MARDIA CHEMICALS LTD. ETC. ETC. _[ v. UNION OF !NOIA AND ORS. ETC. ETC.

A 1994 three quarters 1995 onwards two quarters

2.1.2. An amount due under any credit facility is treated as "past due" when it has not been paid within 30 days from the due date. Due to the improvements in the payment and settlement systems, recovery B climate, upgradation of technology in the banking system, etc., it was decided to dispense with 'past due' concept, with effect from March 31, 200 I. Accordingly, as from that date, a Non-performing Asset (NPA) shall be an advance where (i) interest and/or installment of principal remain overdue for a period c of more than 180 days in respect of a Term Loan, (ii) the account remains 'out of order' for a period of more than 180 days, in respect of an Overdraft/Cash Credit (OD/CC), (iii) the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted, (iv) interest and/or installment of principal remains overdue for two -I harvest seasons but for a period not exceeding two half years in ~ the case of an advance granted for agricultural purposes, and (v) any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. 4.2.2. Banks should establish appropriate internal systems to eliminate the tendency to delay or postpone the identification ofNPAs, especially in respect of high value accounts. The banks may fix a minimum cut off point to decide what would constitute a high value account depending upon their respective business levels. The cut off point I should be valid for the entire accounting year. Responsibility and validation levels for ensuring proper asset classification may be fixed by the banks. The system should ensure that doubts in asset classification due to any reason are settled through specified internal channels within one month from the date on which the account would have been classified as NPA as per extant guidelines."

From what is quoted above, it is quite evident that guidelines as laid down by the Reserve Bank of India which are in more details but not necessary to be reproduced here, laying down the terms and conditions and circumstances in which the debt is to be classified as non-performing asset as early as

iv1ARDIA Cl-IEMICALS LTD."- U.0.1. [BRl.IESH KUMAR. J.) I 013

possible. Therefore, we find no substance in the submission made on behalf of the petitioners that there are no guidelines for treating the debt as a non- performing asset.

38Copy pinpoint38. We may now consider the main enforcing provision which is pivotal to the whole controversy namely, Section 13 in Chapter Ill of the Act. It provides that a secured creditor may enforce any security interest without intervention of the court or Tribunal irrespective of Section 69 or Section 69A of the Transfer of Property Act where according to sub-section (2) of Section 13, the borrower is a defaulter in repayment of the secured debt or any installment of repayment and further the debt standing against him has been classified as a non-performing asset by the secured creditor. Sub-section C (2) of Section 13 further provides that before taking any steps in direction of realizing the dues, the secured creditor must serve a notice in writing to the borrower requiring him to discharge the liabilities within a period of 60 days failing which the secured creditor would be entitled to take any of the measures as provided in sub-section (4) of Section 13. It may also be noted that as per sub-section (3) of Section 13 a notice given to the borrower must contain the details of the amounts payable and the secured assets against which the ) secured creditor proposes to proceed in the event of non-compliance with the notice given under sub-section (2) of Section 13.

39Copy pinpoint39. Sub-section (4) provides for four measures which can be taken by the secured creditor in case of non-compliance with the notice served upon the borrower. Under clause (a) of sub-section (4) the secured creditor may take possession of the secured assets including the right to transfer the secured assets by way of lease, assignment or sale; may take over the management of the secured assets under clause (b) including right to transfer; under clause (c) of sub-section (4) a manager may be appointed to manage the secured p assets which have been taken possession of by the secured creditor and may require any person who has acquired any secured assets from the borrower or from whom any money is due to the borrower to pay the same to him as it may be sufficient to pay the secured debtor as provided under Clause (d) of Section 3(4) of the Act. Sub-section (8) of Section 13 however, provides that if all the dues of the secured creditor including all costs, charges and G expenses etc. as may be incurred are tendered to the secured creditor before • sale or transfer no further steps be taken in that direction. --y·

40Copy pinpoint40. Now coming to Section 17, it provides for filing of an appeal to the Debt Recovery Tribunal within 45 days of any action taken against the H

1014 SUPREME COURT REPORTS [2004 j 3 S.C.R.

A borrower under sub-section (4) of Section 13 of the Act. It reads as under: "17. Right to appeal.- (I) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of section 13 taken by the secured creditor or his authorized officer under this Chapter, may prefer an appeal to the Debts Recovery Tribunal having B jurisdiction in the matter within forty-five days from the date on which such measures had been taken.

(2) Where an appeal is preferred by a borrower, such appeal shall not be entertained by the Debts Recovery Tribunal unless the borrower has deposited with the Debts Recovery Tribunal seventy-five per cent c of the amount claimed in the notice referred to in sub-section .(2) of section 13 :

Provided that the Debts Recovery Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this section. D (3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (SI of 1993) and rules made • thereunder." E It is thus clear that an appeal under sub-section (1) of Section 17 would lie only after some measure has been taken under sub-section (4) of Section 13 and not before the stage of taking of any such measure. According to sub- section (2), the borrower has to deposit 75% of the amount claimed by tte secured creditor before his appeal can be entertained. F

41Copy pinpoint41. So far jurisdiction of Civil Court is concerned we find that there is a bar to it as provided under Section 34 of the Act quoted below:-

"34. Civil Court not to have jurisdiction - No Civil Court shall have jurisdiction to entertain any suit or proceeding in respect of any G 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 H Institutions Act, 1993 (51 of 1993)."

MARDIA CHEMICALS LTD. v. U.0.1. [BRl.IESH KUMARJ] I 015

42Copy pinpoint42. Mainly it is to be considered as to whether there is absolute bar of any remedy to the borrower, before an action is taken under sub-section (4) of Section 13 of the Act in view of non-obstante clause under sub-section (I) of Section 13 and the bar of the jurisdiction of the civil court under Section 34 of the Act. Sub-section (I) of Section 13 begins with "Notwithstanding anything contained" under Section 69 of the Transfer of Property Act any secured interest can be enforced without intervention of the court or Tribunal. Section 69 of the Transfer of Property Act provides as follows :

"69. Power of sale when valid.-( I) A mortgagee, or any person acting on his behalf, shall, subject to the provisions of this section, have power to sell or concur in selling the mortgaged property, or any part thereof, in default of the payment of mortgage-money, without the intervention of the Coun, in the following cases and in no others, namely - (a) where the mortgage is an English mortgage, and neither the mortgagor nor the mortgagee is a Hindu, Mohammadan or D Buddhist or a member of any other race, sect, tribe or class from ) time to time specified in this behalf by the State Government, in the Official Gazette; • (b) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by the mortgage-deed, and the mortgagee is the Government; E (c) where a power of sale without the intervention of the Court is expressly conferred on the mortgagee by mortgage-deed, and the mortgaged property or any part thereof was, on the date of the execution of the mortgage-deed, situate within the towns of ) Calcutta, Madras, Bombay, or in any other town or area which the State Government may, by notification in the Official Gazette, specify in this behalf. (2) No such power shall be exercised unless and until -

(a) notice in writing requiring payment of the principal money has been served on the mortgagor, or on one of several mortgagors, and default has been made in payment of the principal money, or of part thereof, for three months after such service; or (b) some interest under the mortgage amounting at least to five hundred rupees is in arrear and unpaid for three months after H

1016 SUPREME COURT REPOR°TS [2004 J 3 S.C.R.

A becoming due.

