The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 cannot be enforced in the State of J&K
• The provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI ) can be availed of by the banks, which originate from the State of J&K for securing the monies which are due to them and which have been advanced to the borrowers, who are not State subjects and residents of the State of J&K and who are non State subjects/non citizens of the State of J&K and residents of any other State of India excepting the State of J&K.
HIGH COURT OF JAMMU AND KASHMIR
Bhupinder Singh Sodhi
v.
Union of India
MUZAFFAR HUSSAIN ATTAR AND ALI MOHAMMAD MAGREY, JJ.
OWP NOS. 1031 OF 2004 AND 530 OF 2007
JULY 16, 2015
P.N. Raina, Sr. Advocate. A. Haqani and M.A. Qayoom, Advs. for the Appellant. R.A. Jan, Ld. Advocate Z.A. Shah, Ld. Sr. Advocate Hanan, Adv. and S.A. Makroo Ld. ASGI for the Respondent.
JUDGMENT
Muzaffar Hussain Attar- The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (for short the Act of 2002) was enacted by the Parliament in the year 2002. It was enforced on 17th December, 2002. The purpose of the Act is to regulate scrutinization and reconstruction of financial assets and enforcement of security interests and for matters connected therewith or incidental thereto. The Act of 2002 was amended in the year 2004 and 2012.
2. The legislative evolution, in the field of financial matters of Banks reached to its zenith by the enactment of Act of 2002. It was enacted to facilitate and ensure immediate recovery of finances/money which was/is due to financial Institutions from the borrowers.
3.In the fast changing global financial scenario, the recovery of finances/ money by the lending banks/financial Institutions, from borrowers in our country would proceed on snails pace, thus, affecting the financial health of country. In order to meet the domestic and global financial challenges, it was deemed imperative and essential to have a legislation, which would ensure speedy and hassle free recovery of finances/money from the borrowers/loanees. On proper appraisal of the issues, it was found that the slow speed with which the money is being recovered by the banks/financial Institutions, in view of existing legal system and further for the reason that some of the borrowers/loanees would delay payment of finances/amount by adopting different delaying tactics, it was deemed necessary to enact a law which would arm the financial institutions/banks to recover money without delay.
4. For the overall growth and development in different walks of life and to keep pace with the ever changing financial scenario of the world and further to ensure that the country does not lag behind in its overall growth in all the related fields, it was deemed necessary to enact a law which would ensure immediate, speedy and hassle free recovery of finances/money from the borrowers/loanees. It further appears that because of withholding of the huge amounts by the borrowers/loanees, without any just and reasonable cause, the industrial, agricultural and technological development of the country was badly affected. The huge public interest would suffer by the dubious tactics employed by few individuals, who, illegally and immorally, at the cost of public interest, would make huge benefits, by retaining public money, which they received from the banks/financial Institutions. It is people’s money, which is deposited in the banks/financial Institutions. This money is to be spent for the overall benefit of the people at large, which solemn purpose is/was being defeated by individual borrowers/loanees by not repaying amounts within the time frame fixed in the agreements arrived at between the borrowers/loanees and banks/financial Institutions.
5. Initially, in order to overcome the aforestated difficulties, the Parliament enacted “Recovery Of Debts Due To Banks & Financial Institutions Act 1993” (for short the Act of 1993). With the passage of time, it was found that the Act of 1993 could not measure up to the expectations of the banks/financial Institutions, in as much as, the speed, which was required for recovery of finances/money, was not achieved.
6. It is in this backdrop that the Act of 2002 was enacted to secure the financial interests of the nation.
7. Section 2(a) of the Act of 2002 defines Appellate Tribunal. Clause (b) defines ‘Assets Reconstruction and Clause 2(c) defines ‘banking’. Similarly ‘Banking Company’, ‘Power’, ‘Borrower’, ‘Debt’, ‘Default’, ‘Financial Assistance’, ‘Financial Assets’, ‘Financial Institutions’, ‘Hypothecation’, ‘Non Performing Asset’, ‘Property’, ‘Secured Creditor’, ‘Secured Debt’ and ‘Secured Interest’, also stand defined by section (2) of the Act, 2002. The aforesaid relevant clauses are taken note of :
“2.Definitions :–( 1) In this Act, unless the context otherwise requires,–
(a) “Appellate Tribunal” means a Debts Recovery Appellate Tribunal established under sub-section (1) of section 8 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993);
(b) “asset reconstruction” means acquisition by any securitization company or reconstruction company of any right or interest of any bank or financial institution in any financial assistance for the purpose of realization of such financial assistance;
(c) “bank” means-
(i)
a banking company; or
(ii)
a corresponding new bank’ or
(iii)
the State Bank of India; or
(iv)
a subsidiary bank; or
[(iva)
a multi-State co-operative bank; or].
