Gujarat High Court
Sysmed vs Union on 1 December, 2010
Author: Jayant Patel
Bench: Jayant Patel
Gujarat High Court Case Information System
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SCA/7057/2009 16/ 18 JUDGMENT
IN
THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL
CIVIL APPLICATION No. 7057 of 2009
For
Approval and Signature:
HONOURABLE
MR.JUSTICE JAYANT PATEL
=========================================================
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 ?
=========================================================
SYSMED
LABORATORIES P LTD & 2 - Petitioner(s)
Versus
UNION
OF INDIA & 1 - Respondent(s)
=========================================================
Appearance
:
MR
VISHWAS K SHAH for
Petitioner(s) : 1 - 3.
RULE SERVED BY DS for Respondent(s) : 1 -
2.
MR RM CHHAYA for Respondent(s) : 1,
NOTICE SERVED BY DS for
Respondent(s) : 2,
MR BIJU A NAIR for Respondent(s) :
2,
=========================================================
CORAM
:
HONOURABLE
MR.JUSTICE JAYANT PATEL
Date
: 09/02/2010
ORAL
JUDGMENT
The matter is finally heard today, by consent of both the sides.
The short facts of the case appear to be that the petitioners had taken loan from the respondent Bank and it appears that the notice under Section 13(2) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'the SARFAESI Act' for short) was issued and thereafter the action has been taken under Section 13(4) of the SRFAESI Act. Thereafter, public notice has been issued for inviting offer for the disposal of the property of the petitioners. It is at that stage the petitioners have approached this Court with a challenge to the validity of the Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as 'the Rules' for short), contending that the said Rule is ultra vires the Constitution ab initio and null and void. The additional prayer made by the petitioners in the petition is to quash and set aside the public notice dated 25.6.2009 Annexure-B inviting offer for sale of the property and the second prayer is based on the first prayer for challenge to the validity of Rule 8(5) of the Rules.
Heard Mr.Shah, learned Counsel for the petitioners, Mr.Chhaya, learned Standing Counsel for respondent No.1, and Mr.Motiramani for Mr.Nair for respondent No.2.
The learned Counsel for the petitioners contended that Rule 8(5) of the Rules do not provide for any say of the borrower or owner of the property at the time when the authorised officer has to fix the upset price. He submitted that as per the language of Rule 5 the valuation report is to be obtained from the approved valuer and the only requirement is the consultation with the secured creditor and the say of the borrower or the owner of the property is excluded. Therefore, in the submission of the learned Counsel for the petitioners, the said provisions of Rule is unreasonable and arbitrary and hence, the same may be struck down. It was alternatively 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 authorised officer. He contended that the authorised officer is an authority specified under Rule 2(a) of the Rules 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 effect the borrower, more particularly when the property would be sold by the authorised officer upon ex parte valuation at a throw-away price. He also contended that there are similar provisions under the Regulation 62 of the Regulations of Practice, 2010 of the Debts Recovery Tribunals for the States of Maharashtra, Gujarat, Goa and the Union Territories of Dadra and Nagar Haveli, Daman and Diu (The Regulations of Practice, 2010) (hereinafter referred to as 'the Rules' for short) framed by DRAT in the year 2010 as well as CPC vide Order 21 Rule 66, which permits the say of the borrower to be considered by the Court, and as per such provisions, the borrower would be entitled to copy of the valuation report before. Further, the details of the valuation can be submitted by either side and the Court may thereafter fix the upset price. He, therefore, submitted that such provisions are lacking in the Rule 8(5), therefore, the Rule can be said as unreasonable. He contended that as per the decision of the Apex Court in the case of Mahalakshmi Sugar Mills Company Limited & Anr. v. Union of India & Ors., reported in AIR 2009 SC, 792 there are various parameters narrated by the Apex Court for considering the validity of Sub-ordinate legislation, which is in the present case, Rule. Therefore, as per him, as the law making power has been exercised in bad faith and has not been reasonably exercise and it goes against the legislative policy, such provisions of the Rule may be declared invalid and ultra vires the Constitution. He also submitted that the effort on the part of the authorised officer must be to see that maximum price of the property is realised, which would not be available if the say of the borrower is excluded in such process of fixing of upset price and other procedure as per Sub-rule (5). He submitted that the appropriate interpretation be made by this Court even if the validity of the Rule is to be maintained.
On the factual aspects of the case, the learned Counsel for the petitioners has not been able to show any material on the basis of which the petitioners contended that the fixation of upset price by the authorised officer is arbitrary or unreasonable. Neither there is any averment in the petitioner, nor any valuation report. However, the contention of the learned Counsel for the petitioners is on a ground of vires of Rule 8(5) of the Rules and the averment is that the property is being sold away at a throw-away price. In the submission of the learned Counsel, is that the same should be sufficient for maintaining the challenge to the validity of the Rule.