(3) When a sale has been made in professed exercise of such a power, the title of the purchaser shall not be impeachable on the ground that no case had arisen to authorize the sale, or that due notice was not given, or that the power was otherwise improperly or irregularly B exercised; but any person damnified by an unauthorized, or improper, or irregular exercise of the power shall have his remedy in damages against the person exercising the power.

Xxx xxx xxx"

It is clear that mortgaged property cannot be sold without intervention of the court except in three conditions as enumerated in clauses (a), (b) and (c) of sub-section (I) of Section 69. Clause (a) relates to English mortgage in which a mortgaged property is permitted to be sold without intervention of the court but in the stricto senso clause (a) would not be applicable to the present case as it contains many conditions which obviously are not fulfilled in case in hand. It is however, submitted that the provision for enforcing secured debt ., was made on the lines of the principle governing English mortgage. It is perhaps sought to be canvassed that if that kind of step namely enforcing the secured debt without intervention of the court is permissible in a case of English mortgage such a provision may legitimately be enacted in respect of mortgages like English mortgages. We find much has been argued on the point as to whether the transactions involved in the cases before us amount to English mortgage or not though none of agreements have been placed before us. Distinction between the two have also been tried to be shown and it has been submitted that English mortgage is in fact transfer of the property t absolutely to the mortgagee with a term ofretransfer. Section 58(e) pertaining to English mortgage is quoted below :

"58. 'Mortgage', 'mortgagor', 'mortgagee', 'mortgage-money' and G 'mortgage-deed' defined.-

xxx xxx xxx (d) English mortgage - Where the mortgagor binds himself to repay the mortgage-money on a certain date, and transfers the mortgaged H

MARDI A CHEMICALS LTD. v. U 0.1. [BRl.IESll KUMAR. J.] I 017

property absolutely to the mortgagee, but subject to a proviso that he wi II retransfer it to the mortgagor upon payment of the mortgage-money as agreed, the transaction is called an English mortgage. Xxx xxx xxx" It is thus pointed out that in English mortgage, absolute transfer of the property already takes place. Hence the question of intervention of the court may not arise. It has a condition of retransfer. It is submitted that by no means it can be said that the transactions in question are like those as English mortgage. On the basis of the above provision it is further submitted that if the condition of retransfer is not invoked the mortgagee is possessed of all rights absolutely in the property. There are different kinds of mortgages as enumerated in section 58 of the Transfer of Property Act. We feel that it would not be necessary to further go into the matter as to whether the agreements in the cases before us amount to English mortgage or not since the non-obstante clause under Section 13( I) of the Act provides that notwithstanding anything contained in Section 69 a secured interest can be enforced without intervention D ). of the court. That is to say it overrides the provision as contained under Section 69 where it is said that in no cases, other than those as enumerated in clauses (a), (b) and (c), a mortgage shall be enforced without intervention of the court. Once the said condition, as noted above, in section 69 of the Transfer of Property Act, the general law on the subject, has been overridden E by the special enactment namely the Securitisation Act, it would not make much of a difference as to whether the transactions in question are akin to or amount to English mortgage or not, since irrespective of the kind of the mortgage the secured interest is liable to be enforced without intervention of the court as per the provision contained under Section 13 of the Act. Needless to refer Section 35 of the Act, which provides as under : F "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." G

43Copy pinpoint43. It may, however, be worthwhile to mention here as to why and in what circumstances it had been thought necessary to provide a non-obstante clause in sub-section (I) of Section 13 of the Act. In a nutshell, the position as prevailed in 1882 when the Transfer of Property Act was enacted has undergone a sea-change: What was conceived correct in the situation then H

1018 SUPREME COURT REPORTS [2004) 3 S.C.R.

A prevailing may not be so in the present day situation. Functions of different institutions including the banking and financial institutions have changed and new functions have been introduced for financing the industries etc. New economic and fiscal environment is around more than I 00 years later after the enactment of the Transfer of Property Act. In this connection it has been B pointed out on behalf of the respondents that Rajamannar Committee was appointed by Government 0f India which submitted its report in 1977 indicating the effect of the changed situation and the relevance of the provisions of the Transfer of Property Act in context thereof. Mr.Salve has drawn our attention to the Rajamannar Committee report as quoted in the Narasimham Committee Report 1998, which reads as under : c "The Rajamannar Committee appointed by the Government of India gave its report in I977 pointing out the development of the law of mortgages and explaining how it had become completely anachronistic in the latter part of the 20th century where mortgages had bewme a very important instrument to facilitate development of commercial credit. The Rajamannar Committee's recommendations, that were extracted in the Narasimham Report (I 998) stated" .... thus a distinction , was made in the original schemes as regards mortgages to which Europeans were parties mortgages where the properties were situated ., in the presidency towns, and mortgages where the mortgages were of native origin and mortgages where the property was situate in the mofussil. This distinction was based on the fact that in the mofussil, it was the money lenders with their unscrupulous methods, who were, by and large, the persons lending against mortgage of immovable property ..... evidently, the situation that prevailed at the time of the enactment of the Transfer of Property Act 1882, justify the legislative action of the then Government of India in limiting the right of sale without the intervention of court .....

.... economic conditions have vastly changed since the enactment of the Transfer of Property Act in 1882. The role of the unscrupulous money lenders dominating in the field of credit is no longer valid ,,, G with our reliance on institutionalization of credit, the banks another financing institutions are the major moneylenders of credit today. In their dealings with their mortgagors, it is anachronistic to assume that they will adopt the unscrupulous moneylenders. (Paragraph 1.2.19).

