Gujarat High Court
Kanha vs Union on 1 March, 2011
Author: Chief Justice
Bench: S.J. Mukhopadhaya
Gujarat High Court Case Information System
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SCA/2068/2011 19/ 19 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 2068 of 2011
For
Approval and Signature:
HONOURABLE
THE CHIEF JUSTICE MR.S.J.MUKHOPADHAYA
HONOURABLE
MR.JUSTICE J.B.PARDIWALA
=========================================================
1
Whether
Reporters of Local Papers may be allowed to see the judgment ?
2
To be
referred to the Reporter or not ?
3
Whether
their Lordships wish to see the fair copy of the judgment ?
4
Whether
this case involves a substantial question of law as to the
interpretation of the constitution of India, 1950 or any order
made thereunder ?
5
Whether
it is to be circulated to the civil judge ?
=========================================================
KANHA
INTERNATIONAL - THROUGH PROPRIETOR & 2 - Petitioner(s)
Versus
UNION
OF INDIA & 2 - Respondent(s)
=========================================================
Appearance
:
MR
VISHWAS K SHAH for
Petitioner(s) : 1 - 3.
MR PS CHAMPANERI for Respondent(s) :
1,
None for Respondent(s) : 2 -
3.
=========================================================
CORAM
:
HONOURABLE
THE CHIEF JUSTICE MR. S.J. MUKHOPADHAYA
and
HONOURABLE
MR.JUSTICE J.B.PARDIWALA
Date
: 01/03/2011
CAV
JUDGMENT
(Per : HONOURABLE MR.JUSTICE J.B.PARDIWALA) By way of the present petition, the petitioners have prayed for the following reliefs :-
"(a) Be pleased to declare Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 as ultra vires the Constitution of India and null, void ab initio and non-est and that it is illegal and without authority of law as it runs contrary to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
(b) Be pleased to quash and set aside communication dated 11.01.11 and auction sale Notice dated 17.01.11 issued by Respondent No.3.
(c) Pending admission hearing and final disposal of this petition, be pleased to stay the communication dated 11.01.11 and auction sale Notice dated 17.01.11 issued by Respondent No.3."
The main challenge in the present petition is with regard to the constitutional validity of Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 (for short, 'the Rules of 2002'). The petitioners have assailed the vires of Rule 8(5) of the Rules of 2002 as being ultra vires the Constituion of India and being null and void and nonest in the eyes of law.
The brief facts giving rise to the present petition are as under:
The respondent no.2 Oriental Bank of Commerce, as a secured creditor, issued notice dated 10th November 2004 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest At, 2002 (for short, 'the Act') demanding a total sum of Rs.6,41,39,450=00.
The petitioners raised objection as regards the demand notice of the respondent no.2 vide communications dated 29th December 2004 and 30th December 2004.
On 15th March 2005, the respondent no.2 obtained physical possession of the mortgaged premises which, according to the petitioners is not mortgaged.
In short, being aggrieved and dissatisfied by the measures taken under Section 13(2) of the Act, petitioners filed Securitisation Application under Section 17 of the Act before the Debt Recovery Tribunal-2, Ahmedabad with an application for condonation of delay. Both these applications are pending with the Tribunal for adjudication. In the meantime, the petitioners received letter dated 10th July 2008 from the respondent no.2 that the security interest of the account is transferred to respondent no.3 ARCIL. Respondent no.3 issued communication dated 11th January 2011 by which it informed the petitioners that reserved price of the mortgaged premises is Rs.99 lakhs. Respondent no.3 also informed that the mortgaged premises will be put to auction on 3rd March 2011. At this stage and with this factual background the petitioners have approached this Court with a challenge to the validity of Rule 8(5) of the Rules 2002 contending that the said Rule is ultra vires the Constitution ab-initio and is null and void. The additional prayer made by the petitioners in the petition is to quash and set-aside the communication dated 11th January 2011 and auction sale notice dated 17th January 2011 issued by respondent no.3.
We have heard Mr.Vishwas K.Shah, learned counsel for the petitioners at length.
