Gujarat High Court
Gsl(India)Ltd Thro Authorised ... vs Union Of India & on 6 October, 2015
Author: N.V.Anjaria
Bench: Jayant Patel, N.V.Anjaria
C/SCA/12432/2013 JUDGMENT
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
SPECIAL CIVIL APPLICATION NO. 12432 of 2013
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE ACTING CHIEF JUSTICE MR. JAYANT PATEL
and
HONOURABLE MR.JUSTICE N.V.ANJARIA
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1 Whether Reporters of Local Papers may be allowed No
to see the judgment ?
2 To be referred to the Reporter or not ? Yes
3 Whether their Lordships wish to see the fair copy of No
the judgment ?
4 Whether this case involves a substantial question of No
law as to the interpretation of the Constitution of
India or any order made thereunder ?
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GSL(INDIA)LTD THRO AUTHORISED REPRESENTATIVE KUWAR
DHEERENDRA....Petitioner(s)
Versus
UNION OF INDIA & 1....Respondent(s)
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Appearance:
MR PUNIT B JUNEJA, ADVOCATE for the Petitioner(s) No. 1
MR KM PARIKH, ADVOCATE for the Respondent(s) No. 2
MR. PARTH H BHATT, ADVOCATE for the Respondent(s) No. 1
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CORAM: HONOURABLE THE ACTING CHIEF JUSTICE
MR. JAYANT PATEL
and
HONOURABLE MR.JUSTICE N.V.ANJARIA
Date : 06/10/2015
ORAL JUDGMENT
(PER : HONOURABLE MR.JUSTICE N.V.ANJARIA) The petitioner by filing the present petition Page 1 of 16 HC-NIC Page 1 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT under Article 226 of the Constitution has sought to put under challenge the legality of Notification dated 10.11.2003 issued by the Ministry of Finance and Company Affairs, Department of Economic Affairs (Banking Division), whereby respondent No.2 Company- Gruh Finance Limited is brought under purview of Section 2(1)(m)(iv) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 treating it as a "financial institution". In the cause-title of the petition, the impugned Notification is described as ultra vires and unconstitutional, and in the prayer clause what is prayed is to set aside the same.
2. Along with the principal prayer for the said Notification, connected prayers made by the petitioner are to set aside the action taken by respondent No.1 against the petitioner under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter mentioned as "SARFAESI Act") as well as to set aside the notices issued under Sections 13(2) and 13(4) of the SARFAESI Act and all consequential actions taken in furtherance of said notices.
3. Leaving aside the unnecessary details, so as to set out only the relevant facts, respondent No.2 is a Housing Finance Company registered under sub section (5) of Section 29-A of the National Housing Bank Act, 1987, engaged in the business of giving finance for housing purposes. It came to be specified as a "financial institution" for the purposes of SARFAESI Page 2 of 16 HC-NIC Page 2 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT Act along with 23 such other companies having their capital of Rs.10 crores or above as per the audited balance-sheet for the year ended 31st March, 2003. The petitioner, a public limited company registered under the provisions of the Companies Act, 1956 had obtained a loan from respondent No.2-Gruh Finance Limited by entering into loan agreement dated 28.03.1994 on the terms and conditions incorporated in the agreement for the purpose of its housing project by mortgaging the properties. The petitioner plunged into financial crisis, defaulted in repaying the loan and its account with respondent No.1 came to be classified as 'Non Performing Asset'. Respondent No.2 issued notice dated 23.04.2010 under Section 13(2) of the SARFAESI Act calling upon the petitioner to repay the amount of Rs.4,11,19,857/- due as on 31.12.2009 with 21% interest. The petitioner objected to the validity of the said notice. Various objections raised by the petitioner to the said notice came to be rejected by respondent No.2 by its letter dated 06.07.2010.
3.1 Respondent No.2 took possession of the immovable properties being Block Nos. 10, 11, 12, 13 and 14/B/2 admeasuring Hectares 5-86-00 approximately, situated at Village Khumasagaon, Taluka Nandod, District Narmada, and published notice dated 25.10.2011, as well as thereafter issued notice for sale dated 27.11.2011 putting the property to sale, exercising powers under the provisions of SARFAESI Act.
3.2 Respondent No.2 took steps against the petitioner under the provisions of SARFAESI Act by virtue of the Page 3 of 16 HC-NIC Page 3 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT impugned Notification 10.11.2003 whereby it was treated as a "financial institution". The petitioner contends that the Notification is violative of Article 14 and has no backing of law.
4. This court heard learned advocate Mr. Punit B. Juneja for the petitioner, learned advocate Mr. Parth H. Bhatt for respondent No.1 and learned advocate Mr. K. M. Parikh for respondent No.2.