In fact in extending credit, the necessity for suitable safeguards to banks and other financing institutions is now rightly stressed. It is

MARDI A CHEMICALS LTD. v. U.0.1. [BRl.IESll KUMAR . .1.J 1019 ~ .. understandable that the legal framework is essentially conceived to deal with unscrupulous moneylenders is no longer appropriate to deal with credit given by banks and other financing institutions ... ".

44Copy pinpoint44. As a matter of fact, the Narasimham Committee also advocates for a legal framework which may clearly define the rights and liabilities of the parties to the contract and provisions for speedy resolution of disputes, which is a sine qua non for efficient trade and commerce, especially for financial .. I intermediation. Even the guidelines of the Reserve Bank of India in relation to classifying the NPA's while stressing the need of expeditious steps in taking a decision for classifying and identification of NPA's says, a system be evolved which should ensure that the doubts in asset classification are settled through specified internal channels within the time specified in the c guidelines. lt is thus clear that while recommending speedier steps for recovery of the debts it is envisaged by all concerned that within the legal framework, such provisions may be contained which may curtail the delays. Nonetheless dues or disputes regarding classification of NP As should be consider~d and resolved by some internal mechanism. In our view, the above position suggests D ' the safeguards for a borrower, before a secured asset is classified as NPA. If there is any difficulty or any objection pointed out by the borrower by means ~ of some appropriate internal mechanism it must be expeditiously resolved.

45Copy pinpoint45. In the background we have indicaied above, we may consider as to what forums or remedies are available to the borrower to ventilate his E grievance. The purpose of serving a notice upon the borrower under sub- section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub-section (4) of Section 13 in case of non-compliance of notice within 60 days. The creditor must apply its mind to the objections raised in p reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part G of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured H

1020 SUPREME COURT REPORTS [2004] 3 S.C.R.

A creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub-section (4) of Section 13. At the same time, more importantly we must make it clear unequivocally that communication of the reasons not accepting the objections taken by the secured borrower may not be taken to give an occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/ bu~iness of viz. secured assets without intervention of the court. Such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reason of non- acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debt Recovery Tribunal as provided under Section 17 of the Act matures on any measure having been taken under sub-section (4) of Section 13 of the Act.

46Copy pinpoint46. We are holding that it is necessary to communicate the reasons for not accepting the objections raised by the borrower in reply to notice under Section 13(2) of the Act more particularly for the reason that normally in the event of non-compliance with notice, the party giving notice approaches the court to seek redressal but in the present case, in view of Section 13 (I) of f the Act the creditor is empowered to enforce the security himself without intervention of the Court. Therefore, it goes with logic and reason that he may be checked to communicate the reason for not accepting the objections, if raised and before he takes the measures like taking over possession of the secured assets etc.

47Copy pinpoint47. This will also be in keeping with the concept of right to know and lender's liability of fairness to keep the borrower informed particularly the developments immediately before taking measures under sub-section (4) of Section 13 of the Act. It will also cater the cause of transparency and not secrecy and shall be conducive in building an atmosphere of confidence and l!

MARD!A CHEMICALS LTD. v. U.0.1. [BR I.I ESH KUMAR . .I.] I 021

healthy commercial practice. Such a duty, in the circumstances of the case and the provisions is inherent under Section 13(2) of the Act.

48Copy pinpoint48. The next safeguard available to a secured borrower within the framework of the Act is to approach the Debt Recovery Tribunal under Section 17 of the Act. Such a right accrues only after measures are taken under sub-section (I) of Section 13 of the Act. B

49Copy pinpoint49. On behalf of one of the respondents Shri Andhyarujina submitted ,,\ that as a matter of fact Section 13 of the Act leaves more scope and provides wider protection to the borrower as compared to in the case of English mortgage and in connection with the above submission it has been pointed out that in case of an English mortgage there is no scope of intervention of c the court unless a case is made out before the court that action of the mortgagee is fraudulent or it is a case of the like nature. Otherwise as provided under sub-section (3) of Section 69 a mortgagor shall only be entitled to the damages for the wrongful or irregular sale of the property. Whereas, it is submitted, under the Securitisation rules it is provided that before putting the property D ;. on sale the authorized officer has to obtain the valuation of immovable property, a reserved price is to be fixed and a notice of 30 days before sale it' is to be served on the borrower. In this connection, Rule 9, the relevant rule, of the Security Interest (Enforcement) Rules, 2002 is quoted : ... "9. Time of sale, issues of sale certificate and delivery of possession, E etc.- (I) No sale of immovabie property under these rules shall take place before the expiry of thirty days from the date on which the public notice of sale is published in newspapers as referred to in the proviso to sub-rule (6) or notice of sale has been served to the borrower. F (2) The sale shall be confirmed in favour of the purchaser who has offered the highest sale price in his bid or tender or quotation or offer to the authorized officer and shall be subject to confirmation by the secured creditor:

xxx xxx xxx G (3) to I 0) xxx xxx xxx" y Therefore, during this period which would be in all more than 60 days it would be open for a borrower to approach the Debt Recovery Tribunal and file a petition for any appropriate relief and if a case is so made out, he can H

1022 SUPREME COURT REPORTS [2004] 3 S.C.R.

50Copy pinpoint50. It has also been submitted that an appeal is entertainable before the Debt Recovery Tribunal only after such measures as provided in sub-section C (4) of Section 13 are taken and Section 34 bars to entertain any proceeding in respect of a matter which the Debt Recovery Tribunal or the appellate Tribunal is empowered to detennine. Thus before any action or measure is taken under sub-section (4) of Section 13, it is submitted by Mr. Salve one of the counsels for respondents that there would be no bar to approach the civil court. Therefore, it cannot be said no remedy is available to the borrowers. D We, however, find that this cor.tention as advanced by Shri Salve is not correct. A full reading of section 34 shows that the jurisdiction of the civil court is barred in respect of matters which a Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken "or to be taken in pursuance of any power conferred under this Act". That E is to say the prohibition covers even matters which can be taken cognizance .... of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under sub-section (4) of Section 13. It is further to be noted that the bar of jurisdiction is in respect of a proceeding which matter may be taken to the Tribunal. Therefore, any matter in respect of which an action may be taken even later on, the civil court shall have no jurisdiction to entertain any proceeding thereof. The bar of civil court thus applies to all f such matters which may be taken cognizance of by the Debt Rec.overy Tribunal, apart from those matters in which measures have already been taken under sub-section (4) of Section 13.