The main bone of contention is to the effect that Rule 8(5) of the Rules of 2002 is framed by the Central Government under delegated powers derived from Section 38 of the Act and it runs contrary to the scheme of the Act and is inconsistent with the Act. It has been submitted that the impugned Rule gives uncontrolled and unlimited powers in aspects of valuation without incorporating well-established norms of checks and balances and leads to arbitrary exercise of power. It is further submitted that Rule 8(5) of the Rules of 2002 do not provide for any say of the borrower or owner of the property at the time when the authorized officer has to fix the upset price. Counsel further submitted that as per the language of Rule 8(5) of the Rules of 2002, valuation report is to be obtained from the approved valuer and the only requirement is in consultation with the secured creditor and the say of the borrower or the owner of the property is excluded. According to him, the said provision of the Rule is unreasonable and arbitrary and hence, the same may be strucked down. Counsel further contended that this Court, while upholding the validity of the Rule, may read down the provisions or may read about the say of the borrower to be considered by the authorized officer. He contended that the authorized officer is an authority specified under Rule 2(a) of the Rules of 2002 and, therefore, the secured creditor is one party and the borrower is the other party, but he has to exercise the power by balancing the rights of both the parties and if such is not read, it would adversely affect the borrower, more particularly when the property would be sold by the authorized officer upon ex-parte valuation at a throw away price.
Counsel for the petitioners also brought to our notice that there are similar provisions under the Regulation 62 of the Regulations of Practice, 2010 of the Debts Recovery Tribunal for the States of Maharashtra, Gujarat, Goa and the Union Territories of Dadra and Nagar Haveli, Daman and Diu (The Regulations of Practice, 2010) framed by the Debt Recovery Appellate Tribunal in the year 2010 as well as the Code of Civil Procedure vide Order 21, Rule 66, which permits the say of the borrower to be considered by the Court, and as per such provision, the borrower would be entitled to copy of the valuation report before the price is fixed. According to the counsel, such provisions are lacking in Rule 8(5) of the Rules of 2002 and, therefore, the Rule gives unbridled powers to the authorities and the same is unreasonable.
Learned counsel for the petitioner has brought to our notice the judgment and order of the learned Single Judge of this High Court dated 9th February 2010 delivered in Special Civil Application No.7057/2009, wherein the same issue was raised as regards the constitutional validity of Rule 8(5) of the Rules of 2002 and the learned Single Judge has upheld the validity of Rule 8(5) of the Rules of 2002 but, according to the learned counsel for the petitioner, the learned Single Judge, while deciding this issue, has concentrated more on facts rather than the substance of the challenge.
In order to examine the contention, reference to Rule 8(5) of the Rules of 2002 would be relevant. Rule 8(5) of the Rules of 2002 reads as under :-
"8.
Sale of immovable secured assets:-(1)
xxx xxx (2) xxx xxx (3) xxx xxx (4) xxx xxx (5) Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods:-
(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty."
Plain reading of sub-rule (5) of Rule 8 of the Rules of 2002 goes to show that the authorized officer has to obtain valuation report from an approved valuer. Therefore, the procedure as envisaged by the rule-making authority of obtaining the valuation of the property from an approved valuer is to be observed and followed by the authorized officer. The second requirement is the consultation with the secured creditor. It is only after approved valuer's report, the authorized officer may consult the secured creditor and fix the reserve price of the property. Merely because there is no right expressly provided to the borrower to get copy of the valuation report or there is no express provision for consultation of the say of the borrower by the authorized officer while fixing the reserve price, that by itself is not sufficient ground to make the rule unconstitutional nor can be termed as unreasonable. We invited attention of the learned counsel to Rule 8(6) of the Rules of 2002, which reads as under:
"(6) The authorised officer shall serve to the borrower a notice of thirty days for sale of the immovable secured assets, under sub-rule (5):
Provided that if the sale of such secured asset is being effected by either inviting tenders from the public or by holding public auction, the secured creditor shall cause a public notice in two leading newspapers one in vernacular language having sufficient circulation in the locality by setting out the terms of sale, which shall include,---
(a) The description of the immovable property to be sold, including the details of the encumbrances known to the secured creditor;
(b) the secured debt for recovery of which the property is to be sold;
(c) reserve price, below which the property may not be sold;
(d) time and place of public auction or the time after which sale by any other mode shall be completed;
(e) depositing earnest money as may be stipulated by the secured creditor;
(f) any other thing which the authorised officer considers it material for a purchaser to know in order to judge the nature and value of the property."
It is very clear that Rule 8(6) again gives an opportunity to the borrower to put forward his valuation which perhaps may be in some conflict with the valuation which is fixed as per Rule 8(5).
