DRT) was enacted with a view to set up specialized Tribunals, excluding the jurisdiction of civil Courts. 8. Section 13 of the Act confers power for enforcement of Security Interest of Secured Creditor. Relevant part of the said provision is as follows: 13. Enforcement of security interest -- (1) Notwithstanding anything contained in Section 69 or Section 69-A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'security interest' means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31. If we deal with those two definitions, it would be clear that 'secured creditor' means a bank or financial institution or group of banks or financial institutions and 'security interest' has been defined to mean right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge hypothecation etc. 11. Therefore, unless on the date the impugned agreement was entered into, between the petitioner and the opposite party No. 6 and 7, the opposite party No. 6 has become a secured creditors within the meaning of Section 2(zd) of the said Act, no security interest can be created in its favour. So they cannot invoke the provisions of Section 13 of the said Act. 14. It is clear that prior to the notification dated 10.11.2003, the opposite party No. 6 was not a financial institution within the meaning of Section 2(m)(iv) of the Act. Since it was not a financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and retroactivity. In the case of retroactivity the Parliament takes note of the existing conditions and it takes remedial measures to rectify the conditions. In the present case, if one looks at the various provisions of the impugned NPA Act, 2002 it is clear that the impugned NPA Act, 2002 is retroactive in nature. Firstly, the Act is enacted to reduce the non-performing assets of banks and financial institutions which has accumulated. This is mentioned in Statement of Objects and Reasons. Secondly, even at present in case where Order 40, Civil Procedural Law. Similarly, under the impugned NPA Act, 2002 we have the procedural law which enables the bank to take possession of the property for non-payment of dues. Therefore, Chapter III of impugned NPA Act, 2002 is procedural law under which remedy is provided for enforcement of security interest without intervention of the Court but at the same time appeal re provided to the Tribunal and in cases where possession is wrongly taken the Tribunal can correct the position. Thirdly, the various sections of the Act indicate that the impugned NPA Act, 2002 is retrospective. In this connection, one has to look at Section 2(f) which defines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver possession. Section 16 provides that no compensation is to be paid to the directors for loss of office and Section 17 provides for right to appeal to any person aggrieved by any measure referred to in sub-section (4) of Section 13 of filing an appeal in Debt Recovery Tribunal. In case of an appeal under sub-section (3) of Section 17 the Debt Recovery Tribunal has to examine whether any of the measures taken by the secured creditors under Section 13(4) are not in accordance with the provisions of the Act and the Rules made thereunder and require restoration of the management of the secured assets to the borrower. 13. From the above, it is clear that in Subash Chandra Panda, the view taken is that the secured creditor could invoke Section 13 of the Act only if it was covered by the said definition on the date of loan transaction. The notification extended the Act to ORHDC with effect 10.11.2003, by including ORHDC in the definition of financial institution' under Section 2(m) and thus on the date of loan transaction it was not the 'secured creditor' so as to invoke Section 13 of the SARFAESI Act. On the contrary, the view taken in Unique Engineering Works and Prade ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the International Finance Corporation established under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 (42 of 1958); (iv) any other institution or non-banking financial company as defined in clause (f) of Section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934), which the Central Government may, by notification, specify as financial institution for the purposes of this Act; (n) Hypothecation means a charge in or upon any movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallization of such charge into fixed charge on movable property; (zc) secured asset means the property on which security interest is created; 14. On due consideration of the issue, we are of the view that the view taken in Subash Chandra Panda, is not sound law. The view taken in Unique Engineering Works and Pradeep Kumar Gupta commends our acceptance. 15. The back ground and salient features of the legislation in question have been extensively analyzed by the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gested that special tribunals be set up for recovery of the dues of banks and financial institutions by following a summary procedure. The Tiwari Committee also prepared a draft of the proposed legislation which contained a provision for disposal of cases in three months and conferment of power upon the Recovery Officer for expeditious execution of orders made by adjudicating bodies. 3. The issue was further examined by the Committee on the Financial System headed by Shri M. Narasimham. In its First Report, the Narasimham Committee also suggested setting up of special tribunals with special powers for adjudication of cases involving the dues of banks and financial institutions. 