(v)
Such other bank which the Central Government may, by notification, specify for the purpose of this Act;
(d) “banking company” shall have the meaning assigned to it in clause ( c ) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);
(e)**
**
**
(f) “borrower” means any person who has been granted financial assistance by any bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any bank or financial institution and includes a person who becomes borrower of a securitization company or reconstruction company consequent upon acquisition by it of any rights or interest of any bank or financial institution in relation to such financial assistance;
(g) & (h)**
**
**
[(ha) “debt” shall have the meaning assigned to it in clause (g) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993);
(i) “Debts Recovery Tribunal” means the Tribunal established under sub-section (1) of section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993);
(j) “default’ means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor [***];
(k) “financial assistance” means any loan or advance granted or any debentures or bonds subscribed or any guarantees given or letters of credit established or any other credit facility extended by any bank or financial institution;
(l) “financial asset” means debt or receivables and includes—
(i)
a claim to any debt or receivables or part thereof, or charge on, immovable property; or
(ii)
any debt or receivables secured by, mortgage of, or charge on, immovable property; or
(iii)
a mortgage, charge, hypothecation or pledge of movable property; or
(iv)
any right or interest in the security, whether full or part underlying such debt or receivables; or
(v)
any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or
(vi)
any financial assistance;
(m) “financial institution” means—-
(i)
a public financial institution within the meaning of section 4A of the Companies Act, 1956 (1 of 1956);
(ii)
any institution specified by the Central Government under sub-clause (ii) of clause(h) of section 2 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993);
(iii)
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 45-1 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;
(o) “non-performing asset” means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, [doubtful or loss asset,
(a)
in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body;
(b)
in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank;]
(p) & (s)**
**
**
(t) “property” means—-
(i)
immovable property;
(ii)
movable property;
(iii)
any debt or any right to receive payment of money, whether secured or unsecured;
(iv)
receivables, whether existing or future;
(v)
intangible assets, being know-how, patent, copyright, trade mark, license, franchise or any other business or commercial right of similar nature;
(u) & (z)**
**
**
(zc) “secured asset” means the property on which security interest is created;
(zd) “secured creditor” means any bank or financial institution or any consortium or group of banks or financial institutions and includes—
(i)
debenture trustee appointed by any bank or financial institution; or
(ii)
securitization company or reconstruction company, whether acting as such or managing a trust set up by such securitization company or reconstruction company for the securitization or reconstruction, as the case may be; or
(iii)
any other trustee holding securities on behalf of a bank or financial institution, in whose favour security interest is created for due repayment by any borrower of any financial assistance;
(ze) “secured debt” means a debt which is secured by any security interest;
(zf) “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;”
8. Chapter II of the Act of 2002, deals with regulation of securitisation and reconstruction of financial assets of Banks/Financial Institutions. Chapter III, which is relevant for disposal of these writ petitions, deals with enforcement of security interest. It commences from section 13. The different sub sections of section 13 provide manner and method for speedy recovery of the secured interest. It also provides for taking over possession of secured assets of the borrower as also the management of the business of borrower with further right to transfer it by way of lease, assignment, or sale for realizing the secured assets. Section 13, which, is beset on all sides by the challenge thrown to it by the writ petitioners, is taken note of :
“13.Enforcement of security interest:
1. Notwithstanding anything contained in section 69 or section 69A 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 of the court or tribunal, by such creditor in accordance with the provisions of this Act.
2. Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any installment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under sub-section (4).
3. The notice referred to in sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.
[(3A) 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 fifteen days] 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 17A.]
4. In case the borrower fails to discharge his liability in full within the period specified in sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely:-
(a)
take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for releasing the secured asset;
[(b)
take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset:
Provided that the right to transfer by way of lease, assignment or sale shall be exercised only where the substantial part of the business of the borrower is held as security for the debt:
Provided further that where the management of whole, of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt;]
(c)
appoint any person (hereafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;
(d)
require at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.
