Unique Engineering Works vs Union Of India (Uoi) And Ors. on 15 December, 2003

JUDGMENT

S.H. Kapadia, C.J.

1. By this writ petition, petitioner seeks to challenge the constitutional validity of The Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 [hereinafter referred to for the sake of brevity as Non-performing Asset (NPA) Act, 2002]

Background facts :

2. Extraordinary and urgent situations demand extraordinary remedial measures particularly in economics and finance. With globalization, India has become a signatory to various International Conventions, which require India to reduce its gross fiscal deficit, which was 10% of G.D.P. around 21st June, 2002. Banking is one of an important economic organ to revitalize the economy. However, on 21st June, 2002 the non-performing assets of Banks had reached a figure of Rs. 90,000 crores (approximately) and, therefore, the Government came out with an Ordinance known as Securitisation & Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 which has been substituted by the Act on 19th July, 2002 with effect from 21st June, 2002. That Act briefly is called as Non-performing Asset Act, 2002 (hereinafter referred to as NPA Act, 2002). In the Banks there were higher value loans accounts, which are secured by the borrowers handing over their assets as and by way of security to the Banks against which the Banks lend moneys. On account of non-payment of principal and interest amounts, the margin between the value of the assets pledged/mortgaged/charged narrow down vis-a-vis the amount lent to the borrowers. Consequently, the assets came non-performing. Under the circumstances, Reserve Bank of India has issued guidelines on 4th July, 2002 after the Ordinance defining these non-performing assets. These assets have become sub-standard, doubtful and loss assets on account of non-payment of dues because these asses cannot service the loans sanctioned by the Banks in favour of the borrowers. It is under these circumstances that NPA Act, 2002 has been enacted. There is one more reason for enactment of this Act, 2002. On account of mounting arrears of cases in Civil Courts, recovery was delayed and, therefore, the Government enacted The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (hereinafter referred to for the sake of brevity as the DRT Act, 1993). However, assets, which were charged for maintenance of higher value loan accounts, could not be sold under the recovery machinery provided under the DRT Act, 1993, till the final decree. Even in cases where suits were filed before the Civil Courts, Receivers were appointment from time-to-time, but such Receiver had no power to sell the assets pending the suits. Under the circumstances, the Non-performing Asset (NPA) Act, 2002 has been enacted.

Arguments :

3. Mr. Dhulia, learned Counsel for the petitioner firstly contended that Section 13(2) and Section 13(4) are bad in law as they do not provide for any opportunity to the borrower, to contest the classification of his account as non-performing asset. He invited our attention to Reserve Bank of India guidelines dated 4th July, 2002 under which the sub-standard assets; the doubtful assets and the loss assets are all combined to constitute non-performing assets. He submitted that the Chief Manager of the Bank on his own without any parameters/ guidelines, can select a standard asset and classify the same as a non-performing asset without giving any opportunity to the borrower before issuing notice under Section 13(2) of the Non-performing Assets (NPA) Act, 2002. He, therefore, submitted that hearing should be provide to the borrowers before issuance of notice under Section 13(2) of the Non-performing Asset (NPA) Act, 2002 and in the absence of such a hearing/opportunity, there is a violation of the rule of natural justice and, therefore, Section 13(2) is liable to be struck down. In this connection, Mr. Dhulia further pointed out that in several cases loans were classified as standard assets prior to 21st June, 2002 when the Ordinance was issued. That under the previous guidelines, these loans were standard assets. That under the previous guidelines, there were three distinct separate assets namely doubtful assets, sub-standard assets and loss assets. But under the present guidelines, they are all combined to constitute non-performing assets and consequently, it was argued that if an asset was a standard asset before 21st June, 2002, it cannot become a non-performing asset on 21st June, 2002 without opportunity to the borrowers. He, therefore, contended that Section 13(4) is harsh as it gives excessive power to the Bank officers not only to classify an assets a non-performing asset, but also it gives power to him to thereafter invoke the provisions of Section 13(2) of the said Act, 2002. That in absence of the guidelines, the Bank officer can pick and choose DRT Act, 1993 in one case and in other cases he can invoke the impugned Act, 2002. Further the impugned Act, 2002 empowers the Bank to seize the assets and to sell them without intervention of the Court/Tribunal on expiry of 60 days from the receipt of the notice under Section 13(2) of the Act. 2002.

