Rojer Mathew S/o P T Mathai v South Indian Bank Limited & Ors

## **IN THE HIGH COURT OF KERALA AT ERNAKULAM** ## **PRESENT:** **THE HONOURABLE THE CHIEF JUSTICE MR.MOHAN M.SHANTANAGOUDAR & THE HONOURABLE MR. JUSTICE SATHISH NINAN** **FRIDAY, THE 20TH DAY OF JANUARY 2017/30TH POUSHA, 1938** **WA.NO. 2349 OF 2016 () IN WP(C).26290/2014 -------------------------------------------AGAINST THE JUDGMENT IN WP(C).26290/2014 OF HIGH COURT OF KERALA** ## **APPELLANT(S)/PETITIONER: ------------------------** **ROJER MATHEW S/O.P T MATHAI, PURAPPADATHIL HOUSE, G 203 PANAMPILLY NAGAR, COCHIN-682036** **BY ADVS.SRI.P.CHANDRASEKHAR** **SRI.ASHWIN SETHUMADHAVAN SRI.A.JAYASANKAR SRI.MANU GOVIND SRI.S.SABARINADH** ## **RESPONDENT(S)/RESPONDENT:** ## **-------------------------** ## **1. SOUTH INDIAN BANK LIMITED** **SIB BUILDING, INFOPARK ROAD, RAJAGIRI VALLEY P O KAKKANAD, KOCHI-682039, REP BY ITS CHIEF MANAGER.** **2. THE DEBT RECOVERY TRIBUNAL KERALA & LAKSHWADEEP ERNAKULAM, FLOOR NO 5, HOUSING BOARD BUILDING PANAMPILLY NAGAR, ERNAKULAM** **3. THE SOUTH INDIAN BANK LTD REP BY CHIEF MANAGER, XXXIX/2018 & 2019, M G ROAD ERNAKULAM, KOCHI-682016** **4. M/S.P T MATHAI CONSTRUCTION OCMPANY P LTD 27/370, KV 60/2 , PANAMPILLY NAGAR KOCHI-682036, REP BY ITS MANAGING DIRECTOR.** ## **WA.NO. 2349 OF 2016** **5. SRI P T MATHAI,PURAPPADATHIL HOUSE, MULAMTHURUTHY, ERNAKULAM-682314** **6. SMT MARTHA MATHAI W/O. P T MATHAI, PURAPPADATHIL HOUSE, MULAMTHURUTHY ERNAKULAM-682314** ## **7. SRI GIJU P MATHAI** **5B, MATHER BUILDING, IVORY HEIGHTS PANAMPILLY NAGAR, KOCHI-682036** ## **8. SMT ACHAMMA GIJU** **5B, MATHER BUILDING, IVORY HEIGHTS PANAMPILLY NAGAR, KOCHI-682036** **9. SMT.MARY THOMAS, PULIKKEYIL HOUSE MULAKKULAM, PIRAVOM-686664.** **R1,R3 BY ADV. SRI.K.K.CHANDRAN PILLAI (SR.) R2 BY ADV. SRI.N.NAGARESH, ASSISTANT SOLICITOR GENERAL R1,R3 BY ADV. SRI.K.S.DILIP R4,R5,R 6 BY ADV. SRI.ROSHIN IPE JOSEPH R BY SMT.S.AMBILY R BY SRI.K.PAUL KURIAKOSE** **THIS WRIT APPEAL HAVING BEEN FINALLY HEARD ON 14.12.2016, THE COURT ON 20.01.2017 DELIVERED THE FOLLOWING:** **“C.R”** # **MOHAN M.SHANTANAGOUDAR, C.J. & SATHISH NINAN, J.** **=================================== W.A. No.2349 of 2016 =================================== Dated this the 20[th] day of January, 2017** **J U D G M E N T** ## **SATHISH NINAN, J.** In **Mardia Chemicals v. Union of India** ([2004] 4 SCC 311), the constitutional validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, “the Act”) was upheld by the Apex Court. As per Act 1 of 2013, Section 13(5A) was incorporated into the Act with effect from 15.01.2013, permitting the secured creditor to bid for the secured assets. The vires of Section 13(5A) is under challenge in this writ proceedings on the ground that it is violative of Articles 300A and 21 of the Constitution of India. **W.A. No.2349 of 2016** -: 2 :- 2. Heard Shri P.Chandrasekhar, learned counsel for the appellant and Shri K.K. Chandran Pillai, learned Senior Counsel for the respondents. 3. The question to be considered is as to whether the power given to the secured creditor under Section 13(5A) of the Act is arbitrary, irrational and without any nexus to the object. 4. Section 13(5A) of the Act is as under: “135A. Where the sale of an immovable property, for which a reserve price has been specified, has been postponed for want of a bid of an amount not less than such reserve price, it shall be lawful for any officer of the secured creditor, if so authorised by the secured creditor in this behalf, to bid for the immovable property on behalf of the secured creditor at any subsequent sale.” ## The Section postulates the following: - (a) a secured asset is brought for sale; - (b) reserve price for the property has been - fixed; - (c) there are no bidders for reserve price or above; - (d) sale is adjourned for want of bidders at or above - the reserve price; - (e) at the postponed sale, any officer of the secured - creditor, so authorised, can bid for the immovable ## **W.A. No.2349 of 2016** -: 3 :- property on behalf of the secured creditor. The above provision is challenged as unconstitutional since it interferes with the fundamental rights of a citizen. 5. Article 300A of the Constitution of India is canvassed by the learned counsel for the appellant to contend that the constitutional right guaranteed under the said Article is violated by Section 13(5A) of the Act in so far as it is left to the whims and fancies of the secured creditor to purchase for itself the property that is mortgaged to secure a financial assistance availed from the bank. It would be relevant to refer to Article 300A: “300A. **Persons not to be deprived of property save by authority of law** .