51Copy pinpoint51. However, to a very limited extent jurisdiction of the civil court can also be invoked, where for example, the action of the secured creditor is alleged to be fraudulent or their claim may be so absurd and untenable which may not require any probe, whatsoever or to say precisely to the extent the scope is permissible to bring an action in tlie civil court in the cases of English mortgages. We find such a scope having been recognized in the two decisions of the Madras High Court which have been relied upon heavily by

MARDI A CHEMICALS LTD. v. U.O.L ll3RIJESH KUMAR. J.] 1023 the learned Attorney General as well appearing for the Union of India, namely A V Narasimhachariar (supra) p.135 at p.141 and 144, a judgment of the learned single Judge where it is observed as follows in para 22:

"The remedies of a mortgagor against the mortgagee who is acting J in violation of the rights, duties and obligations are twofold in character. The mortgagor can come to the Court before sale with an B injunction for staying the sale if there are materials to show that the power of sak is being exercised in a fraudulent or improper manner contrary to the terms of the mortgage. But the pleadings in an action for restraining a sale by mortgagee must clearly disclose a fraud or irregularity on the basis of which relief is sought: 'Adams v. Scott, C (1859) 7 WR (Eng.) 213 (Z49). I need not point out that this restraint on the exercise of the power of sale will be exercised by Courts only under the limited circumstances mentioned above because otherwise to grant such an injunction would be to cancel one of the clauses of the deed to which both the parties had agreed and annul one of the chief securities on which persons advancing moneys on mortgages D rely. (See Rashbehary Ghose Law of Mortgages, Vol.ll, Fourth Edn., page 784).

52Copy pinpoint52. The other decision on which reliance has been placed is A. Batcha Saheb v. Nariman K.lrani and Anr., AIR (1955) Madras DB p.491 more particularly on paragraph 8. E

53Copy pinpoint53. We also find it appropriate to mention at this stage that in repiy to submission made by Shri Dholakia on behalf of the guarantors that even though a guarantor may stand discharged as envisaged under Sectio'.ls I 33 and 135 of the Indian Contracts Act eg., where any variance in terms of the F contract has been made without his consent, then too guarantor may be proceeded against and he will have no right to raise an objection, before measures have been taken against him under Section 13(4) of the Act nor he could approach the civil court. It is submitted by the respondent in such cases civil court may have jurisdiction to entertain the case as character as a guarantor itself is denied. G

54Copy pinpoint54. In so far the argument advanced on behalf of the petitioners that by virtue of the provisions contained under sub-section (4) of Section 13 the borrowers lose their right of redemption of the mortgage. In reply it is submitted that rather ;uch a right is preserved under sub-section (8) of Section 13 of the Act. Where a borrower tenders to the creditor the amount due with H

1024 SUPREME COURT REPORTS [2004] 3 S.C.R.

A costs and expenses incurred, no further steps for sale of the property are to take place. ln this connection, a reference has also been made by the learned Attorney General to a decision reported in [1977] 3 SCC p. 24 7, Naraindas Kavsondas v. SA. Katam which provides that a mortgagor can exercise his ·-• right of redemption any time until the final sale of the property by execution

B of a conveyance. Sri Sibal, however, submits that it is the amount due f according to the secured creditor which shall have to be deposited to redeem the property. May be so, some difference regarding the amount due may be there but it cannot be said that right of redemption of property is completely I lost. In cases where no such dispute is there, the right can be exercised and !

in other cases the question of difference in amount may be kept open and got c decided before sale of property.

55Copy pinpoint55. We may then turn to the arguments raised on behalf of the petitioners that the remedy before the Debt Recovery Tribunal under Section 17 of the Act, is illusory burdened with onerous and oppressive condition of deposit of 75% of the amount of the demand notice before an appeal can be entertained by the Tribunal. We feel that it would be difficult to brush aside the challenge i made to the condition of such a deposit. Sub-section (2) of Section 17 itself ' !(

says that no appeal shall be entertainable ·unless the borrower has deposited the aforesaid sum of amount claimed. Much stress has been given in reply to the proviso to sub-section (2) of Section 17, according to which the Tribunal • has power to waive or reduce the amount. While waiving the condition of deposit the amount or reducing it, the Tribunal is required to record reasons for the same. It is submitted for the respondents that in an appropriate case, the DRT which is presided over by a Member of a Higher Judicial Service, would exercise its discretion and may waive or reduce the amount required to be deposited in deserving cases. It is, therefore, not an absolute condition which must in all cases and all circumstances be fulfilled irrespective of the special features of a particular case.

56Copy pinpoint56. The contention of the petitioners is that in the first place such an oppressive provision should not have been made at all. It works as a deterrent or as a disabling provision impeding access to a forum which is meant for redressal of the grievance of a borrower. It is submitted where the possession of the secured assets has already been taken over or the management of the secured assets of the borrower including the right to transfer the same, in that ~ event it would not at all be necessary to burden the borrower doubly with deposit of 75% of the demand amount. In a situation where the possession of the secured assets have already been taken over or its management, it is

MARDI A CHEMICALS LTD. v. U.0.1. [BRl.IESH KUMAR. J.] 1025 highly unreasonable further to ask for 75% of the amount claimed before entertaining the grievance of the borrower.

57Copy pinpoint57. Secondly, it is submitted that, it would not be possible for a borrower to raise funds to make deposit of the huge amount of 75% of the demand, once he is deprived of the possession/management of the property namely, the secured assets. Therefore, the condition of deposit is a condition of impossibility which renders the remedy made available before the ORT as nugatory and illusory. The learned Attorney General refutes the aforesaid contention. It is further submitted that such a condition of pre-deposit has been held to be valid by this Court earlier and a reference has been made to a decisions reported in [1975] 2 SCC p.175 at p. 202, Anant Mills Co.Ltd. v. C State of Gujarat to submit that such a provision is made to regulate the exercise of the right of an appeal conferred upon a person. The purpose is that right of appeal may not be abused by any recalcitrant party and there may not be any difficulty in enforcing the order appealed against if ultimately it is dismissed and there may be speedy recovery of the amount of tax due to the corporation. D

