Case Note & Summary
The petitioners, National Polymers and others, challenged an order dated 6 April 2011 of the Debts Recovery Appellate Tribunal directing them to deposit Rs. 7 Crores as a condition for entertaining their appeal under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The petitioners had earlier filed an application under Section 17 of the Act, which was dismissed by the Tribunal on 4 February 2011. Against that dismissal, they appealed and sought a waiver of the pre-deposit requirement. The Appellate Tribunal rejected the waiver application, leading to the present writ petition. The petitioners argued that the first and second provisos to Section 18 of the SARFAESI Act are discriminatory because they require a mandatory pre-deposit of 50% of the debt (reducible to 25%), whereas Section 21 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (RDB Act) confers a discretion on the Appellate Tribunal to allow complete waiver. The court issued notice to the Attorney General of India, and the Additional Solicitor General appeared. The court held that the constitutional challenge must fail because an appeal is a statutory creation and the legislature may impose conditions on the right of appeal. The SARFAESI Act is a special enactment to regulate securitisation, and the conditions imposed are not discriminatory. The court dismissed the petition, upholding the validity of the provisions.
Headnote
A) Constitutional Law - Right of Appeal - Condition Precedent - Section 18, Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The court held that an appeal is a statutory creation and the legislature may condition the exercise of that right on the observance of conditions it considers appropriate. The pre-deposit requirement of 50% (reducible to 25%) is not unconstitutional. (Paras 5)
B) Banking Law - Pre-deposit for Appeal - Discrimination - Section 18 SARFAESI Act vs Section 21 RDB Act - The court rejected the argument that the provisions of Section 18 are discriminatory because they curtail discretion compared to Section 21 of the RDB Act. The two Acts operate in different contexts and the conditions imposed are valid. (Paras 5)
Issue of Consideration
Whether the first and second provisos to Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 are unconstitutional as being discriminatory compared to Section 21 of the Recovery of Debts due to Banks and Financial Institutions Act, 1993.
Final Decision
The court dismissed the writ petition, upholding the constitutional validity of the first and second provisos to Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Law Points
- Right of appeal is a statutory creation
- Legislature may impose conditions on appeal
- Pre-deposit condition under Section 18 SARFAESI Act is valid
- Comparison with Section 21 of RDB Act does not establish discrimination
Case Details
2011 LawText (BOM) (07) 146
WRIT PETITION NO.4231 OF 2011
DR.D.Y.CHANDRACHUD, ANOOP V. MOHTA
Mr. Pradeep Madhyan i/b Vimadalal and Co. for the Petitioners, Mr. D.J. Khambata, ASG with Mr. Rohan Cama and Ms. Anamika Malhotra for Respondent No.1, Mr. Kedar Dighe for Respondent No.4
National Polymers and others
Union of India and others
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Nature of Litigation
Writ petition challenging the constitutional validity of the first and second provisos to Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Remedy Sought
The petitioners sought to quash the order of the Debts Recovery Appellate Tribunal directing deposit of Rs. 7 Crores and to declare the provisos to Section 18 as unconstitutional.
Filing Reason
The petitioners were aggrieved by the order of the Debts Recovery Appellate Tribunal dated 6 April 2011 which directed them to deposit Rs. 7 Crores as a condition for entertaining their appeal under Section 18 of the SARFAESI Act.
Previous Decisions
The Debts Recovery Tribunal dismissed the petitioners' application under Section 17 on 4 February 2011. The petitioners appealed and sought waiver of pre-deposit, which was rejected by the Appellate Tribunal on 6 April 2011.
Issues
Whether the first and second provisos to Section 18 of the SARFAESI Act are unconstitutional as being discriminatory compared to Section 21 of the RDB Act.
Submissions/Arguments
The petitioners argued that Section 18 of the SARFAESI Act curtails the discretion of the Appellate Tribunal to allow complete waiver of pre-deposit, whereas Section 21 of the RDB Act confers such discretion, making the provisions discriminatory.
The respondents (Union of India) defended the provisions, arguing that the legislature may condition the right of appeal and that the two Acts operate in different contexts.
Ratio Decidendi
An appeal is a statutory creation and the legislature may condition the exercise of that right on the observance of conditions it considers appropriate. The pre-deposit requirement under Section 18 of the SARFAESI Act is not discriminatory and is valid.
Judgment Excerpts
An appeal, it is well settled, is a statutory creation. A statute which confers a right of appeal can condition the exercise of that right on the observance of conditions which the legislature may consider appropriate to impose.
The constitutional challenge to the provisions of the second and third provisos of Section 18 must fail.
Procedural History
The petitioners filed an application under Section 17 of the SARFAESI Act before the Debts Recovery Tribunal, which was dismissed on 4 February 2011. Against that order, they filed an appeal before the Debts Recovery Appellate Tribunal and sought a waiver of the pre-deposit under Section 18. The Appellate Tribunal by order dated 6 April 2011 directed deposit of Rs. 7 Crores. The petitioners then filed the present writ petition challenging the constitutional validity of the provisos to Section 18.
Acts & Sections
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: Section 17, Section 18
- Recovery of Debts due to Banks and Financial Institutions Act, 1993: Section 21