4. Mr. Dhulia next contended that Section 13(4) of the said Act, 2002 is very harsh and arbitrary. That it empowers the secured creditor to take possession of secured assets of the borrower. That it empowers the secured creditor to take over the management of the assets of the borrower. That it empowers the secured creditor to appoint a manager to manage the assets after taking possession. That it empowers the secured creditors to sell the secured assets of the borrower. That in the circumstances, Section 13(4) is unreasonable, arbitrary and harsh and, therefore, it violates Article 14 and Article 19(1)(g) of the Constitution of India. In this connection, it was further argued that before the NPA Act, 2002, the petitioner had a right to challenge the claim of the secured creditor under the DRT Act, 1993. That before the enactment of the said Act, 2002, the asset could not be sold till the decree is passed by the Court/Tribunal. That before the impugned Act, 2002, the Banks/financial institutions were required to file suits in the Civil Court/Debt Recovery Tribunal (DRT) under the DRT Act, 1993, under which, there were ample powers given to the Tribunal to attach and manage the assets of the borrower given as security pending hearing and final disposal of the suit/petition, whereas under the present Act, 2002, once an asset is certified as non-performing asset, then the Bank/financial institution can straightaway invoke provisions of Section 13(2) under which notice of 60 days is required to be given to enable the borrower to discharge his liability, failing which, Section 13(4) can be resorted to subject to right of appeal under Section, 17 of the said Act, 2002. He, therefore, contended that Section 13(4) is unreasonable, arbitrary and violative of petitioner’s fundamental rights under Article 14 and Article 19(1)(g) of the Constitution. In the alternative, he submitted that even if the validity of the Act, 2002 is upheld by the Court, the Court should issue appropriate directions under which a machinery is provided before an asset is classified as non-performing asset.

5. Mr. Dhulia next contended that in view of Section 13(2) of the said Act, 2002, the impugned Act, 2002 cannot be made applicable retrospectively. He submitted that the Act, 2002 came into force with effect from 21st June, 2002. He contended that there are large number of borrowers, who have taken term loans for a period of 10 to 15 years. He contended that under the earlier norms prevailing before 4th July, 2002, when Reserve Bank of India Guidelines came into force the assets of the borrowers with the Bank, in many cases, were standard assets vis-a-vis non-performing assets. But under the new Guidelines they have been suddenly converted into non-performing assets with effect from 21st June, 2002 and suddenly the Banks arc calling upon the debtors to pay the full debt within 60 days, even when the debts have not become finally due and payable, only on the ground that the assets charged in favour of the Bank have become substandard, doubtful and loss assets. He, therefore, contended that the NPA Act, 2002 has not apply prospectively and not retrospectively. He further contended that there are borrowers of the Bank, who have taken loans for purchase of consumer items and cars. That the Banks are now refusing to proceed for recovery of loans under the DRT Act, 1993 and that, as a matter of short-cut, Banks and financial institutions are moving under the impugned NPA Act, 2002 just by classifying the assets of the borrower as non-performing assets without application of mind. He contended that if the validity of the NPA Act, 2002 is upheld, it would make the provisions of DRT Act, 1993 redundant. In this connection he further contended that Banks and financial institutions are invoking the provisions of the impugned NPA Act, 2002 even in cases where matters are pending before Debt Recovery Tribunal under the DRT Act, 1993. He contended that the impugned NPA Act, 2002 cannot be applied to pending matters before the Debt Recovery Tribunal under the DRT Act, 1993. He contended that if retrospective effect is given to the impugned NPA Act, 2002 it would also cover suits pending before the Debt Recovery Tribunal. He contended that the DRT Act, 1993 is a complete Code by itself. He contended that under Section 17 and Section 18 of the DRT Act, 1993, no Court except the Debt Recovery Tribunal has jurisdiction, power and authority to decide cases filed by the Banks and financial institutions for recovery of debts due to such Banks and financial institutions. He contended that without amending Section 17 and Section 18 of the DRT Act, 1993, it was not open to the Parliament to make the impugned NPA Act, 2002 retrospective. It may be clarified that in the first instance, it is argued on behalf of the petitioner that the impugned NPA Act, 2002 is only prospective. However, if the Court holds that the NPA Act, 2002 is retrospective, then it was argued that the impugned enactment would become arbitrary, illegal and bad in law as the impugned NPA Act, 2002 cannot take away the powers of Debt Recovery Tribunal under Section I7and Section 18 of the DRT Act, 1993. It was further argued that when a suit is pending before Debt Recovery Tribunal, a part of the claim cannot be taken away from the Debt Recovery Tribunal and introduced under the impugned NPA Act, 2002 as such a position would violate Order 2, Rule 2 of C.P.C. He further contended that appeal is a continuation of the original suit. He contended that where the suit is pending before the Debt Recovery Tribunal, the claim under that suit cannot be brought under the impugned NPA Act, 2002. He submitted that it is well settled rule of interpretation that the right of appeal is a pending suit is a substantive right which cannot be taken away retrospectively unless the impugned Act, 2002 expressly so provides. He contended that the impugned NPA Act, 2002 is neither declaratory nor procedural. He further contended that had the Bank/financial institution filed a suit for foreclosure or sale the petitioner had a right to defend the suit instituted by the Banks/financial institutions under the DRT Act, 1993 and even go in appeal, whereas under the present Act, 2002, once the asset of the borrower is classified a non-performing asset, the burden is on the petitioner to file an appeal under Section 17. He further contended that the impugned NPA Act, 2002, cannot apply to pending contracts. That these are substantive rights and, therefore, the impugned NPA Act, 2002 cannot be read as retrospective.