4. After considering the reports of the two Committees and taking cognizance of the fact that as on 30.9.1990 more than 15 lakh cases filed by public sector banks and 304 cases filed by financial institutions were pending in various Courts for recovery of debts, etc. amounting to ₹ 6000 crores, Parliament enacted the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (for short The DRT Act ). The new legislation facilitated creation of specialized forums i.e. the Debts Recovery ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks and financial institutions and this was adversely affecting the economy of the country. Therefore, the Government of India asked the Narasimham Committee to suggest measures for expediting the recovery of debts due to banks and financial institutions. 9. In its Second Report, the Narasimham Committee noted that the non-performing assets of most of the public sector banks were abnormally high and the existing mechanism for recovery of the same was wholly insufficient. In Chapter VIII of the Report, the Committee noted that the evaluation of legal framework has not kept pace with the changing commercial practice and financial sector reforms and as a result of that the economy could not reap full benefits of the reform process. The Committee made various suggestions for bringing about radical changes in the existing adjudicatory mechanism. By way of illustration, the Committee referred to the scheme of mortgage under the Transfer of Property Act, 1882 and suggested that the existing laws should be changed not only for facilitating speedy recovery of the dues of banks, etc. but also for quick resolution of disputes arising out of the action taken for recovery of such dues. 10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by ample authority of binding precedents of the Apex Court, to which reference may be made and relevant observations extracted: 1. Rafiquennessa V. Lal Bahadur Chetri, AIR 1964 SC 1511. 9....... Mr. Chatterjee has relied upon the well-known observations made by Wright, J. in (Re Ahhulumney ex parte or Wilson (1898) 2 QBD 547) when the learned Judge said that it is a general rule that when the legislature alters the rights of parties by taking away or conferring any right of action, its enactments, unless in express terms they apply to pending actions, do not affect them. He added that there was one exception to that rule, namely that where enactments merely affect procedure and do not extend to rights of action, they have been held to apply to existing rights. In order to make the statement of the law relating to the relevant rule of construction which has to be adopted in dealing with the effect of statutory provisions in this connection, we ought to add that retrospective operation of a statutory provision can be inferred even in cases where such retroactive operation appears to be clearly implicit in the provision construed in the context where it occurs. In other word ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not refer to any particular point of time when the accused person should have been convicted and sentenced. It merely indicates a fact situation which must exist in order to attract the applicability of the section and this fact situation would be satisfied equally whether an accused person has been convicted and sentenced before or after the coming into force of the new Code of Criminal Procedure. Even where an accused person has been convicted prior to the coming into force of the new Code of Criminal Procedure but his sentence is still running, it would not be inappropriate to say that the accused person has, on conviction, been sentenced to imprisonment for a term . Therefore, where an accused person has been convicted and he is still serving his sentence at the date when the new Code of Criminal Procedure came into force. Section 428 would apply and he would be entitled to claim that the period of detention undergone by him during the investigation, inquiry or trial of the case should be set off against the term of imprisonment imposed on him and he should be required to undergo only the remainder of the term. Of course, if the term of the sentence has already run out, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... procedure, unless such a construction is textually impossible, is presumed to be retrospective in its application, should not be given an extended meaning and should be strictly confined to its clearly defined limits. (ii) Law relating to forum and limitation is procedural in nature, whereas law relating to right of action and right of appeal even though remedial is substantive in nature. (iii) Every litigant has a vested right in substantive law but no such right exist in procedural law. (iv) A procedural statute should not generally speaking be applied retrospectively where the result would be to create new disabilities or obligations or to impose new duties in respect of transactions already accomplished. (v) A statute which not only changes the procedure but also creates new rights and liabilities shall be construed to be prospective in operation, unless otherwise provided, either expressly or by necessary implication. 6. K.S. Paripoornan v. State of Kerala, (1994) 5 SCC 593. 64. A statute dealing with substantive rights differs from a statute which relates to procedure or evidence or is declaratory in nature inasmuch as while a statute dealing with substantiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue was sought to be made, Section 45-B had already come into force. As it was a procedural provision, it could obviously apply retrospectively to cover all contributions which had remained unpaid even prior to the date on which the section came into force. In support of this contention, learned counsel for the appellant rightly invited our attention to a decision of the Privy Council in Delhi Cloth and General Mills Co. Ltd. v. CIT, AIR 1927 PC 242 wherein it has been laid down that- while provisions of a statute dealing merely with matters of procedure may properly, unless that construction be textually inadmissible, have retrospective effect attributed to them, provisions which touch a right in existence at the passing of the statute are not to be applied retrospectively in the absence of express enactment or necessary intendment. 