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TMI Blog2002 (3) TMI 942X X X X Extracts X X X X X X X X Extracts X X X X ..... D. Bharathi Reddy, Sarla Chandra, E.C. Agrawala, Rathin Das, Bina Gupta, P.P. Singh, Dalip Kumar Malhotra, Mridula Ray Bharadwaj, Shrish Kumar Misra, Chander Shekhar Ashri, K.V. Sreekumar, Prabirananda Chowdhary, A. Bhattacharya and Avijit Bhattacharjee, Advs. (NP JUDGMENT B.N. Kirpal, J. 1. Leave granted. The transfer petitions are allowed. 2. The challenge to the constitutional validity of The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to as 'the Act') on the ground that the Act is unreasonable and is violative of Article 14 of the Constitution, and that the same is beyond the legislative competence of the Parliament, arises for consideration in these cases. 3. The banks and financial institutions had been experiencing considerable difficulties in recovering loans and enforcement of securities charged with them. The procedure for recovery of debts due to the banks and financial institutions which was being followed had resulted in a significant portion of the funds being blocked. In order to remedy the locking up of huge funds, the Parliament enacted the said Act, which was preceded by an ordinance. The Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Court, inter alia, held as follows: (a) The act, in particular, Section 17 did not have a provision for a counter-claim as provided under the provisions of the Code of Civil Procedure and, therefore, the Act was irrational and arbitrary. (b) The Act lowered the authority of the High Court vis- -vis the Tribunal in view of the fact that suits for recovery of money exceeding ₹ 10 lacs are to be filed before the Tribunal while the suits for an amount between ₹ 5 lacs and ₹ 10 lacs was to be filed before the Delhi High Court and for less than ₹ 5 lacs before the subordinate Courts. This lowered the status of the High Court inasmuch as the Tribunal, which was presided by an officer who did not have the status of a High Court Judge would be deciding the suits for recovery of money exceeding ₹ 10 lacs. (c) The Act eroded the independence of the judiciary since the jurisdiction of Civil Courts had been truncated and vested in the Tribunal. It also came to the conclusion that the independence of the judiciary was eroded as the High Court had no role to play in the appointment of the presiding officers. 7. During the pendency of this appeal, the Gu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al word should be held to extend to all ancillary or subsidiary matters which can fairly and reasonably be said to be comprehended in it. It is, therefore, clear-and it is acknowledged by Chief Justice Chagla-that in construing an entry in a List conferring legislative powers the widest possible construction according to their ordinary meaning must be put upon the words used therein. The cardinal rule of interpretation, however, is that words should be read in their ordinary, natural and grammatical meaning subject to this rider that in construing words in a constitutional enactment conferring legislative power the most liberal construction should be put upon the words so that the same may have effect in their widest amplitude. (Emphasis added) 10. Again in Union of India vs. H. S. Dhillon [1972]83ITR582(SC) : [1972]83ITR582(SC) it was observed as follows: It seems to us that the function of Art. 246(1), read with entries 1-96 List I, is to give positive power to Parliament to legislate in respect of these entries. Object is not to debar Parliament from legislating on a matter, even if other provisions of the Constitution enable it to do so. 11. In Dhillon's deci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 of List I, it is the Parliament alone which can enact a law with regard to the conduct of business by the banks. Recovery of dues is an essential function of any banking institution. In exercise of its legislative power relating to banking, the Parliament can provide the mechanism by which monies due to the Banks and Financial Institutions can be recovered. The Tribunals have been set up in regard to the debts due to the banks. The special machinery of a Tribunal which has been constituted as per the Preamble of the Act, for expeditious adjudication and recovery of debts due to banks and financial institutions and for matters connected therewith or incidental thereto would squarely fall within the ambit of Entry 45 of List I. As none of the items in the lists are to be read in a narrow or restricted sense, the term Banking in Entry 45 would mean legislation regarding all aspects of Banking including ancillary or subsidiary matters relating to Banking. Setting up of an adjudicatory body like the Banking Tribunal relating to transactions in which banks and financial institutions are concerned would clearly fall under entry 45 of List I giving the Parliament specific power to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ibed: Provided that the fee may be prescribed having regard to the amount of debt to be recovered: Provided further that nothing contained in this sub-section relating to fee shall apply to cases transferred to the Tribunal under sub-section (1) of Section 31. (4) On receipt of the application under sub-section (1) or sub- section (2), the Tribunal shall issue summons requiring the defendant to show cause within thirty days of the service of summons as to why the relief prayed for should not be granted. (5) The defendant shall, at or before the first hearing or