6. Mr. Alok Singh, learned Counsel appearin” for the petitioner in writ petition No. 727 of 2003 has adopted the arguments of Mr. Dhulia. In addition, however, he contended that under Section 13(11) of the impugned NPA Act, 2002 the secured creditor is given the power to proceed against the guarantor or sell the pledged assets without taking action under Section 13(2) of the impugned NPA Act, 2002 and, therefore, Section 13(11) of the impugned NPA Act, 2002 was unreasonable, arbitrary and violalive of petitioner’s fundamental rights under Article 14 and Article 19(1)(g) of the Constitution. Mr. Alok Singh, learned Counsel for the petitioner in writ petition No. 727 of 2003 is appearing for the guarantor. Mr. Alok Singh further submitted that provisions of Section 13(11) are also contrary to Section 141 of the Contract Act.

7. Mr. P.R. Mullick, learned Counsel for the petitioner in writ petition No. 1002 of 2003 submitted that under Section 15 of the Sick Industrial Companies Act, 1985, reference is provided to BIFR. That under Section 3(1)(o) of the said Act, 1985, a Sick Industrial Company is defined to mean an industrial company whose accumulated losses equals or exceeds its net worth. That under Section 16 of the said Act, 1985 inquiry into the working of the sick industrial companies is contemplated. That under Section 17 and Section 18 of the said Act, 1985, BIFR is empowered to make suitable orders on inquiry including preparation and sanction of rehabilition scheme. That under Section 19 of the said Act, 1985, rehabilitation is provided for by financial assistance from Banks/financial institutions. He submitted that by virtue of the provisions of the impugned NPA Act, 2002 it is, inter alia, provided under the Schedule that with effect from 21st June, 2002 no reference shall be made to BIFR after the commencement of the impugned NPA Act, 2002 and further, all pending references before BIFR shall abate. Mr. Mullick contends that under the impugned NPA Act, 2002 there is no scope for rehabilitation of sick industrial companies. That mere is no scope for rehabilitation of potential sick industrial company. That under Section 9 of the impugned NPA Act, 2002 measures for asset reconstruction are provided for under which the reconstruction company or securitisation company shall take over non-performing assets in terms of the guidelines framed by Reserve Bank of India. Mr. Mullick contended that the emphasis has now shifted from rehabilitation of sick industrial company by BIFR to recovery of loans by Banks and financial institutions under the impugned NPA Act, 2002. He submitted that even in cases where BIFR has taken steps to rehabilitate a sick industrial company, the authority of BIFR is withdrawn by virtue of the impugned NPA Act, 2002. He contended that no opportunity is given to the borrower to prevent the secured creditor (Banks and financial institutions) from handingover the borrower’s assets to the reconstruction company/securitisation company. He, therefore, submitted that Section 9 is arbitrary, unreasonable and violative of petitioners’ fundamental rights under Article 19(1)(g) of the Constitution. He further pointed out that under Section 5 of the impugned NPA Act, 2002 the securitisation company or reconstruction company can acquire the assets of the borrower by issuance of a debenture or a bond. That however Section 5 does not provide for any opportunity to the borrower to object to the handing over of his assets or acquisition of his assets by securitisation