5. Any payment made by any person referred to in clause (d) of sub-section (4) to the secured creditor shall give such person valid discharge as if he has made payment to the borrower.
[(5A) Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorized by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale.]
[(5B)Where the secured creditor, referred to in sub-section (5A), is declared to be the purchaser of the immovable property at any subsequent sale, the amount of the purchase price shall be adjusted towards the amount of the claim of the secured creditor for which the auction of enforcement of security interest is taken by the secured creditor, under sub-section (4) of section 13.]
[(5C)The provisions of section 9 of the Banking regulation act, 1949 (10 of 1949) shall, as far as may be, apply to the immovable property acquired by secured creditor under sub-section (5A).]
6. Any transfer of secured asset after taking possession thereof or take over of management under sub-section (4), by the secured creditor or by the manager on behalf of the secured creditors shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.
7. Where any action has been taken against a borrower under the provisions of sub-section (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in the absence of any contract to the contrary, be held by him in rust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.
8. If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.
9. In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than [sixty per cent.] in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:
Provided that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of section 529A of the companies Act, 1956 (1 of 1956):
Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realize his security instead of relinquishing his security and proving his debt under proviso to sub-section (1) of section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen’ dues with the liquidator in accordance with the provisions of section 529A of that Act.
Provided also that the liquidator referred to in the second proviso shall intimate the secured creditors the workmen’s dues in accordance with the provisions of section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen’s due cannot be ascertained, the liquidator shall intimate the estimated amount of workmen’s dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidator:
Provided also that in case the secured creditor deposits the estimated amount of workmen’s dues, such creditor shall be liable to pay the balance of the workmen’s dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator: Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen’s dues, if any.
Explanation-………………
(10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a competent court, as the case may be, for recovery of the balance amount from the borrower.
(11) Without prejudice to the rights conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in clauses (a) to (d) of sub-section (4) in relation to the secured assets under this Act.
(12) No borrower shall, after receipt of notice referred to in sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of the secured creditor.”
9. Section 17(A) of the Act of 2002, provides for making of Application to the Court of District Judge in certain cases. This is a special provision made for the borrowers residing in the state of J&K. similarly section 18(B) provides for appeal to the High Court in certain cases, which appeal can be filed by the borrower residing in the State of J&K and who would be aggrieved by any order made by the Court of District Judge u/s 17(A). These provisions are also taken note of :
“17A. Making of application to Court of District judge in certain cases:-
In the case of a borrower residing in the State of Jammu & Kashmir, the application under section 17 shall be made to the Court of District Judge in that State having jurisdiction over the borrower which shall pass an order on such application.”
“18B. Appeal to High Court in certain cases:-
Any borrower residing in the State of Jammu & Kashmir and aggrieved by any order made by the Court of District Judge under section 17A may prefer an appeal, to the High Court having jurisdiction over such Court, within thirty days from the date of receipt of the order of the Court of District Judge:
Provided that no appeal shall be preferred unless the borrower has deposited, with the Jammu And Kashmir High Court, fifty percent. Of the amount of the debt due from him as claimed by the secured creditor or determined by the Court of District Judge, whichever is less:
Provided further that the High Court may, for the reasons to be recorded in writing, reduce the amount to not less than twenty-five percent. Of the debt referred to in the first proviso.”
10. Section 34 of the Act of 2002 provides that no Civil Court shall have jurisdiction to entertain any Suit or proceedings in respect of any matter, which a Debts Recovery Tribunal or Appellate Tribunal is empowered by or under the Act to determine and it further provides that no injunction shall be granted by the Court or any other Authority in respect of any action taken or to be taken in pursuance of any power conferred by or under the Act of 2002 or Act of 1993. Section 34 is taken note of :
“34.Civil court not to have jurisdiction:-
No civil court shall have jurisdiction to entertain any suit or proceeding in respect of any matter which a Debts Recovery Tribunal or the Appellate Tribunal is empowered by or under this Act to determine and no injunction shall be granted by any court or other authority in respect of any action taken or to be taken in pursuance of any power conferred by or under this Act or under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993).”
11. Section 35 of the Act of 2002 provides that the provision of the Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or instrument having effect by virtue of any such law. Section 35 is also taken note of :
“35.The provisions of this Act to override other laws:-
The provisions of this Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law.”