within such time as the Tribunal may permit, present a written statement of his defence. (6) Where the defendant claims to set-off against the applicant's demand any ascertained sum of money legally recoverable by him from such applicant, the defendant may, at the first hearing of the application, but not afterwards unless permitted by the Tribunal, present a written statement containing the particulars of the debt sought to be set-off. (7) The written statement shall have the same effect as a plaint in a cross-suit so as to enable the Tribunal to pass a final order in respect both of the original claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order, to produce and place at the disposal of the Tribunal, when required, the said property or the value of the same, or such portion thereof as may be sufficient to satisfy the certificate for the recovery of debt, or to appear and show cause why he should not furnish security. (B) Where the defendant fails to show cause why he should not furnish security, or fails to furnish the security required, within the time fixed by the Tribunal, the Tribunal may order the attachment of the whole or such portion of the properties claimed by the applicant as the properties secured in his favour or otherwise owned by the defendant as appears sufficient to satisfy any certificate for the recovery of debt. (14) The applicant shall, unless the Tribunal otherwise directs, specify the property required to be attached and the estimated value thereof. (15) The Tribunal may also in the order direct the conditional attachment of the whole or any portion of the property specified under sub-section (14). (16) If an order of attachment is made without complying with the provisions of sub-section (13), such attachment shall be void. (17) In the case of disobedience of an order made b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as issued a certificate of recovery, is satisfied that the property is situated within the local limits of the jurisdiction of two or more Tribunals, it may send the copies of the certificate of recovery for execution to such other Tribunals where the property is situated: Provided that in a case where the Tribunal to which the certificate of recovery is sent for execution find that it has no jurisdiction to comply with the certificate of recovery, it shall return the same to the Tribunal which has issued it. (24) The application made to the Tribunal under sub-section 9(1) or sub-section (2) shall be dealt with by it as expeditiously as possible and endeavour shall be made by it to dispose of the application finally within one hundred and eighty days from the date of receipt of the application. (25) The Tribunal may make such orders and give such directions as may be necessary or expedient to give effect to its orders or to prevent abuse of its process or to secure the ends of justice. 16. The aforesaid section prescribes the manner in which an application to the Tribunal filed by a bank or a financial institution is to be dealt with. Section 22 provides that the Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nciples of natural justice and, subject to the other provisions of this Act and of any rules, the Tribunal and the Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings. (2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 (5 of 1908), while trying a suit, in respect of the following matters, namely:- (a) summoning and enforcing the attendance of any person and examining him on oath; (b) requiring the discovery and production of documents; (c) receiving evidence on affidavits; (d) issuing commissions for the examination of witnesses or documents; (e) reviewing its decisions; (f) dismissing an application for default or deciding it ex parte; (g) setting aside any order of dismissal of any application for default or any order passed by it ex parte; (h) any other matter which may be prescribed. (3) Any proceeding before the Tribunal or the Appellate Tribunal shall be deemed to be a judicial proceeding within the meaning of Sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... applicant, the Tribunal may act upon the affidavit of the applicant who is acquainted with the facts of the case or who has on verification of the record sworn the affidavit in respect of the contents of application and the documents as evidence. (8) Provisions contained in section 4 of the Bankers' Books Evidence Act, 1891 (18 of 1891) shall apply to a certified copy of an entry in a banker's book furnished along with the application filed under sub-section (1) of Section 19 by the applicant. 21. As a result of the amendments made in the Act and the Rules, the position which would emerge is that Section 19(1) of the Act requires the filing of an application by a bank or a financial institution for the recovery of debt to be made before a Tribunal having territorial jurisdiction. On receipt of the application, summons are issued to the defendant who has to show cause within the stipulated period as to why the relief prayed for should not be granted. A right is now given by sub-section 6 of Section 19 to the defendant to claim a set-off against the applicant's demand and the said written statement is to have the same effect as a plaint in a cross-suit. Under sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s we have already noticed , Rule 12 (7) gives the Tribunal the power to act upon the affidavit of the applicant where the defendant denies his liability to pay the claims. Rule 12(6), if paraphrased, would read as follows: 1. The Tribunal may at any time for sufficient reason order that any particular fact or facts may be proved by affidavit.. on such conditions as the Tribunal thinks reasonable; 2. The Tribunal may at any time for sufficient reason order that the affidavit of any witness may be read at the hearing, on such conditions as the Tribunal thinks reasonable. 