company/reconstruction company and, therefore, he submits that Section 5 of the impugned NPA Act, 2002 is ultra vires Article 14 and Article 19(1)(g) of the Constitution of India. Mr. Mullick further contended that in 1985 there was a Health Code Scheme framed by Reserve Bank of India under which Code I dealt with standard assets; Code II dealt with sub-standard assets; Code III dealt with doubtful assets; Code IV dealt with loss assets; Code V dealt with recall debts; Code VI dealt with protested debts and Code VII dealt with sick and rehabilitation debts. That in 1993 Reserve Bank of India formulated norms called as Prudential Norms, which dealt with servicing of loans given by Banks and financial institutions. That under the Prudential Norms debts were recalled by Banks only if the debts came under Code IV, which dealt with loss assets, Mr. Mullick contended that Prudential Norms issued by Reserve Bank of India dealt with income recognition, asset classification and provisions for advances. He pointed out that, however, the Prudential Norms of Reserve Bank of India do not dealt with securitisation of assets and, therefore, Reserve Bank of India should issue directions/guidelines for securitisation of assets. He contended that for the first time the Parliament has enacted a law which deals with securitisation of assets. But Reserve Bank of India has not issued any guidelines in this regard. Mr. Mullick next contended that although the impugned NPA Act, 2002 came into force with effect from 21st June, 2002, till today, the Sick Industrial Companies Act, 1985 has not been repealed, but the said Act, 1985 has become redundant as the references pending before the BIFR abate and, therefore, the very object of the said Act, 1985 fails. He, therefore, submitted that Section 5 and Section 9 of the impugned NPA Act, 2002 are ultra vires petitioner’s fundamental rights under Article 14 and Article 19(1)(g) of the Constitution of India.

8. Mr. M.C. Pandey, learned Advocate for the petitioner in Writ Petition Nos. 362 of 2003, 363 of 2003 and 498 of 2003 submitted that Section 13 of the impugned NPA Act, 2002 gives wide and arbitrary powers to Bank manager to pick and choose certain borrowers for action under the impugned NPA Act, 2002. He contended that the normal procedure for recovery of loans by Banks and financial institutions is contemplated by DRT Act, 1993. He submitted that the impugned NPA Act, 2002 provides for summary procedure. He submitted that the DRT Act, 1993 the borrower can file a counter-claim; that he can challenge the claim of the Bank/financial institution by way of defence, whereas, under the impugned NPA Act, 2002 the Bank Manager classifies an asset as non-performing asset unilaterally and thereafter he invokes the said Act, 2002 and it is left for the borrower to go in appeal before the Tribunal and challenge only the action of the secured creditor in taking possession and that the borrower cannot challenge his liability as ascertained by the Bank/ financial institutions. He, therefore, submitted that there is no guidance provided under the Act as to in which cases the DRT Act, 1993 will be invoked and in which cases the impugned NPA Act, 2002 will be invoked. He further submitted that in certain case the secured property is a residential house, which cannot be attached and sold in view of Section 60, CPC. He, therefore, submits that Section 13 is ultra vires petitioner’s fundamental rights under Articles 14 and 19(1)(g) of the Constitution of India.