12. Section 36, which prescribes the period of limitation is also reproduced hereunder :
“36.Limitation.
No secured creditor shall be entitled to take all or any of the measures under sub-section (4) of section 13, unless his claim in respect of the financial asset is made within the period of limitation prescribed under the Limitation Act, 1963 (36 of 1963).”
13. Section 37 prescribes that the provisions of the Act of 2002 or rules made thereunder, are in addition to, and not in derogation of the laws, which are mentioned in the said section.
The said provision is taken note of :
37.Application of other laws not barred.-
The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956(1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act 1992 (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.”
14. Section 38 confers power on the Central Government to make rules. This provision is also taken note of :
“38.Power of Central Government to make rules:-
The Central Government may, by notification and in the Electronic Gazette as defined in clause (s) of section 2 of the Information Technology Act, 2000 (21 of 2000), make rules for carrying out the provisions of this Act.
(2) In particular, and without prejudice to the generality of the foregoing power, such rules may provide for all or any of the following matters, namely:-
(a)
the form and manner in which an application may be filed under sub-section (10) of section 13;
(b)
the manner in which the rights of a secured creditor may be exercised by one or more of his officers under sub-section (12) of section 13;
[(ba)
the fee for making an application to the Debts Recovery Tribunal under sub-section (1) of section 17;
(bb)
the form of making an application to the Appellate Tribunal under sub-section (6) of section 17;
(bc)
the fee for preferring an appeal to the Appellate Tribunal under sub-section (1) of section 18;]
(c)
the safeguards subject to which the records may be kept under sub-section (2) of section 22;
(d)
the manner in which the particulars of every transaction of securitization shall be filed under section 23 and fee for filing such transaction;
(e)
the fee for inspecting the particulars of transactions kept under section 22 and entered in the Central Register under sub-section (1) of section 26;
(f)
the fees for inspecting the Central Register maintained in electronic form under sub-section (2) of section 26;
(g)
any other matter which is required to be, or may be, prescribed, in respect of which provision is to be, or may be, made by rules.
(3) Every rule made under this Act shall be laid, as soon as may be after it is made, before each House of Parliament, while it is in session, for a total period of thirty days which may be comprised in one session or in two or more successive sessions, and if, before the expiry of the session immediately following the session or the successive sessions aforesaid, both Houses agree in making any modification in the rule or both Houses agree that the rule should not be mad, the rule shall thereafter have effect only in such modified form or be of no effect, as the case may be; so, however, that any such modification or annulment shall be without prejudice to the validity of anything previously done under that rule.”
15. The Central Government, in exercise of powers conferred by sub section (1) and clause (b)(2) of section 38 read with sub section (4)(10) & (12) of section 13 of the Act of 2002, has framed rules called “The Security Interest (Enforcement) Rules 2002”.
16. The petitioners, in all the writ petitions, are those persons, who have borrowed money from different banks/financial Institutions and have hypothecated their properties in favour of the banks/financial Institutions.
17. The notices, u/s 13(2) of the Act of 2002, have been issued by the banks/secured creditors to the petitioners in respect of debt, which has been classified as Non Performing Asset, whereunder they have been asked to discharge in full the liabilities and pay the money due to the secured creditor within sixty days from the date of notice.
18. Section 13(4) confers power on the secured creditor to take the measures for recovering the secured debt which powers are delineated in clause (a), (b),(c) & (d).
19. All the writ petitioners have challenged the notices issued u/s 13(2) of the Act of 2002 on the grounds, which are broadly set out as under :
(a)
The Parliament has no power to enact a law which would affect the immoveable property of the State subjects ;
(b)
article 370 of the Constitution of India restricts power of the Parliament to enact a law which would affect the immoveable properties of the state subjects/citizens of the State of J&K ;
(c)
creation of an Authority for recovery of secured debts falls within the definition of ‘administration of justice’ and the Central Government has no authority and power to enact a law in this behalf as the List – I, (Union List) of Schedule 7th of the Constitution of India, does not have any such Entry incorporated therein and the Entry – II-A figures in List – III, (Concurrent List) of 7th Schedule of the Constitution of India is not applicable to State of J&K;
(d)
the legislature of the State of J&K, alone being competent to make laws about the land, immoveable properties, and section 13 of the Act of 2002, which provides that, “notwithstanding anything contained in section 69 or 69-A of Transfer of Property Act, 1882” is beyond the legislative competence of the Parliament ;
(e)
the constitutional scheme and framework, as projected by the Constitution of India and Constitution of J&K, does not authorize for making of law like the Act of 2002 by the Parliament in respect of the State of J&K ;
(f)
the limited extension of provision of the Constitution of India with further modifications, would make the Act of 2002 applicable to the country excepting the State of J&K ;
(g)
in presence of Suits, already instituted for recovery of debt, recourse cannot be had to the provisions of the Act of 2002 for recovering the same amount.