According to us, Rule 8(6) of the Rules of 2002 provides the necessary safeguard if the action is taken in arbitrary and unreasonable manner and if the valuation of the property is not properly fixed. The whole object of Rule 8(6) of the Rules of 2002 appears to be that the borrower gets clear thirty days' notice before the sale taxes place. During this period, the borrower can raise objections and can also point out before the appropriate forum as regards the correct and true valuation of the property. The essential purpose of sub-rule (5) of Rule 8 of the Rules of 2002 is to see that there is proper valuation by an approved valuer, who would be considered as an expert, and the view of the secured creditor on the aspect of fixation of reserved price is taken into consideration by the authorized officer. Just because the borrower is excluded from Rule 8(5) of the Rules of 2002 or has no voice at the time when the valuation is fixed and the reserved price is also fixed, by itself will not render Rule 8(5) unconstitutional.
It is settled position of law that a statute can be invalidated or held unconstitutional if it is ultra vires the parent Act, contrary to the statutory provisions other than those contained in the parent Act, law making power has been exercised in bad faith, it is not reasonable and it goes against the legislative policy and does not fulfill the object and purpose of the enabling Act.
In case of Goa Glass Fibre Limited v. State of Goa and another, reported in (2010) 6 SCC 499, it was observed that :
"15.
It is well settled that a statute can be invalidated or held unconstitutional on limited grounds viz. on the ground of the incompetence of the legislature which enacts it and on the ground that it breaches or violates any of the fundamental rights or other constitutional rights and on no other grounds. (See State of A.P. v. Mc. Dowell and Co. and Kuldip Nayar v. Union of India.)"
Principle of presumption of Constitutionality of a statutory provision has been long accepted by the Courts in India. In case of the State of Jammu & Kashmir v. Triloki Nath Khosa and others, reported in AIR 1974 Supreme Court 1, five Judges Bench of the Apex Court noted with approval the observations made in the previous judgement in case of AIR 1958 SC 538 as under :
"That where a party seeks to impeach the validity of a rule made by a competent authority on the ground that the rules offend Art. 14 the burden is on him to plead and prove the infirmity is too well established to need elaboration." The burden thus is on the respondents to set out facts necessary to sustain the plea of discrimination and to adduce "cogent and convincing evidence"
to prove those facts for "there is a presumption that every factor which is relevant or material has been taken into account in formulating the classifications."
It was further observed that :
"25.
Thus, it is no part of the appellants' burden to justify the classification or to establish its constitutionality. Formal education may not always produce excellence but a classification founded on variant educational qualifications is, for purposes of promotion to the post of an Executive Engineer, to say the least, not unjust on the fact of it and the onus therefore cannot shift from where it originally lay."
Above principles of presumption of constitutionality would also persuade us not to declare the statutory provisions challenged in the present petition as ultra vires.
We have to our advantage a very lucid, exhaustive and an elaborate judgment rendered by the learned Single Judge (Coram: Jayant Patel, J.) dated 9th February 2010 passed in Special Civil Application No.7057/2009 on this issue. In paragraphs 10, 11 and 12, the learned Single Judge has observed as under:
"10.
The contention that the law making power has been exercised in bad faith while framing rule 8(5) is without any substance at all inasmuch as neither any malafide is alleged, nor any material is produced before the Court. Merely because the say of the secured creditor is taken into consideration by providing the language of consultation of the secured creditor would not demonstrate or show the bad faith on the part of the Rule making authority, nor the provisions of Rule can be termed as unreasonable. As observed earlier, Rule 8(5) of the Rules provides for exercise of power and merely because there is no express language used by the legislature to deal with all types of contingencies Rule cannot be rendered unreasonable. It is the action of the authority, who is authorised officer in the present case, which may be rendered unreasonable in an appropriate case, if such is satisfactorily demonstrated before appropriate forum. Merely because the authorised officer is to act in an unreasonable manner, on hypothesis the power conferred by the Rule or the procedure envisaged cannot be termed as unreasonable. The third ground of challenge that the Rule 8(5) of the Rules goes against the legislative policy or does not fulfill all the object and purpose of the enabling Act is also without any merit inasmuch as, as observed, earlier, Rule provides for realisation of the price of the immovable property by taking into consideration the valuation report of an approved valuer and also the view of the secured creditor. Further, as observed earlier, if in a given case the authorised officer has not properly exercised the power his action being found unreasonable or arbitrary appropriate forum or the Court may strike down such action, but thereby it is not possible to accept the contention that Rule 8(5) of the Rules goes against the legislative policy or does not fulfill object and purpose of enabling Act.