- No person shall be deprived of his property save by authority of law.” A citizen could be deprived of his property only under authority of law. It is beyond cavil that an involuntary sale of the property of a citizen by a **W.A. No.2349 of 2016** -: 4 :- mode permitted by law, necessitated for realisation of a legally recoverable debt, is a process under the authority of law. The provisions of the Act, in addition to the other remedies, provides a mechanism for the secured creditor, for realisation of its debts. Section 13(4) of the Act provides various modes for recovery under the Act, one of the modes being sale of the secured assets. The background which led to the enactment of the Act had been elaborately detailed by the Apex Court in **Mardia Chemicals' case** (supra) and has been further adverted to in several cases thereafter. Suffice to observe, the Act was necessitated consequent to the failure of the ordinary Civil Courts and the Tribunal constituted under the Debts due to Banks and Financial Institutions Act, 1993 to meet the pace necessary for recovery of public money due to the banks. The Parliament enacted the legislation **W.A. No.2349 of 2016** ## -: 5 :- finding that the legal mechanism available till then was wholly insufficient for recovery of the alarming outstanding dues of banks and financial institutions which is public money. In **Mardia Chemicals' case** ## (supra), it has been observed thus: “...The effect of some of the provisions may be a bit harsh for some of the borrowers but on that ground the impugned provisions of the Act cannot be said 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.” The banks and financial institutions are not only entitled, but are also duty bound to recover the debts by adopting all legally permissible methods, since the bank is a trustee of the public funds. 6. It would be profitable to refer to the bill introduced to amend the Act for incorporating Section 13(5A) along with a few other provisions. The Statement of Objects and Reasons, the relevant **W.A. No.2349 of 2016** ## -: 6 :- ## portions of which, are as under: “The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was enacted with a view to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The aforesaid Act enables the banks and financial institutions to realise long-term assets, manage problems of liquidity, asset liability mis-match and improve recovery by exercising powers to take possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction. The said Act further provides for setting up of asset reconstruction companies which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realise the secured assets and take over the management of the business of the borrower. 2. At present, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002................................. (c) even though the banks, as secured creditors, are empowered to sell the securities to realise the defaulted loans, they are not empowered to accept the property in full or partial satisfaction of the claim against the defaulted borrower, if no bidder comes to bid or banks are unable to find a buyer for such assets as per the provisions of section 13 of the said Act ;............................................................................................ 3. It is proposed to amend the Securitisation and Reconstruction of Financial Assets and Enforcement of **W.A. No.2349 of 2016** -: 7 :- Security Interest Act, 2002 , inter alia, provides for the following, namely:- ................................................................................................... (d) empower the banks or financial institutions to accept the immovable property in full or partial satisfaction of the claim of the bank against the defaulting borrower; .................................................................................................. 6. The Bill seeks to achieve the above objects.” 