23. In other words, the Tribunal has the power to require any particular fact to be proved by affidavit, or it may order the affidavit of any witness may be read at the hearing. While passing such an order, it must record sufficient reasons for the same. The proviso to Rule 12(6) would certainly apply only where the Tribunal chooses to issue a direction, on its own, for any particular fact to be proved by affidavit or the affidavit of a witness being read at the hearing. The said proviso refers to the desire of an applicant or defendant for the production of a witness for cross-examination. In the setting in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls and the appellate tribunals so constituted would not be independent, or that justice would be denied to the defendants or that the independence of the judiciary would stand eroded. 25. Such tribunals, whether they pertain to Income-tax or Sales-tax or Excise and Customs or Administration, have now become an essential part of the judicial system in this country. Such specialised institutions may not strictly come within the concept of the judiciary, as envisaged by Article 50, but it cannot be presumed that such tribunals are not an effective part of the justice delivery system, like courts of law. It will be seen that for a person to be appointed as a Presiding Officer of a Tribunal, he should be one who is qualified to be a District Judge and, in case of appointment of the Presiding Officer of the Appellate Tribunal he is, or has been, qualified to be a Judge of a High Court or has been a member of the Indian Legal Service who has held a post in Grade-I for at least three years or has held office as the Presiding Officer of a Tribunal for at least three years. Persons who are so appointed as Presiding Officers of the Tribunal or of the Appellate Tribunal would be well versed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f more than ₹ 10 lacs. This incongruous situation, which can be remedied by the High Court divesting itself of the original jurisdiction in regard to such claims and vesting the said jurisdiction with the subordinate courts or vice versa, cannot be a ground for holding that the Act is invalid. 28. At the time when the Guwahati High Court had rendered its decision there was only one Appellate Tribunal. It is for that reason that the Guwahati High Court had observed that the judicial review was illusory. Now, more Appellate Tribunals have been established and the inconvenience of the litigant in travelling a long distance to approach a Appellate Tribunal cannot be regarded as making the judicial review of the Tribunal's decision illusory. Furthermore, with the pecuniary jurisdiction of the Tribunal being of ₹ 10 lacs and above for a fairly large number of borrowers of small amounts, the civil courts are not divested of their jurisdiction. 29. The Guwahati High Court had held that Sections 25 and 28 are arbitrary and unreasonable, being without any guidelines or control. These observations were made prior to the amendment of Sections 25 and 28. After amendment th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his last address known to the Recovery Officer and in the case of a joint account to all the joint holders at their last addresses known to the Recovery Officer. (iv) Save as otherwise provided in this sub-section, every person to whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, bank, financial institution, or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like to be made before the payment is made notwithstanding any rule, practice or requirement to the contrary. (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice. (vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or the part thereof is not due to the defendant or that he does not hold any money for or on account of the defendant, then, nothing contained in this sub-sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... int and sale of his movable property in the manner laid down in the Third Schedule to the Income-tax Act, 1961 (43 of 1961). While Section 25 provides for modes of recovery of debts either by attachment and sale or arrest or appointment of a receiver, Section 28 provides for modes of recovery in addition to the ones specified in Section 25. A perusal of the aforesaid provisions cannot lead one to the conclusion that the same are arbitrary, unreasonable or without any guidelines. It is quite clear that in order to recover the debts, the recovery officer has to attach and sell the immovable property and that for protection and preservation of the same, he has the power to appoint a Receiver for the management thereof. 30. By virtue of Section 29 of the Act, the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-Tax (Certificate Proceedings) Rules, 1962, have become applicable for the realisation of the dues by the Recovery Officer. Detailed procedure for recovery is contained in these schedules to the Income-Tax Act, including provisions relating to arrest and detention of the defaulter. It cannot, therefore, be said that the recovery offic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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