20. Mr. A.Haqani, learned counsel appearing for some of the writ petitioners, vehemently argued that the authority created and mechanism prescribed by the Act of 2002 is covered by the expression ‘administration of justice’ and the Parliament has no power to legislate any law in this behalf. Learned counsel, while referring to section 13 of the Act of 2002, was at pains to explain that the authority created and mechanism prescribed by section 13 of the Act of 2002, is in essence, a judicial authority, who is required to act judicially and this being the legal position, the Act of 2002 be declared illegal being beyond the legislative competence of the Parliament. Learned counsel referred to and relied upon the following judgments:-
1.
Jaswant Sugar Mills Ltd. Meerut v. Lakshmi Chand and Ors reported in 1962 STPL(LE)2091 SC.
2.
State of T.N. v. G.N.Venkataswamy and ors Etc.Etc. reported in 1994 STPL(LE)19294 SC.
3.
. Associated Cement Companies Ltd., v. PN.Sharma and Another reported in 1964 STPL(LE)3022 SC.
4.
Dev Singh and Ors v. The Registrar, Punjab and Haryana High Court, and Others reported in 1987 STPL(LE)13705 SC.
5.
S.Ganapathraj Surana v. State of Tamil Nadu reported in 1992 STPL(LE) 16834 SC.
6.
Sangram Singh v. Election Tribunal Kotah and Anr. reported in 1955 STPL(LE)678SC.
21. Mr. M.A.Qayoom, learned counsel appearing for some of the writ petitioners, invited attention of the Court to Article 370 of the Constitution of India and submitted that the mechanism prescribed in the said article for application of laws to the State of J&K, has not been followed. Learned counsel, while referring to article 370, submitted that clause B (i) of article 370 has restricted the power of Parliament, to make laws for the State of J&K, to those matters in the Union List and the Concurrent List, which, in consultation with the Government of the State, are declared by the President to correspond to maters specified in the Instrument of Accession. Learned counsel also referred to clause B(ii) of article 370 and submitted that other matters in the Union List may be applied to the State of J&K with concurrence of the Government of the State by the president, which may be specified by an order by the President. He further submitted that this constitutional mechanism has not been followed for application of law to the State of J&K. Learned counsel also referred to an Application/Affidavit filed by the State of J&K in a writ petition, filed in Jammu Wing of the Court and submitted that the State of J&K itself has raised objection in respect of enforcement of the Act of 2002 in the State of J&K. Learned counsel also referred to section 140 of the Transfer of Property Act, 1882 (a State Act) to indicate that application of the Act of 2002 has directly impacted the fields of legislation, for which laws can be exclusively made by the State legislature. Mr. Qayoom, in support of his contention, referred to and relied upon following judgments:-
1.
S.Mubarik Shah Naqishbandi v. Income Tax Officer reported in AIR 1971 SC page 120.
2.
Madan Mohan Choudhary v. State of Bihar & Ors reported in (1999) 3 Supreme Court Cases 396.
3.
Prem Nath v. State of J&K reported in AIR 1959 Supre Court 749.
4.
High Court of Judicature for Rajasthan v. P.P.Singh and anr., reported in AIR 2003 S.C.1029.
5.
L&T Mcneil Ltd. v. Govt. of T.N reported in (2001) 3 Supreme Court Cases 170.
6.
K.P.Mohapatra v. Ram Chandra Nayak reported in AIR 2002 Supreme Court 3578.
22. Other learned counsel, appearing for some other writ petitioners, made statement at the bar that they adopt the arguments, which were advanced by Mr. Haqani.