58Copy pinpoint58. Jn another decision relied upon reported in [ 1980] (Supp.) SCC p. 574, Seth Nandlal v. State of Haryana there was no provision for a waiver or reduction of amount of pre-deposit, it is submitted, even that the provision was held to be valid as the purpose was to prevent frivolous appeals and revisions which impedes the implementation of the ceiling policy. Referring E to yet another decision reported in [1988] 4 SCC p. 402, Vijay Prakash D. Mehta and Anr. v. Collector of Customs (Preventive) Bombay, it is submitted that right to appeal is neither an absolute right nor an ingredient of natural justice which principles are to be followed in judicial and quasi-j.1dicial proceedings. A right of appeal is a statutory right and it can be circumscribed p by the conditions. We also find that there are further observations to the ·~ effect that the condition is for the purpose to act in torrorem to make the people comply with the provisions of the law. [1993] I SCC' p.22, Shyam Kishore and Ors. v. Municipal Corporation of Delhi, has been referred to submit that a similar provision was upheld without there being any provision for waiver of the condition. The submission is that such a provision as that G of pre-deposit before maintaining an appeal is not unknown to law and there are several other statutes containing similar provisions. Emphasis is on the provision of waiver or reduction of the amount required to be paid which, it is submitted, strikes a balance between the right of a person to appeal and the right of the person appealed against for speedy recovery of his dues. H

1026 SUPREME COURT REPORTS [2004) 3 S.C.R.

59Copy pinpoint59. We may like to observe that proceedings under Section 17 of the Act, in fact are not appellate proceedings. It seems to be a misnomer. In fact it is the initial action which is brought before a Forum as prescribed under the Act, raising grievance against the action or measures taken by one of the parties to the contract. It is the stage of initial proceeding like filing a suit in civil court. As a matter of fact proceedings under Section 17 of the Act are B in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act in the present case. We may refer to a decision of this Court reported in [ 197] 2 SCC p. 393 Smt. Ganga Bai v. Vijay Kumar and Ors. where in respect of original and appellate proceedings a distinction J has been drawn as follows:- c " ........ There is a basic distinction between the right of suit and the right of appeal. There is an inherent right in every person to bring a suit of civil nature and unless one's choice. It is no answer to a suit, howsoever frivolous to claim, that the law confers no such right to sue. A suit for its maintainability requires no authority of law and it D is enough that no statute b!U's the suit. But the position in regard to appeals is quite the opposite. The right of appeal inheres in no one and therefore an appeal for its maintainability must have the clear authority of !aw. That explains why the right of appeal is described as a creature of statute."

60Copy pinpoint60. The requirement of pre-deposit of any amount at the first instance of proceedings is not to be found in any of the decisions cited on behalf of the respondent. All these cases relate to appeals. The amount of deposit of 75% of the demand, at the initial proceeding itself sounds unreasonable and oppressive more particularly when the secured assets/the management thereof along with the right to transfer such interest has been taken over by the secured creditor or in some cases property is also sold. Requirement of deposit of such a heavy amount on basis of one sided claim alone, cannot be said to be a reasonable condition at the first instance itself before start of adjudication of the dispute. Merely giving power to the Tribunal to waive or reduce the amount, does not cure the inherent infirmity leaning one-sidedly in favour of the party, who, so far has alone .been the party to decide the amount and the fact of default and classifying the dues as NPAs without participation/ association of the borrower in the process. Such an onerous and oppressive condition should r.ot be left operative in expectation of reasonable exercis.: of discretion by the concerned authority. Placed in a situation as indicated above, where it may not be possible for the borrower to raise any amount to

--- MARDIA CHEMICALS LTD. v. U.0.1. [13Rl.IESH KUMAR. J.] I027 make the deposit, his secured assets having already been taken possession of or sold, such a rider to approach the Tribunal at the first instance of proceedings, captioned as appeal, renders the remedy illusory and nugatory.

61Copy pinpoint61. In the case of Seth Nandla/ (supra), while considering the question of validity of pre-deposit before availing the right of appeal the Court held " .... right of appeal is a creature of the statute and while granting the right the legislature can impose conditions for the exercise of such right so long as the conditions are not so onerous as to amount to unreo.sonable restrictions rendering the right almost illusory ....." (emphasis supplied). While making said observation this Court referred to the decision in the case of Anant Mills Co. ltd. (supra). In both the above noted decisions this Court had negated the plea raised against pre-deposit but in the case of Seth Nand/al (supra) it was found that the condition was not so onerous since the amount sought to be deposited was meager and that too was confined to the landholding tax payable in respect of the disputed area i.e. the area or part thereof which is declared surplus by the Prescribed Authority (emphasis supplied) after leaving the permissible area to the appellant. In the above circumstances it was found that even in the absence of a provision conferring discretion on the appellate authority to waive or reduce the amount of pre-deposit, it was considered to be valid, for the two reasons indicated above. The facts of the case in hand are just otherwise.

62Copy pinpoint62. As indicated earlier, the position of the appeal under Section 17 of the Act is like that of a suit in the court of the first instance under the Code of Civil Procedure. No doubt in suits also it is permissible, in given facts and circumstances and under the provisions of the law to attach the property before a decree is passed or to appoint a receiver and to make a provision by way of interim measure in respect of the property in suit. But for obtaining such orders a case for the same is to be made out in accordance with the relevant provisions under the law. There is no such provision under the Act.

63Copy pinpoint63. Yet another justification which has been sought to be given for the requirement of deposit is that the secured assets which may be taken possession of or sold may fall short of the dues therefore such a deposit may be necessary. G We find no merit in this submission too. In such an eventuality the recourse may have to be taken to sub-section I0 of Section 13 where a petition may have to be filed before the Tribunal for the purpose of making up of the short-fall. H

1028 SUPREME COURT REPORTS [20041 3 S.C.R.

64Copy pinpoint64. The ~ondition of pre-deposit in the present case is bad rendering the remedy illusory on the grounds that (i) it is imposed while approaching the adjudicating authority of the first instance, not in appeal, (ii) there is no determination of the amount due as yet (iii) the secured assets or its management with transferable interest is already taken over and under control of the secured creditor (iv) no special reason for double security in respect of an amount yet to be determined and settled (v) 75% of the amount claimed by no means would be a meager amount (vi) it will leave the borrower in a position where it would not be possible for him to raise any funds to make deposit of 75% of the undetermined demand. Such conditions are not alone onerous and oppressive but also unreasonable and arbitrary. Therefore, in our view, sub-section (2) of Section 17 of the Act is unreasonable, arbitrary and violative of Article 14 of the Constitution.