7. The reason behind the introduction of the said provision in the Act is obvious. For realisation of debt, when the secured assets were brought to sale, occasions would be many where there are no bidders to purchase the property for the reserve price fixed by the secured creditor. Even when the sales are adjourned to a subsequent date, the situation might often remain the same. The Act did not provide for any mechanism enabling the secured creditor to proceed further in such an event. As regards proceedings for sale in ordinary civil courts, Rules 72 and 72A under Order XXI of the Code of Civil Procedure, 1908 give authority to **W.A. No.2349 of 2016** -: 8 :- the mortgagee-decree holder to bid at auction sale. Such a provision was conspicuously absent under the Act. It is obviously to fill up that lacuna, that Section 13(5A) was introduced. As noticed supra, under Section 13(5A), a secured creditor can participate in the bid only subject to certain conditions, which are not being reiterated herein again. However, it needs to be observed that at the adjourned sale, the secured creditor can participate in the bid only for a value not below the reserve price fixed. 8. Rule 8(5) of the Security Interest (Enforcement) Rules, 2002 (for short, “the Rules”) provides for fixing of the reserve price, which is as under: “8(5). Before effecting sale of the immovable property referred to in sub-rule (1) of rule 9, the authorised officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such **W.A. No.2349 of 2016** -: 9 :- immovable secured asset by any of the following methods:(a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying such assets; or (b) by inviting tenders from the public; (c ) by holding public auction; or (d) by private treaty.” In terms of Rule 8(5) of the Rules, the authorised officer of the secured creditor is to get the secured assets valued by an approved valuer and accordingly fix the reserve price of the property. The secured assets could be brought for sale only after fixing the reserve price as above. Rule 8(6) of the Rules provides that sufficient public notice be given regarding the sale of the secured assets, in the manner as stated therein. Therefore, the interest of the debtor is adequately guarded and protected. In terms of Section 13(5A) of the Act, the secured creditor is entitled to participate in the bid, only in the absence of any bidders for a value equal to or above the reserve price and the ## **W.A. No.2349 of 2016** -: 10 :- sale is postponed due to that contingency. It is further to be noted that the sale of the property as above is amenable to an appeal under Section 17 of the Act before the Debt Recovery Tribunal. In **Indian Overseas Bank v. Ashok Saw Mill** ([2009] 8 SCC 366) it has been observed thus: “....The legislature by including sub-section(3) in Section 17 has gone to the extent of vesting the DRT with authority to even set aside a transaction including sale and to restore possession to the borrower in appropriate cases.....” Therefore, if aggrieved by the proceedings of sale, it is always open to the owner of the secured assets to challenge the same in an appeal before the DRT under Section 17 of the Act. 9. From the above, the only conclusion that could be arrived at is that the rights of the mortgagor/defaulter has been adequately safeguarded and protected under the Act. Right is given to the secured creditor to bid for the secured assets only on the arising of a particular contingency, viz., **W.A. No.2349 of 2016** -: 11 :- adjournment of sale for want of a bid at or above the reserve price; in which event also, the secured creditor could bid the property only at the reserve price and not below. There is no reason to conclude that the provision is arbitrary, irrational or in any manner violative of the fundamental rights of the appellant/petitioner. 10. In his challenge against the validity of the Section, the learned counsel for the appellant referred to paragraphs 34 and 35 of the judgment of the Apex Court in **Mathew Varghese v. M.Amritha Kumar** ([2014) 5 SCC 610). The Apex Court has cautioned that the secured creditor cannot deal with the secured assets in a light hearted manner or a casual manner by not adhering to the prescriptions contained in the Act and the Rules. As concluded supra, the inclusion of Section 13(5A) in the Act could not be held to be arbitrary or irrational. It ## **W.A. No.2349 of 2016** -: 12 :- does not in any manner violate the fundamental rights of the appellant/petitioner for any reasons since the rights of the mortgagor/debtor has been adequately shielded by the provisions of the Act. The challenge on the vires of Section 13(5A) fails and is turned down. Apart from the challenge on the constitutional validity of the Section, no other contentions are urged. In the result, the Writ Appeal fails and it is accordingly dismissed. ## Sd/- **MOHAN M.SHANTANAGOUDAR,** **CHIEF JUSTICE.** Sd/- **SATHISH NINAN, JUDGE.** Vsv /true copy/ P.S. To Judge