11. The attempt was made by the learned Counsel for the petitioners to contend that in the case of Mardia Chemicals Limited & Ors. v. Union of India & Ors., reported in 2004(4) SCC, 311, while upholding the constitutional validity of the parent Act i.e. Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the Apex Court has read the concept of lender's liability as per the observations made at paragraphs 70 and 71 of the said judgement and thereafter the Parliament has also made amendment by inserting Sub-section (3A) of Section 13 of the SARFAESI Act. It was, therefore, submitted that the Rules were framed as back as in the year 2002 prior to the amendment and there is no change in the Rule and more particularly Rule 8(5) for not considering the say of the borrower in the fixation of reserve price. Therefore, the attempt was made by the learned Counsel for the petitioners to contend that if the observations made by the Apex Court at paragraphs 70 and 71 of the decision in the case of Mardia Chemicals (supra) are considered, the lender's liability would not be fulfilled, unless the opportunity is given to the borrower to make submission to the authorised officer on the aspects of fixation of upset price. He submitted that as per the decision of Orissa High Court in the case of Swastik Agency and Ors v. State Bank of India, Bhubaneswar and Ors., reported in AIR 2009 Orissa 147, any failure by the authority in accepting the report of the approved valuer or any error in fixation of the reserve price would cause substantial injury to the borrower/guarantor and, therefore, also the Rule 8(5) could be said as unreasonable and arbitrary, since the property of the borrower would be sold away at throw-away price.
12. As observed earlier, it is by now well settled that the effort on the part of the authorised officer would be to see that the maximum price is realised of the property. The reference may also be made to the decision of the Apex Court in the case of Gajraj Jain v. State of Bihar and Ors., reported at (2004) 7 SCC, 151 (equivalent: AIR 2004 SC 3392). Therefore, if it is satisfactorily demonstrated before appropriate forum that the authorised officer has failed to consider the material germane to the exercise of power and thereby it has or is to result into a substantial injury by non-realisation of the appropriate price of the property, such action of the authorised officer may be declared invalid or may be struck down by appropriate forum in appropriate proceedings, but thereby it cannot be said that the Rule 8(5) of the Rules would be rendered invalid or would be rendered unreasonable, so as to make it ultra vires the Constitution. Suffice it to state that it is the action of the authorised officer, which may be tested or examined in fact situation of each case, but error of exercise of power or exercise of power in unreasonable manner would not render the Rule as invalid on the ground as sought to be canvassed."
We would like to clarify while upholding the constitutional validity of Rule8(5) of the Rules of 2002 that Rule 8(6) of the Rules of 2002 protects the interest of the borrower. The whole idea of the Legislature in giving thirty days' clear notice to the borrower regarding the sale of the mortgaged property is to give him an opportunity to redress any grievance as regards the fixation of the valuation of the property and the upset price. We clarify that if any action under Rule 8(5) is arbitrary and unreasonable, such action can be gone into by appropriate forum and if in a given case the borrower is having the valuation of the property by another approved valuer having substantial difference, he may forward the copy of the valuation report to the authorized officer to take into consideration the said aspect and such material may also be considered by the authorized officer even after fixation of the reserved price.
We are of the view that Rule 8(5) of the Rules of 2002 is not ultra vires the Constitution and is not contrary to the statutory provisions other than those contained in the parent Act. Rule 8(5) of the Rules of 2002 cannot be termed as unreasonable or against the legislative policy.
As observed earlier in the judgment, we quote with our complete approval the judgment rendered by the learned Single Judge of this Court in Special Civil Application No.7057/2009.
In the result, the petition fails and the same is rejected in limine.
(S.J.Mukhopadhaya, CJ.) (J.B.Pardiwala, J.) After the judgment was pronounced, the learned counsel appearing on behalf of the petitioner submitted that the petitioner should be given liberty to move before the Debts Recovery Tribunal under Section 17 of the Act. The petitioner is so permitted. If any such application is preferred within 15 days, then the Tribunal will decide the same in accordance with law.
(S.J.Mukhopadhaya, CJ.) (J.B.Pardiwala, J.) /moin Top