65Copy pinpoint65. Shri Salve, learned senior counsel, appearing on behalf of the respondents, submits that so far it relates to the provision as contained under Section 9 of the Act, it is for the purposes of assets reconstruction. The steps as provided to be taken for the purpose, are different from those provided in Chapter III relating to enforcement of security interest contained in Section 13 of the Act. Reconstruction companies are separately registered for tne purpose according to the guidelines of the Reserve Bank of India. It is for the purpose of proper management of the business of the borrower. It is aimed at continuance of the business of the company by resorting to the measure as provided under Section 9 of the Act. It is submitted that the apprehensions as expressed that the defaulting party may set up an asset reconstruction company is misconceived nor there is any substance in the submission that company in default may constitute such a company to defeat the interest cf the creditor. A reconstruction company is required to be registered and the F Reserve Bank of India is the authority to issue such a certificate. In the guidelines framed by the Reserve Bank of India enough safeguards have been provided to see that the persons setting up such a company are not directly or indirectly in the management of the asset reconstruction of the borrower. What is envisaged under Section 9 is, the taking over of the management of the business of the borrower company and the provisions as contained under Section 15 of the Act are referable to Section 9 and not to Section 13 of the Act. He has further submitted that the restrictions against legal remedy is relating to measures taken under Section 13 of the Act and not under Section 9 of the Act for reconstruction of the assets of a borrowing company. A reconstruction company by the method of reconstruction of the debt, manages the affair in a manner so as to revive the company and liquidate

MARDIA CHEMICALS LTD. v. U.0.1. [BRIJESH KUMAR, J.] 1029 the debts to whomsoever they may be due. A

66Copy pinpoint66. On behalf of the petitioners one of the contentions which has been forcefully raised is that existing rights of private parties under a contract cannot be interfered with, more particularly putting one party to an advantageous position over the other. For example, in the present case, in a matter of private contract between the borrower and the financing bank or institution through impugned legislation rights of the borrowers have been curtailed and enforcement of secured assets has ben p:ovided for without intervention of the court and above all depriving them the remedy available under the law by approaching to the civil court. Such a law, it is submitted, is not envisaged in any civilized society governed by rule of law. As discussed earlier as well, it may be observed that though the transaction may have a character of a private contract yet the question of great importance behind such transactions as a whole having far reaching effect on the economy of the country cannot be ignored, purely restricting it to individual transactions more particularly when financing is through banks and financial institutions utilizing the money of the people in general namely, the depositors in the banks and public money at the disposal of the financial institutions. Therefore, ) wherever public interest to such a large extent is involved and it may become necessary to achieve an object which serves the public purposes, individual rights may have to give way. Public interest has always been considered to be above the private interest. Interest of an individual may, to some extent, be affected but it cannot have the potential of taking over the public interest having an impact in the socio-economic drive of the country. The two aspects are inter-twined which are difficult to be separated. There have been many instances where existing rights of the individuals have been affected by legislative measures taken in public interest. Certain decisions which have been relied on behalf of the respondents, on the point are (1951] SCR p.292, F Ramaswamy Aiyengar v. Kai/asa Thevar. In that case by enacting the Madras Agriculturalist's Relief Act, relief was given to the debtors who were agriculturists as a class, by sealing down their debts. The validity of the Act was upheld though it affected the individual interest of creditors. In Dahya Lala v. Rasul Mohd. Abdul Rahim, (1963] 3 SCR p.l, the tenants under the G Provisions of the Bombay Tenancy Act, 1939 were given protection against eviction and they were granted the status of protected tenant, who had cultivated the land personally six years prior to the prescribed date. It was found that the legislation was with the object of improving the economic condition of the peasants and for ensuring full and efficient use of land for agricultural purpose. By a statutory provision special benefit was conferred H

1030 SUPREME COURT REPORTS (200-1] 3 S.C.R.

A upon the te1ants in Madras city where they had put up a building for residential or non-residential purposes and were saved from eviction, it did though affect the existing rights of the landlords. See also (1963] (Supp.) I SCR p. 282, Swami Motor Transports Pvt. Ltd v. Shri Sankraswamigal Mutt and Raval & Co. v. K.G. Ramachandran, [1974] I SCC p. 424. Similarly it is also to be found that in the case reported in [2001] 5 SCC p. 546 Kanshi Ram v. B lachhman the law granting relief to the debtors protecting their prope1ty was upheld. Also see [1978] 2 SCC I, Pathumma v. State of Kerala, [1977] 2 sec p. 670 and Fatehchand Himmat/al V. State of Maharashtra, [1962] I SCR p. 852, Ramdhandas v. State of Punjab.

67Copy pinpoint67. It is well known that in different states Rent Control legislations were enacted providing safeguards to the sitting tenants as against the existing rights of the landlords, which before coming into force of such law were governed by contract between the private parties. Therefore, it is clear that it has always been held to be lawful, whenever it was necessary in the public interest to legislate irrespective of the fact that it may affect some individuals enjoying certain rights. In the present we find that case the unrealized dues of banking companies and financial institutions utilizing public money for advances were mounting and it was considered imperative in view of recommendations of experts committees to have such law which may provide .. speedier remedy before any major fiscal set back occurs and for improvement of general financial flow of money necessary for the economy of the country that the impugned Act was enacted. Undoubtedly such a legislation would be in the public interest and the individual interest shall be subservient to it. Even if a few borrowers are affected here and there, that would not impinge upon the validity of the Act which otherwise serves the larger interest.

