Bombay High Court
Rama Steel Industries And Ors. vs Union Of India (Uoi) And Anr. on 7 September, 2007
Equivalent citations: AIR2008BOM38, 2008(1)BOMCR271, 2007(6)MHLJ387, AIR 2008 BOMBAY 38, 2008 (2) ALJ 491, 2008 (2) ALJ (NOC) 491 (BOM.) (NAGPUR BENCH), 2007 (6) AIR BOM R 784, 2008 (3) AIR KAR R 374, 2008 (3) AKAR (NOC) 374 (BOM.) (NAGPUR BENCH), 2008 (2) BANKCLR 658, 2007 (6) MAH LJ 387, 2008 (87) CORLA 81, 2008 (1) BOMCR 271, (2007) 6 ALLMR 739 (BOM)
Author: R.C. Chavan
Bench: A.H. Joshi, R.C. Chavan
ORDER R.C. Chavan, J.
1. The petitioners are the defaulting debtors of respondent No. 2-Bank. The petitioners had mortgaged immovable properties to respondent No. 2-Bank. Respondent No. 2 started proceedings under Section 101 of the Maharashtra Co-operative Societies Act, 1960 for recovery of Rs. 47,69,648/-. On 14-7-2003, during the pendency of these proceedings. respondent No. 2-Bank issued a notice of demand under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, hereinafter referred to as "the Securitisation Act"). On 18-9-2003, respondent No. 2-Bank took physical possession of the secured assets.
2. The petitioners preferred an appeal, which was dismissed by the Debts Recovery Tribunal on 4-10-2006. The petitioners appealed to the Debts Recovery Appellate Tribunal. During the pendency of the proceedings before the Debts Recovery Appellate Tribunal, the Apex Court decided Greater Bombay Co-op. Bank Ltd v. United Yarn Tex, Pvt. Ltd. and Ors. , and Transcore v. Union of India and Anr. . The Debts Recovery Appellate Tribunal, however, dismissed the petitioners' appeal on 20-7-2007 leaving to the petitioners liberty to argue before the Debts Recovery Tribunal the question of Bank's right to pursue parallel remedies.
3. The petitioners have, therefore, rushed to this Court challenging the constitutional validity of Notification dated 28-1-2003 issued in exercise of powers under Section 2(1)(c)(v) of the Securitisation Act and consequently the correctness of the judgment dated 20-7-2007 of the Debts Recovery Appellate Tribunal.
4. The challenge to the validity of the Securitisation Act before the Supreme Court was negatived on 8-4-2004. The Supreme Court struck down only Sub-section (2) of section 17 of the Securitisation Act as unconstitutional. The remedy of an appeal before the Debts Recovery Tribunal under Section 17 of the Securitisation Act is available to a defaulting debtor.
5. We have heard both the learned Advocates for the petitioners and the respondents. Reliance is placed by the petitioner solely on the judgment of Apex Court in case of Greater Bombay Co-operative Bank Ltd. v. United Yarn Tex. Pvt. Ltd. and Ors. : AIR 2007 SCW 232.
6. The issue of availability of remedies under the Securitisation Act to the Co-operative Banks need no longer detain us, since it is covered by a decision of the Division Bench of this Court sitting at Aurangabad in Writ Petition No. 2672 of 2007. Khaja Industries v. The State of Maharashtra and Anr. decided on 3rd July, 2007. This decision duly considers the effect of judgment of the Supreme Court in Greater Bombay Co-op. Bank Ltd. v. United Yarn Tex. Pvt. Lid. and Ors. referred to above.
7. It has been urged that legality of Notification dated 28-1-2003, which includes Co-operative Banks within the definition of term "Bank" under Section 2(c) of the Securitisation Act was not a matter of challenge in the case of M/s Khaja Industries, supra, before this Court. The learned Advocate for the petitioners has contended that the Central Government could not issue the impugned Notification dated 28-1-2003 in exercise of its powers under Section 2(1)(c)(v) of the Securitisation Act specifying ''Co-operative Banks", as defined in clause (cci) of section 5 of the Banking Regulation Act, 1949 as "bank" for the purpose of the Securitisation Act, de hors the provisions contained in the Banking Regulation Act.
8. He submitted that the Central Government could not do something which the Parliament itself had not chosen to do, namely inclusion of Cooperative Bank in the definition of "Banking Company". According to the learned Advocate for the petitioners, inclusion of "Co-operative Bank" as a "Rank", without amending the definition of "Banking Company" was inconsequential. Therefore, since the impugned Notification amounts to excessive use of delegated authority by the Central Government, such exercise was impermissible.