4.1 On behalf of the petitioner, it was contended that under Section 2(1)(m)(iv) of the SARFAESI Act, the legislature has given powers for enforcement of security interest to an institution or non-banking company defined in Section 45-I(f) of the Reserve Bank of India Act, 1934 (hereinafter referred to as "the RBI Act"), but the Notification in question was made applicable to the housing finance companies which are registered under the provisions of the National Housing Bank Act, 1987, which was not permissible in law. It was next contended that as per Notification dated 18.06.1997 read with Master Circular, Reserve Bank of India has exempted the non- banking financial companies with housing financial institutions defined under Section 2(d) of the National Housing Bank Act, 1987, from whole of Chapter III-B of RBI Act and Section 45-I is part of Chapter III-B. Learned advocate for the petitioner further contended that the provisions in Chapter V-A of the National Housing Bank Act, 1987 are a complete code for the purpose of effecting recoveries by housing finance companies, more particularly Sections 36-C to 36-Z under which Page 4 of 16 HC-NIC Page 4 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT the mechanism is envisaged for effecting recoveries. On the basis of all the above, it was submitted that the Central Government did not have jurisdiction to issue the impugned Notification and specify respondent No.2 to be a financial institution for the purposes of SARFAESI Act.
4.2 Learned advocate for the petitioner submitted that when the loan was given by respondent No.2 in March 1994, it was not a financial institution under the SARFAESI Act, therefore also the Notification is bad and could not apply retrospectively to the transaction that took place prior to the date of Notification. Therefore also, respondent No.2 is not competent to take action against the petitioner under the SARFAESI Act, it was submitted.
4.3 Respondent No.2 has filed its affidavit-in-reply and resisted the prayers, contending inter alia that the grounds and questions of law raised by the petitioner stand concluded by judgment of the Division Bench of this court in Harkaish vs. Union of India being Special Civil Application No. 14600 of 2011 delivered on 11.10.2012. It is submitted that in that case, the vires of Section 2(1)(m)(iv) of the SARFAESI Act as well as that of Section 45-I of the Reserve Bank of India Act, 1934 were challenged; the same Notification dated 10.11.2003 was considered and the action taken by respondent No.2 in that case- Indiabulls Housing Finance Ltd., under the SARFAESI Act was questioned. The Indiabulls was one of 23 companies notified along with the present petitioner Page 5 of 16 HC-NIC Page 5 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT treated as "financial institution" under Section 2(1)
(m)(iv) of the SARFAESI Act. It was submitted that this court upheld the vires of the provisions and the issues and contentions raised in the present petition were covered.
5. Having noted the basic facts and contentions, while proceeding to consider the controversy, the relevant extract of the Notification dated 10.11.2003 in question may be reproduced, "II. Financial Institutions notified under Sec. 2(1)(m)(iv) Housing Finance Companies notified as financial institution under Sec. 2(1)(m)(iv) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
A. In exercise of powers conferred under sub-clause (iv) of Cl. (m) of sub-section (1) of Sec. 2 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002), the Central Government hereby specifies the following housing finance companies registered under sub-section (5) of Sec. 29-A of National Housing Bank Act, 1987 and with their capital of Rs.10 crore (rupees ten crore) or above as per their audited balance sheet for the year ended 31st March, 2003 to be treated as "financial institution" for the purpose of the said sub-clause:-
Sr. No. Name of the Housing Company
1 HDFC Limited, Mumbai............
to
BOB Housing Finance Limited, Jaipur
10
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GRUH Finance Limited, Ahmedabad
11
TATA Home Finance Limited, New Delhi...
12to CICOM Housing Dev. Fin. Ltd., Mumbai 23 5.1 Now, Section 2(1)(m) of the SARFAESI Act reads as under, "(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 Financial 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-I 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;"
(emphasis given as the clause applicable in the case) 5.2 As can be seen, under clause (iv) above, any other institution or non-banking financial company defined in Section 45-I(f) of the RBI Act may be Page 7 of 16 HC-NIC Page 7 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT specified by the Central Government as financial institution. Section 45-I(f) of the RBI Act is as under, "45-I Definitions......
(f) "non-banking financial company" means-
(i) a financial institution which is a company;
(ii) a non-banking institution which is a company and which has as its principal business the receiving of deposits, under any scheme or arrangement or in any other manner, or lending in any manner;
(iii) such other non-banking institution or class of such institutions, as the Bank may, with the previous approval of the Central Government and by notification in the Official Gazette, specify.] 5.3 Under clause (f) above, non-banking financial company is defined as a financial institution which is a company, a non-banking institution which is a company having business of receiving deposits or lending in any manner. It may also include such other non-banking institutions which the bank may specify with previous approval of the Central Government by issuing a Notification.