68Copy pinpoint68. The main thrust of the petitioners as indicated in the earlier part of this judgment to challenge the validity of the impugned enactment is that no adjudicatory mechanism is available to the borrower to ventilate his grievance through an independent adjudicatory authority. Access to the justice, it is submitted, is hall-mark of our system. Section 34 of the Act bars the jurisdiction of the civil courts to entertain a suit in matters of recovery of loans. The remedy of appeal available under the Act as contained in Section 17 can be availed only after measures have already been taken by the secured creditor under sub-section (4) of Section 13 of the Act which includes sale y of the secured assets, taking over its management and all transferable rights thereto. Virtually it is no remedy at all also in view of the onerous condition of deposit of75% of the claim of the secured creditor. Before filing an appeal

MARDIA CHEMICALS LTD. v. U.O.I. [BRl.IESl-I KUMAR. J.] 1031

69Copy pinpoint69. On behalf of respondents time and again stress has been given on E the contention that in a contractual matter between the two private parties they are supposed to act in terms of the contract and no question of compliance with the principles of natural justice arises nor the question of judicial review of such actions need to be provided for. However, at the very outset, it may be pointed that the contract between the parties asin the present cases, is no p more as private as sought to be asserted on behalf of the respondents. If that was so in that event parties would be at liberty to seek redressal of their grievances on account of breach of contract or otherwise taking recourse to the normal process of lawas available, by approaching the ordinary civil courts. But we find that a contract which has been entered into between the two private parties, in some respects has been superseded by the statutory G provisions or it may be said that such contracts are now governed by the statutory provisions relating to recovery of debts and bar of jurisdiction of the civil court to entertain any dispute in respect of such matters. Hence, it cannot be pleaded that the petitioners cannot complaint of the conduct of the banking companies and financial institutions for whatever goes in between H

1032 SUPREME COURT REPORTS [2004] 3 S.C.R.

A the two is absolutely a matter of contract between private parties, therefore, -·· no adjudication may be necessary.

70Copy pinpoint70. At this stage we may also take note of the arguments raised on behalf of the petitioners that in the present day world concept of lender's liability has also developed which cannot be ignored. We have already referred B to certain facts in relation to this point that at one stage a statement was made at the floor of the House that it was necessary to legislate on lender's liability. No such Bill though seems to have been introduced. Certain decisions ' > pertaining to the liability of the lenders have been cited on behalf of the petitioners and -a, few others by the learned counsel for the respondents. C Learned counsel for the petitioners emphatically submitted that the Act is loaded against the borrowers and no provision regarding the liability of the lenders has been fuade in the Act. Given below are some of the cases on the point cited by the parties:

KMC Co. v. Irving Trust Co., 757 F2d752 (6th Cir.1985) and Palisades D Properties, Inc. v. Brunetti, 44 NJ 117, 207 A2d 522, 531 (1965).

71Copy pinpoint71. Arguments have been advanced as to how far principles of lender's liability are applicable. Whatever be the position, however, it cannot be denied " that the financial institutions namely, the lenders owe a duty to act fairly and in good faith. There has to be a fair dealing between the parties and the financing companies/institutions are not free to ignore performance of their part of the obligation as a party to the contract. They cannot be free from it. Irrespective of the fact as to whatever may have been held in decisions of some American courts, in view of the facts and circumstances and the terms of the contract and other details relating to those matter, that may or may not strictly apply, nonetheless even in absence of any such decisions or legislation, A it is incumbent upon such financial institutions to act fairly and in good faith •• complying with their part of obligations under the contract. This is also the basic principle of concept of lender's liability. It cannot be a one-sided affair shutting out all possible and reasonable remedies to the other party, namely borrowers and assume all drastic powers for speedier recovery of NPAs. Possessing more drastic powers calls for exercise of higher degree of good faith and fair play. The borrowers cannot be left remediless in case they have been wronged agai~st or subjected to unfair treatment violating the terms and ~·

conditions of the contract. They can always plead in defence deficiencies on the part of the banks and financial institutions.

MARDIA CHEMICALS LTD. v. U.0.1. [BRIJESH KUMAR, J.] 1033 ·~

72Copy pinpoint72. Shri Soli J. Sorabjee, learned Attorney General submits that basically there is a presumption in favour of the constitutionality of an enactment and unless it is found that a provision enacted results in palpably arbitrary consequences, courts refrain from declaring the law invalid as legislated by the legislature. In support of this contention, he has relied upon a decision of this Court reported in [1981] 4 SCC p. 675, R.K. Garg v. Union of India. He B has particularly drawn our attention to the following passage :

~ "The first rule is that there is always a presumption in favour of the constitutionality of a statute .... This rule is based on the assumption, judicially recognized and accepted, that the legislature understands and correctly appreciates the needs of its own people, its laws are c directed to problems made manifest by experience ... Every legislation particularly in economic matters is essentially empiric and it is based on experimentation or what one may call trial and error method ... There may be crudities and inequities in complicated experimental economic legislation but on that account alone it cannot be struck down as invalid. The courts cannot ..... be converted into tribunals for D )' relief from such crudities and inequities ..... The Court must therefore .. adjudge the constitutionality of such legislation by the generality of its provisions and not by its crudities or inequities or by the possibilities of abuse of any of its provisions..... The Court must defer to legislative judgment in matters relating to social and economic policies and E must not interference, unless the exercise of legislative judgment appears to be palpab~v arbitrary" (emphasis supplied).

73Copy pinpoint73. The following observations have also been referred as made in Bhavesh D. Parish and Ors. v. Union of India and Anr., [2000] 5 SCC 471 .{; at 486: F

" ..... .it is necessary that while dealing with economic legislations, this Court, while not jettisoning its jurisdiction to curb arbitrary action or unconstitutional legislation, should interfere only in those few cases where the view reflected in the legislation is not possible to be taken G at alf" (emphasis supplied)

-...., 74. A reference has also been made for similar observations to the cases reported in [1980] 4 SCC p.507 at 513-514, Srinivas Enterprises v. Union of India, [1967] I SCR p. 15 at p.36 and Jalan Trading v. Union of India. While referring to the observations made in a case reported in [1962] H.

1034 SUPREME COURT REPORTS [2004] 3 S.C.R.

A 3 SCR p.786 at p.829-30, the Collector of Customs, Madras v. Nathe/la Samapathu Chetty, it is submitted that the intent of the Parliament shall not be defeated merely for the reason that it may operate a bit harshly on a small section of public where it may be necessary to make such provisions of achieving the desired objectives to ensure that the nefarious activities of B smuggling etc. had to be necessarily curbed. In Fatehchand Himmatla/ (supra) where debts of the agriculturists were wiped of, this Court observed :

"Every cause claims its martyr and if the law, necessitated by practical I .I. considerations. makes generalizations which hurt a few, it cannot be helped by the Court. Otherwise, the enforcement of the Debt Relief C Act will turn into an enquiry into scrupulous and unscrupulous creditors, frustrating through endless litigation, the instant relief to the indebted which is the promise of the legislature." [See p.689 para 44]

75Copy pinpoint75. In relation to the argument on behalf of the petitioners th.at they are entitled to be heard before a notice under sub-section (2) of Section 13 i5 issued failing which there is denial of principles of natural justice, a reference has been made to certain decisions to submit that in every case, it is not necessary to make a provision for providing a hearing. For example, in the .. case of a licensing statute, see [1961] 3 SCR p.135, Kishan Chand Arora H (supra). The other decisions referred to are: [1963] 2 SCR p. 353 Lachhman Das v. State of Punjab, [1977] 2 SCC 256 at 262, Chairman, Board of

MARDIA CHEMICALS LTD. v. U.O.l. [BRI.IESH KUMAR. J.] I035 Mining Examination v. Ramjee and (2002] 3 SCC 496 at 504 para 7, Haryana A Financial Corporation v. Jagdamba Oil Mills to submit that concept of natural justice is not a straight jacket formula. It, on the other hand, depends upon the facts of the case, nature of the enquiry, the rules under which the Tribunal is acting and what is to be seen that no one should be hit below the belt. Relationship between the creditor and the debtor, it is submitted, is essentially B in the realm of a contract.