9. In the judgment in case of Khaja Industries (supra), though the Division Bench had not explicitly considered the challenge to Notification dated 28-1-2003 in the form in which it is raised before us, the Bench had considered entire penumbra of the said Notification. The discussion to follow would show that the challenge raised in this petition too has no force.
10. We have considered the contentions raised before us carefully. Apart from what has been held by the Division Bench of this Court sitting at Aurangabad, in Writ Petition No. 2672 of 2007, we would observe that the petitioners herein are confused about the terms "Bank" and "Banking Company" defined separately in Clauses (c) and (d) of Section 2(1) of the Securitisation Act and also Clauses (d) and (e) Section 2 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (for short, hereinafter referred to as "the RDB Act"), which will show that the law docs not require that every Bank has to be a Banking Company though every Banking Company may be a Bank.
11. The definitions of "Bank" and "Banking Company" in Clauses (c) and (d) of Section 2(1) of the Securitisation Act, which are reproduced below, would bring out the distinction between the meaning of terms "Bank" and "Banking Company".
(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
(v) such other hank which the Central Government may. By notification, specify for the purposes 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).
12. Section 5 of the Banking Regulation Act does not define a ''Bank". The said Act defines "Banking Company" in Clause (c) of Section 5. However, "Cooperative Bank" has been separately defined in Clause (cci) of Section 5, which has been inserted by enacting Section 56 of the Banking Regulation Act.
13. Chapter III of the Securitisation Act provides for enforcement of security interest by a secured creditor. The term "secured creditor" is wider than a "Bank", or a "Banking Company", or a "Financial Institution". Clause (zd) of Section 5 of the Securitisation Act defines "secured creditor", This clause refers to a "Bank" but not to a "Banking Company". In view of this, the challenge of the petitioners reveals to be based on a misconception relating to the scope of expressions "Bank" and "Banking Company" in the Securitisation Act, has to be rejected.
14. The question, which came up for consideration before the Apex Court in Greater Bombay Co-op. Bank Ltd. v. United Yam Tex. Pvt. Ltd. and Ors. was about the availability of remedy under the RDB Act to Co-operative Banks covered under the State Co-operative Societies Acts. The question before Hon'ble Apex Court in the said case was not about remedies available under the Securitisation Act. This has been succinctly brought out in the judgment of the Division Bench of this Court, sitting at Aurangabad, in Writ Petition No. 2672 of 2007 and, therefore, needs no further elaboration.
15. The learned Advocate for the petitioners next submitted that because the provisions of the RDB Act have not been made applicable to the Cooperative Banks, the provisions of the Securitisation Act also cannot apply, since the same are not complementary or in addition to the provisions contained in the Co-operative Societies Act. We may observe that the Securitisation Act is an independent enactment providing remedy to a group of creditors defined as secured creditors in Clause (zd) of section 5 of the Securitisation Act. A creditor seeking recovery under the provisions of the RDB Act need not necessarily have a secured interest on the basis of which he could claim realization of the debt while under the Securitisation Act, he would claim liquidation of debt on the strength of secured asset. It has to be noted that the scheme emerging through the Securitisation Act has not come up as a Chapter added to the RBD Act, and scheme of the Securitisation Act cannot be narrowed down and limited by taking aid of the RDB Act.
16. The distinction in the expression used in Section 37 of the Securitisation Act and Sub-section (2) of Section 34 of the RDB Act, which has been underlined by the Division Bench of this Court at Aurangabad in Writ Petition No. 2672 of 2007 squarely debunks the arguments of the learned Advocate for the petitioners. These sections may be usefully reproduced for ready reference as under:
Section 37 of the Securitization Act: 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.
(Emphasis supplied).
Sub-section (2) of Section 34 of the RDB Act: The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Industrial Finance Corporation Act, 1948, the State Financial Corporations Act, 1951, the Unit Trust of India. Act, 1963, the Industrial Reconstruction Bank of India Act, 1984 [the Sick Industrial Companies (Special Provisions) Act, 1985 and the Small Industries Development Bank of India Act, 1989], It may be seen that the expression "or any other law for the time being in force" appearing in section 37 of the Securitisation Act is missing in Section 34(2) of the RDB Act. This is crucial, because it would show that the remedy provided is in addition to remedy under any other law for the time being in force. which, as held by the Division Bench of this Court at Aurangabad in Writ Petition No. 2672 of 2007, includes the Maharashtra Co-operative Societies Act, 1960.
17. The question of availability of other mechanism of recovery cannot be a bar for providing remedy under the Securitisation Act, since such remedy is in addition to those available under any other law.