5.4 The term "financial institution" occurring in clause (f) is defined in clause (c) of Section 45-I. Financial Institution under Section 45-I(c) means any banking institution carrying on its business with the nature of activities including the activity of financing, whether by way making loans or advances or otherwise.
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5.5 Section 2(d) of the National Housing Bank Act, 1987 defines "housing financial institution" to include every institution, whether incorporated or not, which primarily transacts or has as on of its principal objects, the transacting of the business of providing finance for housing, whether directly or indirectly. Section 29-A of the said Act provides that unless a housing finance institution obtains a certificate of registration by making an application to the National Housing Bank, shall not commence or carry on the business. Thus, the nature of business of a housing finance institution is lending for housing purposes.
5.6 On a conjoint reading of clause (f) read with clause (c) of Section 45-I of the RBI Act and considering the same having regard to the nature of business and activity with which the housing finance companies are engaged, that is, to lend finance for housing scheme and like purposes, the housing finance companies are the entities which could be said to be clearly falling within the meaning of non-banking financial company under Section 45-I(f) of the RBI Act. There is no conceptual incongruity. As sub- clause (iv) of clause (m) of sub section (1) of Section 2 of the SARFAESI Act provides, any other institution or non-banking financial company as defined under Section 45-I(f) or the RBI Act may be specified by the Central Government as financial institution, and the same is so specified as per the impugned Notification.
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6. In field of legislative exercise, the doctrine of "legislation by reference" and "legislation by incorporation" are recognized tools. By this method, in a statute, the provision/s of other related statutes is/are brought into play either by reference or by incorporation. Difference between incorporation by reference and a mere citation is well known and the said distinction is brought out by the Supreme Court in Karnataka SRTC vs. B. A. Jayaram [1984 Supp SCC 244] and Nagpur Improvement Trust vs. Vasantrao [(2002) 7 SCC 555]. It is observed that incorporation by reference provides for a legislative device where the legislature instead of repeating the provisions of the statute incorporates it in another statute.
6.1 The Supreme Court in Girnar Traders vs. State of Maharashtra and ors. [(2011) 3 SCC 1] explained distinction, "When there is a general reference in the Act in question to some earlier Act but there is no specific mention of the provisions of the former Act, then it is clearly considered as legislation by reference. In the case of legislation by reference, the amending laws of the former Act would normally become applicable to the later Act; but, when the provisions of an Act are specifically referred and incorporated in the later statute, then those provisions alone are applicable and the amending provisions of the former Act would not become part of the later Act. This principle is generally called legislation by incorporation. General reference, ordinarily, will imply exclusion of specific reference and that is precisely the fine line of Page 10 of 16 HC-NIC Page 10 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT distinction between these two doctrines. Both are referential legislations, one merely by way of reference and the other by incorporation. It, normally, will depend on the language used in the later law and other relevant considerations."
(paras 87, 88 and 4 to 8) 6.1.1 The Supreme Court further explained, "With the development of law, the legislature has adopted the common practice of referring to the provisions of the existing statute while enacting new laws. Reference to an earlier law in the later law could be a simple reference of provisions of earlier statute or a specific reference where the earlier law is made an integral part of the new law, i.e., by incorporation. In the case of legislation by reference, it is fictionally made a part of the later law. We have already noticed that all amendments to the former law, though made subsequent to the enactment of the later law, would ipso facto apply and one finds mention of this particular aspect in Section 8 of the General Clauses Act, 1897. In contrast to such simple reference, legal incidents of legislation by incorporation is that it becomes part of the existing law which implies bodily lifting provisions of one enactment and making them part of another and in such cases subsequent amendments in the incorporated Act could not be treated as part of the incorporating Act."
(para 89) 6.2 Sub clause (iv) of clause (m) of sub section (1) of Section 2 of the SARFAESI Act incorporates in the definition of "financial institution", the definition of "non-banking financial company" as defined in Section 45-I(f) of the Reserve Bank of India Act, 1934 to include the same and treat the same as "financial institution" under the SARFAESI Act. A specific Page 11 of 16 HC-NIC Page 11 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT provision namely definition of "non-banking financial company" in Section 45-I(f) is lifted from the earlier enactment, that is, Reserve Bank of India Act to become part of the SARFAESI Act, 2002.
6.3 Section 2(1)(m)(iv) is an instance of provision of law adopted from the earlier Act to the existing Act by applying the doctrine of incorporation. When it is a piece of legislation by doctrine of incorporation, what is expressly incorporated from the earlier Act can only be read in the incorporating statute. In other words, definition of Section 45-I(f) of RBI Act only has been incorporated in Section 2(1)
(m)(iv) of SARFAESI Act 2002. Even if the definition in Section 45-I(f) of RBI Act has undergone any amendment or modification by any legislative instrument or exercise applied to the said Act in the said definition, the same shall not automatically form part of the provisions of Section 2(1)(m)(iv) of SARFAESI Act and cannot be readily read into it, since what is expressly incorporated is only Section 45- I(f).