In order to examine the contention reference to Rule 8(5) of the Rules would be relevant. Rule 8(5) of the Rules reads as under:-
8.
Sale of immovable secured assets.-
(1) xxx (2) xxx (3) xxx (4) 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.
As per Sub-rule(5), the authorised officer has to obtain a 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 authorised officer. The second requirement is the consultation with the secured creditor. It is only after approved valuer's report, the authorised officer may consult the secured creditor and fix reserve price of the property. Merely because there is no right expressly provided with the borrower to get copy of the valuation report or there is no express provision for consideration of the say of the borrower by the authorised officer while fixing the reserve price, would not be sufficient ground to make the Rule bad, nor can be termed as unreasonable on the hypothesis of the situation as sought to be canvassed on behalf of the petitioners. Had it been a case where the petitioners were having different valuation of the property by another approved valuer and there was substantial difference in the value of the property, the grievance on the part of the petitioners could not have been gone into and further examined by this Court. Further, had it been a case where the petitioners made any representation to the authorised officer prior to the fixation of upset price or even thereafter and non-consideration of the same by the authorised officer, it may attract different consideration for examination to the said action on the part of the authorised officer. But neither of the situations has been demonstrated on record on behalf of the petitioners. Be it noted that any provisions of the legislature may not provide all types of contingencies, which may arise while implementation of the provisions of the Rule. Even if the action is taken in accordance with the express language of the Rule, but if such action is taken in arbitrary and unreasonable manner, such action can be gone into by appropriate forum, more particularly because the power is not properly exercised by the authorised officer, but such would not render the Rule ultra vires or unreasonable on the ground as sought to be canvassed. The essential purpose of Sub-Rule (5) of Rule 8 is to see that there is proper valuation by an approved valuer, who could be considered as an export and the view of the secured creditor on the aspects of fixation of reserve price is taken into consideration by the authorised officer. Such would not excludes the say of the borrower in all circumstances, but as observed earlier, it may vary from facts to facts. If in a given case the borrower is having a valuation of the property by another approved valuer having substantial difference, he may forward the copy of the valuation report to the authorised officer to take into consideration the said aspect and such material may also be considered by the authorised officer at the time when the reserve price of the property is fixed. But as observed earlier, neither of the situations arises for consideration in the present petition. Therefore, it is not possible to agree with the contention of the learned Counsel for the petitioners that the Rule would be bad on the contention raised on the basis of the hypothesis.
It is hardly required to be stated that the role of an authorised officer for sale of the immovable property of the borrower would be to see that maximum price of the property is realised, but such role is to be considered and tested on the fact situation of each case. In a given case based on the valuation report of the approved valuer the attempts are made in past for inviting offer, but none has come forward, may leave room for the authorised officer to lower down the reserve price also, or if any other valuation report of approved valuer is submitted by the borrower to the authorised officer and he finds that there is substantial difference in the valuation of the property, he may, for the valid reasons recorded, agree with the valuation report of either of the valuers and thereafter may proceed for fixing of the reserve price. Not only that but if there is already a buyer available who is ready to offer higher price of the property, the authorised officer may take into account the said aspect and may ask him to submit offer at the time when offers are invited. But all such contingencies may arise to be considered by the authorised officer, if the fact situation for the exercise of the power so demands, but thereby it cannot be said that the Rule would be bad or ultra vires the Constitution.
At this stage, reference to the decision relied upon by the learned Counsel for the petitioners, in the case of Mahalakshmi Sugar Mills Company Limited & Anr. v. Union of India & Ors. (supra) may be made for the scope and ambit of the judicial scrutiny to the validity of any sub-ordinate legislature. The Apex Court in the said case, inter alia, at paragraph 53, observed for questioning the validity of the sub-ordinate legislation as under:-
53. From these decisions, it may be deduced that validity of subordinate legislation may be questioned on the ground that:
a) it is ultra vires the Constitution;
b) it is ultra vires the parent Act;
c) it is contrary to the statutory provisions other than those contained in the parent Act;
d) law-making power has been exercised in bad faith;
e) it is not reasonable; and
f) it goes against legislative policy, and does not fulfill the object and purpose of the enabling Act.
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.
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.
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.
It would not be for the Court to issue a mandamus to the legislative authority, therefore, no further observations deserve to be made on the said aspects.
The examination of the facts of the present case would shaw that the petition is absolutely on hypothesis and there is no factual foundation for the ground as sought to be canvassed. The only attempt on the part of the petitioner appears to be to delay or to create hurdle in the process of recovery or the sale of the property on one ground or another.
Hence, in view of the aforesaid, the petition is absolutely meritless. Hence, dismissed with cost of Rs.10,000/- to the respondent Bank and Rs.5,000/- to the Union of India, which the petitioners shall pay to the concerned party within a period of four weeks from today. Rule discahrged.
9.2.2010 (Jayant Patel, J.) vinod Top