23. Mr. P.N.Raina, learned Senior Counsel, appearing on behalf of some writ petitioners, submitted that the expression ‘banking’ which appears in List – I, (Union List) at Entry 45 of 7th Schedule of the Constitution of India, would not authorize the Parliament to make a law like the Act of 2002 for effecting recovery of secured debt from the borrowers. Learned counsel, submitted that ours is a federal Constitution and the different limbs of the State have to confine their executive, legislative and judicial activities to the sphere of their delineated territorial, legal and constitutional jurisdictions. Learned counsel argued at great length by making reference to the decision of Hon’ble the Supreme Court, reported in 1970(1) SCC 248 in case titled Rustom Cavasjee Cooper, Petitioner v. Union of India, Respondent. He read the judgement in extenso to canvass his point that the expression ‘banking’ appearing in Entry 45 of List – I, of 7th Schedule of the Constitution of India, would not mean and connote making a law for recovery of debt amount from the borrowers. Learned counsel also referred to the Banking Regulation Act 1949 (for short Act of 1949), more particularly, sections 5&6 thereof to indicate that banking has been, for the first time, defined by the said Act of 1949 and it does not refer to recovery of the amount. Besides this, learned counsel referred to article 370 of the Constitution of India. Mr. Raina submitted that the Act of 2002 violates the federal structure of the Constitution of India and it is an intrusion upon the legislative powers of the State Legislature. Learned counsel submitted that the impact of the Act of 2002 has to be considered in the backdrop of federal structure of our Constitution. He further submitted that application of the Act of 2002 to the State of J&K, effectively violates the federal structure of the Constitution. Learned counsel also submitted that preceding the enactment of the Act of 2002, an ordinance was promulgated by the President of India in respect of scrutinization and reconstruction of financial assets, which ordinance was not made applicable to the State of J&K. Mr. Raina further submitted that the Central Government was conscious that such type of legislation would not be applicable to the State of J&K, which occupies a special position in the country. Learned counsel submitted that it is a sufficient indicator that the Act of 2002 would not be applicable to the State of J&K. learned counsel reiterated the argument, which was projected by M/s. Qayoom and Haqani that section 13 of the Act of 2002 has the potential of transferring the interests in the immoveable property of the State Subjects to Non State Subjects, as the bank is a juristic person and most of the banks, who are not banks of the State of J&K, whose Head Offices/Corporate Offices are located outside the State of J&K and whose Board of Directors comprises of Non State Subjects alone, it is not permissible, in view of the State laws, for them to create interest the immoveable property in the State of J&K. For the above stated reasons, more particularly, in the backdrop of article 370 of the Constitution of India, Mr. P.N.Raina, learned Senior Advocate, submitted that the Act of 2002 cannot be made applicable to the State of J&K. Learned counsel referred to the following judgments:-
1.
[1969] 2 SCC 55
2.
[1996] 3 SCC 709
3.
1953 SC 375
4.
1958 SC 560
5.
1959 SC 648
6.
1959 SC 749
7.
1969 J&K 77
8.
1970 J&K 77
9.
1970 SC 564
10.
1972 SC 1061
11.
1972 Kerala 27
12.
2000 SC 2181
13.
2002 SC 834
14.
2002 SC 1334
15.
2002 SC 1479/2002(4) SCC 274
16.
2004 SC 2371/2004(4) SCC 311
17.
2007 SC 712
24. Other learned counsel including the Senior Counsel, appearing in other cases, submitted at bar that they adopt the arguments advanced by Mr. P.N.Raina, Senior Counsel. .
25. One of the learned counsel submitted that his case be referred to the Legal Service Authority. Yet another learned counsel submitted that the Act of 2002 would not be applicable to the State of J&K, however, for recovery of advances, made by the bank outside the State of J&K, recourse can be taken to the Act of 2002
26. Mr. R.A.Jan, learned Advocate General, while referring to the Affidavit of State Authority, submitted that the State Government has taken cognizance of the issues involved in these cases. He further submitted that the State Government be given time to take final call on the subject.