3. As the aforesaid provision is purely procedural in nature, it cannot be gainsaid that it could have retrospective effect Consequently, the contention of the learned counsel for the appellant in this connection is well made out and must be accepted. We, therefore, hold that Section 45-B can be pressed into service to effect recovery of unpai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the enactment to show that it is to have retrospective operation, it cannot be so construed as to have the effect of altering the law applicable to a claim in litigation at the time when the Act was passed. 25. In Dayawati v. Inderjit, AIR 1966 SC 1423, it is held thus: (AIR p. 1426, para. 10) 10. Now as a general proposition, it may be admitted that ordinarily a Court of appeal cannot take into account a new law, brought into existence after the judgment appealed from has been rendered, because the rights of the litigants in an appeal are determined under the law in force at the date of the suit. Even before the days of Coke, whose maxim - a new law ought to be prospective, not retrospective in its operation - is oft-quoted, Courts have looked with disfavour upon laws which take away vested rights or affect pending cases. Matters of procedure are however, different and the law affecting procedure is always retrospective. But it does not mean that there is an absolute rule of inviolability of substantive rights. If the new law speaks in language, which, expressly or by clear intendment, takes in even pending matters, the Court of trial as well as the Court of appeal must h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyed. If it is a necessary implication from the language employed that the legislature intended a particular section to have a retrospective operation, the Courts will give it such an operation. In the absence of a retrospective operation having been expressly given, the Courts may be called upon to construe the provisions and answer the question whether the legislature had sufficiently expressed that intention giving the statute retrospectivity. Four factors are suggested as relevant: (i) general scope and purview of the statute; (ii) the remedy sought to be applied; (iii) the former state of the law; and (iv) what it was the legislature contemplated, (p. 388) The rule against retrospectivity does not extend to protect from the effect of a repeal, a privilege which did not amount to accrued right, (p. 392). 17. Maxwell states in his work on Interpretation of Statutes (12th Edn.) that the rule against retrospective operation is a presumption only, and as such it may be overcome, not only by express words in the Act but also by circumstances sufficiently strong to displace it (p. 225). If the dominant intention of the legislature can be clearly and doubtlessly spelt out, the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... However, it must be noted that there is an important exception to this rule also. Where the right of suit is barred under the law of limitation in force before the new provision came into operation and a vested right has accrued to another, the new provision cannot revive the barred right or take away the accrued vested right. (emphasis added) 13. Purbanchal Cables Conductors (P.) Ltd. v. Assam SEB. (2012) 7 SCC 462. 45. In Govind Das v. ITO, (1976) 1 SCC 906, this Court speaking through P.N. Bhagwati, J. (as he then was) held: (SCC p. 914, para. 11) 11. Now it is a well-settled rule of interpretation hallowed by time and sanctified by judicial decisions that, unless the terms of a statute expressly so provide or necessarily require it retrospective operation should not be given to a statute so as to take away or impair an existing right or create a new obligation or impose a new liability otherwise than as regards matters of procedure. The general rule as stated by Halsbury in Vol. 36 of the Laws of England (3rd Edn.) and reiterated in several decisions of this Court as well as English Courts is that all statutes other than those which are merely declaratory or whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to deal with problem of pre-existing loan transactions which need speedy recovery. 19. We are of the view that a notification under Section 2(m) in respect of a financial institution brings such institution at par with statutory institutions covered by Section 2(m) prior to such notifications. From the date such notifications is issued, remedies under the Act become available even if loan was advanced earlier. 20. Applying the above established propositions to the present context, it is clear that the statute intends to remedy a situation where recovery of loans of specified financial institutions were held up and are intended to be speedily recovered, without reference to procedure of the Court, by way of Securitization, by a substituted procedure and forum. Such statute applies to pre existing rights and may not be held to be retrospective so as to be hit by presumption of prospectivity. Moreover, presumption in respect of a procedural statute is that such statute is retrospective and can apply to existing cause of action even if it has reference to past transactions. Present context is very similar to the situation in Dwarka Nath Bhargava and also covered by principles of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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