76Copy pinpoint76. In regard to the submission made by the parties as indicated in preceding paragraphs, we would like to make it clear that issue of a notice to the debtor by the creditor does not attract the application of principles of natural justice. It is always open to tell the debtor what he owes to repay. No C hearing can be demanded from the creditor at this stage. So far the provision of appeal is concerned, we have already discussed in the earlier part of the judgment that proceedings under Section 17 of the Act have been wrongly described as appeal before the Debt Recovery Tribunal. It is in fact a forum where proceedings are originally initiated in case of any g·rievance against the creditor in respect of any measure taken under sub-secticn (4) of Section D 13 of the Act. Hence, the decisions on the point as to whether provision for an appeal is essential or not are not of any assistance in the facts of the present case.

77Copy pinpoint77. It is also true that till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed for by the borrower. E But looking to the stringent nature of measures to be taken without intervention of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated. So as to demonstrate that the reply of the borrower to the notice under Section 13(2) p of the Act has been considered applying mind to it. The reasons howsoever briefthat may be for not accepting the objections, if raised in the reply, must be communicated to the borrower. True, presumption is in favour of validity of an enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary G to see that the persons aggrieved get a fair deal at the hands of those who have been vested with the powers to enforce drastic steps to make recovery.

78Copy pinpoint78. It was sought to be argued that fairness cannot be a one way street. The plea of absence of natural justice lies ill in the mouth of chronic defaulters H

1036 SUPREME COURT REPORTS [2004) 3 S.C.R.

A who have not paid the principal amounts admittedly due to the banks. The said argument pre-supposes admission of the liability by the borrowers and all of them to be chronic defaulters. It would only be pre-judging an issue. We hope it was not meant to be said that all those who defaulted according to the banks and financial institutions must be condemned unheard who might not deserve any hearing to place their side of the case, unless they must go through the crushing pre-conditions of deposit of 75% of the amount demanded over and above their secured assets already having been taken possession of. We feel this can well be one example of hitting below the belt.

79Copy pinpoint79. Some submissions have been made pointing out that in certain circumstances it would not be clear as to in what manner the provisions of the Act would be workable. We feel the objections pointed out are not such which render the statute invalid or unconstitutional. Such problems about working of any particular provision of the Act in any particular factual situation, may be considered as and when it may arise. We, therefore, do not think it necessary to go into those questions. D

80Copy pinpoint80. Under the Act in consideration, we find that before taking action a _.. notice of 60 days is required to be given and after the measures under Section 13(4) of the Act have been taken, a mechanism has been provided under Section Ii of the Act to approach the Debt Recovery Tribunal. The above noted provisions are for the purposes of giving some reasonable protection to the borrower. Viewing the matter in the above perspective, we find what emerges from different provisions of the Act, is as follows :-

I. Under sub-section (2) of Section 13 it is incumbent upon the secured creditor to serve 60 Jays notice before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. After service of notice, if the borrower raises any objection or places facts for consideration ' . ... ,

of the secured creditor, such reply to the notice must be considered with due application of mind and the reasons for not accepting the objections, howsoever brief they may be, must be communicated to the borrower. In connection with this conclusion we have already held a discussion in the earlier part of the judgment. The reasons so communicated shall only be for the purposes of the information/knowledge of the borrower without giving rise to any right to approach the Debt Recovery Tribunal under Section 17 of the Act, at that stage.

2. As already discussed earlier, on measures having been taken under H

MARDI A CHEMICALS LTD. v. U.0.1. [BRl.IESH KUMAR . .I.] 103 7 sub-section (4) of Section 13 and before the date of sale/auction of the property A it would be open for the borrower to file an appeal (petition) under Section 17 of the Act before the Debt Recovery Tribunal.

3. That the Tribunal in exercise of its ancillary powers shall have jurisdiction to pass any stay/interim order subject to the condition at it may deem fit and proper to impose. B

4. In view of the discussion already held on this behalf, we find that the requirement of deposit of 75% of amount claimed before entertaining an appeal (petition) under Section 17 of the Act is an oppressive, onerous and arbitrary condition against all the canons of reasonableness. Such a condition C is invalid and it is liable to be struck down.

5. As discussed earlier in this judgment, we find that it will be open to maintain a civil suit in civil court, within the narrow scope and on the limited grounds on which they are permissible, in the matters relating to an English mortgage enforceable without intervention of the court. D

81Copy pinpoint81. In view of the discussion held in the judgment and the findings and ;. directions contained in the preceding paragraphs, we hold that the borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned E provisions of the Act cannot be sahl to be unconstitutional in view of the fact that the object of the Act is to achieve speedier recovery of the dues declared as NPAs and better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public interest. ). F '' 82. We, therefore, subject to what is provided in paragraph 80 above, uphold the validity of the Act and its provisions except that of sub-section (2) of Section 17 of the Act, which is declared ultra vires of Article 14 of the Constitution of India.

83Copy pinpoint83. Before we part with the case, we would like to observe that where G a secured creditor has taken action under Section 13(4) of the Act, in such cases it would be open to borrowers to file appeals under Section 17 of the Act within the limitation as prescribed therefor, to be counted with effect from today. H

1038 SUPREME COURT REPORTS [2004] 3 S.C.R.

84Copy pinpoint84. The transfer cases, appeals and the petitions thus stand partly allowed ,.., limited to the extent indicated above. For the rest of the reliefs, they stand dish1issed. Costs easy.

N.J. Transfer cases/Appeals/Petitions partly allowed.