27. Mr. Zafar A.Shah, learned Senior Advocate, appearing for J&K Bank, argued at great length. He submitted that in view of Entry 45 of List – I, (Union List) of 7th Schedule of the Constitution of India, the Parliament is competent to legislate the Act of 2002. He further submitted that the Central Government has amended the Rules of 2002 and it has been prescribed that while enforcing the Act of 2002, the interests in the immoveable property can be transferred only in favour of the State subject. He also submitted that in view of the amendment made in the Rules of 2002, grievances of the petitioners stand redressed. Mr. Shah, while referring to article 370, submitted that in view of Constitution (Application to Jammu and Kashmir) Order of 1954 (C.O.48-S.R.O 1610 dated 14.05.1954) issued by the President of India, the Central Government has been authorized to legislate laws in respect of Entries in the List – I, (Union List) of 7th Schedule of the Constitution of India including entry 45, which Entry stands extended to the State of J&K in terms of the aforesaid constitutional order. He further submitted that it has been held by Hon’ble the Supreme Court, in case reported in (2009) 4 SCC 94 that the Act of 1993 as also Act of 2002 have been enacted in terms of Entry 45 of List – I, (Union List) of 7th Schedule of the Constitution of India. Learned counsel submitted that in view of the Authoritative Pronouncement of Hon’ble the Supreme Court, the issue that enactment fall within the purview of Entry 11(a) of List – III, (Concurrent List) of 7th Schedule of the Constitution of India, is rendered irrelevant. Mr. Shah also submitted that huge amounts have crystallized into Non Performance assets. He submitted that withholding of huge amounts by the borrowers is directly and adversely affecting the economic growth of the State of J&K. Learned counsel, in support of his contention, referred to and relied upon the following judgments:-
1.
P.L.Lakhanpal v. State of J&K reported in AIR 1956 SC page 197
2.
Mohd Subhan & Ors v. State reported in AIR 1956 J&K Page 1
3.
Prem Nath Koul v. State of J&K reported in AIR 1959 SC page 749
4.
Sampat Prakash v. State of J&K reported in AIR 1970 SC page 118
5.
Jamaluddin v. Abu Saleh reported in 2003(4)SCC page 257
6.
Indian National Congress v. Institute of Social Welfare and Ors reported in 2002(5)SCC page 685
7.
Mardia Chemicals v. UOI reported in 2004(4) SCC page 311
8.
State of Bombay v. Narottamdas reported in AIR 1951 SC 69
9.
Central Bank of India vs. State of Kerala reported in 2009(4) SCC page 94
10.
State of A.P v. MsDowell & Co. reported in 1996(3)SCC page 709
11.
Sunanda Kumari v. Standard Chatered Bank reported in 2007 135 Compcas 604 Kar, ILR KAR 16
12.
Abdul Aziz v. PNB reported in III(2006) BC 279
13.
A. Venkatramani v. Housing Finance Ltd. dated 28.09.2006
14.
M/s Transcore v. Union of India dated 29.11.2006
15.
Delhi Bar Association v. UOI reported in 2002(4)SCC.
28. Mr. S.A.Makroo, learned Assistant Solicitor General of India submitted that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 is valid and is capable of being enforced in the State of J&K. Learned counsel in support of his submission referred to the judgment titled Suganthi Suresh Kumar-Appellant v.Jagdeeshan-Respondent reported in 2002(1) Supreme 227.
29. Learned counsel, appearing for other respondent banks, in one voice, defended the Act of 2002. They submitted that the Act of 2002 does not impinge either upon the federal structure of Constitution or the State Constitution. Learned counsel referred to (2009) 4 SCC 94, more particularly, paragraph 36 thereto to show that Hon’ble the Supreme Court has already ruled that the Acts of 1993 and 2002 have been enacted by the Parliament under Entry 45 List – I, (Union List) of 7th Schedule of the Constitution of India. Learned counsel, accordingly, prayed for dismissal of the writ petitions.
30. In order to appreciate the contentions raised and submissions made at bar, it is deemed appropriate to take note of some of the relevant provisions of the Constitution of India, which have been made applicable to the State of J&K :
(a)
By the Constitution (application to J&K) Order of 1954 (C-0-48-SRO 1610) ; Ministry of Law, New Delhi, 14th May, 1954 (for short order of 1954).
(b)
Article 14, 19(1) (7), 21, 35 A (amended in terms of Constitution Order) 256 (2), 368 (2), 152, 245, 246 (as applicable to the State of J&K in terms of constitutional order), Article 370 and section 140 of the Transfer of Property Act, 1882 and section 5 and 6 of the Constitution of J&K, List Ist and III of seventh schedule.
“14. Equality before law
The State shall not deny to any person equality before the law or the equal protectio