6.4 The above position answers the contention raised by the petitioner that as per Notification dated 18.06.1997 read with Master Circular, Reserve Bank of India exempted housing financial institution under the National Housing Bank Act from Chapter III-B of the RBI Act of which Section 45-I(f) is a part. Unless, the said amendment of exemption is expressly applied and incorporated for the purposes of Section 2(1)(m)
(iv), the same cannot be taken into consideration and Page 12 of 16 HC-NIC Page 12 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT it has no bearing on the scope and applicability of Section 2(1)(m)(iv) of the SARFAESI Act, 2002, as it stands.
6.5 The contention that the loan transaction was in the year 1994 and the Notification treating respondent No.2 as financial institution was issued in the year 2003, and therefore the same is applied retrospectively is devoid of substance. When respondent No.2 issued notice under Section 13(2) of the SARFAESI Act, it was a financial institution within the meaning of the said Act under Section 2(1)
(m)(iv) of the Act. It was therefore competent to exercise powers under the SARFAESI Act. It cannot be said that the Notification was given retrospective effect. The action under the SARFAESI Act so taken by respondent No.2 cannot be linked with the date of loan agreement to contend that the action is bad in law. The date of loan agreement has nothing to do with the action taken under the SARFAESI Act which when taken was competent in itself.
7. A decision of Division Bench of this court in Harkaish (supra) really covers the issues and contentions raised in this petition. The petitioner therein had challenged the vires of Section 2(1)(m)
(iv) of the SARFAESI Act as well as that of Section 45-I of the RBI Act. In that case, respondent 2- Indiabulls Housing Finance Ltd. which was a housing financial institution registered under Section 2(d) and registered under Section 29-A of the National Housing Bank Act, was notified as a "financial Page 13 of 16 HC-NIC Page 13 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT institution" within the meaning of Section 2(1)(m)(iv) of the SARFAESI Act by similar notification as is challenged in the present case, dated 19.09.2007. It was a same kind of notification in exercise of same powers issued by the Ministry of Economic Affairs, Government of India as one which is challenged in this case dated 10.11.2003. The Division Bench examined the notification and considered the vires of the aforesaid provisions. It was held that the notification was legal and the Central Government was competent to notify a housing financial institution to be included under Section 2(1)(m)(iv) of the SARFAESI Act. The vires of Section 2(1)(m)(iv) of the SARFAESI Act and that of Section 45-I of the RBI Act came to be upheld.
8. A decision of Division Bench of this court in Neel Oil Industries vs. Union of India being Special Civil Application No. 1012 of 2014 and cognate matters delivered by judgment dated 24/25.06.2005, deserve a reference in which challenge was to insertion of clause (iva) in Section 2(c) of the Securitisation Act, whereby Multi State Cooperative Bank was included. In that case, the Division Bench considered in detail, the objects of the SARFAESI Act which are to enable the banks and financial institutions to have a speedy recovery of their debt, and upheld the vires of Section 2(1)(c)(iva) and held that it was a valid piece of legislation.
9. In view of above discussion and position of law discernible, Notification dated 10.11.2003 was a competent exercise of powers by the Central Page 14 of 16 HC-NIC Page 14 of 16 Created On Sat Oct 10 01:15:10 IST 2015 C/SCA/12432/2013 JUDGMENT Government. Thereby, it placed respondent No.2-Gruh Finance Limited within the ambit of Section 2(1)(m)
(iv) of the SARFAESI Act to be treated as "financial institution" under the said law, clothing it with the necessary powers to take action under the SARFAESI Act for recovery of its debt. Respondent No.2 which is a non-banking company under Section 45-I(f) of the RBI Act could be properly and validly included within the definition of sub clause (iv) of clause (m) of sub section (1) of Section 2 of the SARFAESI Act. The contention that the Notification violates other laws including the National Housing Bank Act, 1987, is thoroughly misconceived and falls flat, once the exercise of powers was valid. So also the contention that the Notification violative of Article 14 is stated to be rejected.
10. Respondent No.2 having become "financial institution" within the meaning of Section 2(1)(m)(iv) of the SARFAESI Act, could validly exercise the powers under the said Act for recovery of its debt against the petitioner. The notices issued by respondent No.1 under Section 13(2), Section 13(4) and all subsequent and consequential actions and measures taken in accordance with the provisions of SARFAESI Act were competent in eye of law. None of the prayers in the petition qualifies for being granted.
11. Petition is dismissed. Notice is discharged. There shall be no order as to the costs.
(JAYANT PATEL, ACJ.)
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(N.V.ANJARIA, J.)
chandrashekhar
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