18. The contention of the learned Advocate for the petitioner that insertion of Clause (cci) in Section 5 of the Banking Regulation Act, without amending the provisions of Clause (c) of section 5 of the said Act, was impermissible, has to be rejected, because the Legislature had to later on bring the Co-operative Societies undertaking Banking within the control and governance of Banking Regulation Act. Therefore, it would not have sufficed to include Co-operative Banks within the definition of "Banking Company". The Banking Regulation Act defines "Banking" in Clause (b) of Section 5 apart from term "Banking Company" defined in Clause (c) of Section 5. The scheme and object of the Banking Regulation Act is entirely aimed at different object and it cannot be used to defeat a special enactment brought into force for objects, which are duly proclaimed.
19. The contention of the learned Advocate for the petitioners that the impugned Notification dated 28-1-2003 has lost its force, because of the judgment of the Apex Court in Greater Bombay Co-op. Bank Ltd. v. United Yarn Tex. Pvt. Ltd. and Ors. referred to above, has to be rejected, because it has been considered and negatived by a Division Bench of this Court, sitting at Aurangabad, in Writ Petition No. 2672 of 2007 and we see no reason to take a different view.
20. The learned Advocate for the petitioner contended that insertion of a provision like the one in the Securitisation Act was beyond the legislative competence of the State Legislature. Since the State Legislature could not have provided such a remedy to Co-operative Banks covered under the Maharashtra Co-operative Societies Act, the Central Government too could not have created such a remedy. This contention as well has been duly considered by the Division Bench of this Court at Aurangabad in Writ Petition No. 2672 of 2007 and we would merely reproduce paras 31 to 34 of the said judgment to underscore our rejection of this contention. The said paras 31 to 34 read as under:
31. The submission is based on Schedule VII List I Entry 43 and Schedule VII List II Entry 32 of the Constitution, which read as under:
Schedule 7 List 1. Union List
43. Incorporation, regulation and winding up of trading corporations, including banking, insurance and financial corporations but not including co-operative societies. Schedule 7 List 2. State List
32. Incorporation, regulation and winding up of corporations, other than those specified in List I, and universities; unincorporated trading, literary, scientific, religious and other societies and associations; co-operative societies.
It was submitted that disputes between the members of the co-operative societies can be agitated only under Sections 91 and 101 of M.C.S. Act and not under any other Act including the Securitisation Act.
32. It is necessary to keep in mind two principles while considering the challenge to the constitutional validity of an enactment. Firstly, the approach of the Court while examining the challenge to the constitutionality of an enactment is to start with a presumption of constitutionality. The Court should try to sustain the validity of an enactment to the extent possible. It should strike down the enactment only when it is not possible to sustain it. (paragraph 75 of the judgment in Greater Bombay Co-operative Bank Ltd.) Secondly, as observed by the Federal Court in Subramanavan Chettiyar v. Muttuswami Goundan AIR 1941 FC 47.
It must inevitably happen from time to time that legislation though purporting to deal with a subject in one list, touches also upon a subject in another list, and the different provisions of the enactment may be so closely intertwined that blind adherence to a strictly verbal interpretation would result in a large number of statutes being declared invalid because the Legislature enacting them may appear to have legislated in a forbidden sphere. Hence the rule which has been evolved by the Judicial Committee, where the impugned statute is examined to ascertain its pith and substance or its true nature and character for the purpose of determine whether it is legislation with respect to matters in this list or that.
33. At the outset it must be noted that the Supreme Court in Manila Chemicals upheld the constitutional validity of the Securitisation Act. It was however contended that the judgment of the Supreme Court in Mardia Chemicals is per incuriam as the Supreme Court had failed to consider the relevant provisions of law including of the Constitution of India and is therefore not binding on us. We are unable to agree.
34(A) it is important in this regard to refer to Ghanshamdas's case. Two of the reliefs claimed in the Writ Petition in that case were for a writ striking down the Securitisation Act and in the alternative striking down Sections 9, 13, 75, 19, 34, 35, 41 and 42 of the Securitisation Act. It was contended before the Division Bench that though the Supreme Court had upheld the constitutional validity of the Securitisation Act in Mardia Chemicals, certain points of challenge were not before the Supreme Court. It was contended that though the entire Act was challenged, the Supreme Court referred to certain aspects which were not answered.
(B) The contention was rejected by the Division Bench inter-alia in paragraphs 22 to 25 of the judgment which we have set out earlier. The Division Bench held that once the Apex Court had decided the validity of the Securitisation Act in Manila's case, it was not open to the High Court to consider the validity of the Securitisation Act once again.
(C) We are bound by the judgment of the Division Bench. The contention must be rejected on this ground alone.
21. To sum up, this attempt of the petitioner to evade recovery of dues by action under the Securitisation Act must, therefore, fail, since the contentions raised have absolutely no force. The petition is, therefore, dismissed.