9. Mr. Bansal, learned Advocate for the petitioner in Writ Petition No. 925 of 2003 submitted that under Section 36 of the impugned NPA Act, 2002 no secured creditor is entitled to invoke Section 13(4) of the impugned NPA Act, 2002 unless his claim in respect of financial asset comes within the period of limitation specified under the Limitation Act, 1963. Mr. Bansal contended that it is left to be Bank officers to decide whether the Bank’s claim is within limitation or beyond limitation. He contends that under Section 13(4) the asset of the borrower can be taken and disposed of even if the Bank’s claim is time barred. He, therefore, submitted that the impugned Act, 2002 does not provide for any machinery of adjudication and summary powers are given to the Bank manager to seize the property of the borrower and sell the same. He, therefore, contended that Section 13(4) of the impugned NPA Act, 2002 is bad in law and violative of rules of natural justice and it also violates petitioner’s fundamental rights under Article 14 and Article 19(1)(g) of the Constitution of India. Mr. Bansal further contended that notice under Section 13(2) is given to the petitioner in writ petition No. 925 of 2003. That the petitioner is a guarantor. That the Bank has instituted proceedings under the DRT Act, 1993 against the principal borrowers and pending those proceedings, notice under Section 13(2) is given to the guarantor, which is derogatory to the provisions of DRT Act, 1993. He contended that under Section 37 of the impugned NPA Act, 2002, application of other laws like Companies Act; Securities Contract Regulation Act, 1956; SEBI Act, 1992 and DRT Act, 1993 are not barred provided that the provisions of the impugned NPA Act, 2002 is in addition to those Acts and not in derogation to those Acts. He contended that the giving of notice by the Bank to the guarantors under Section 13(2) of the impugned NPA Act, 2002 is derogatory to the powers of Debt Recovery Tribunal under the DRT Act, 1993, He, therefore, submitted that the action of the Bank should be struck down. He, therefore, submitted that notice under Section 13(2) of the impugned NPA Act, 2002 should be struck down.

10. Mr. Arvind Vashishth, learned Advocate for the petitioner in Writ Petition Nos. 766 of 2003 and 1046 of 2003 adopted the arguments of Mr. Dhulia, learned Advocate for the petitioner in main petition. He further submitted that the petitioner in writ petition No. 1046 of 2003 and Writ Petition No. 766 of 2003 are guarantors and notice under Section 13(2) of the impugned NPA Act, 2002 is directed against the residential house of the guarantor, which is not permitted under the provisions of Section 31 (g) of the impugned NPA Act, 2002.

Scope of NPA Act, 2002 read with Reserve Bank of India Guidelines dated 4th July, 2002 :

11. For the sake of clarity, we quote, hereinbelow, the following sections of Non-performing Assets (NPA) Act, 2002 :

“Statement of Objects and Reasons–The financial sector has been one of the key drivers in India’s efforts to achieve success in rapidly developing its economy. While the Banking industry in India is progressively complying with the international prudential norms and accounting practices, there are certain areas in which the Banking and financial sector do not have a level playing field as compared to other participants in the financial markets in the world, There is no legal provision for facilitating securitisation of financial assets of Banks and financial institutions. Further, unlike international Banks, the Banks and financial institutions in India do not have power to take possession of securities and sell them. Our existing legal framework relating to commercial transactions has not kept pace with the changing commercial practices and financial sector reforms. This has resulted in slow pace of recovery of defaulting loans and mounting levels of non-performing assets of Banks and financial institutions, Narasimham Committee I and II and Andhyarujina Committee constituted by the Central Government for the purpose of examining Banking sector reforms have considered the need for changes in the legal system in respect of these areas. These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering Banks and financial institutions to take possession of the securities and to sell them without the intervention of the Court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. The provisions of the Ordinance would enable Banks and financial institutions to realize long-term assets, manage problem of liquidity, asset liability mismatches and improve recovery by exercising powers lo lake possession of securities, sell them and reduce non-performing assets by adopting measures for recovery or reconstruction.

It is now proposed to replace the Ordinance by a Bill, which, inter alia, contains provisions of Ordinance to provide for–

(a) registration and regulation of securitisation companies or reconstruction companies by the Reserve Bank of India;

(b) facilitating securitisation of financial assets of Banks and financial institutions with or without the benefit of underlying securities;

(c) facilitating each transferability of financial assets by the securitisation company or reconstruction company to acquire financial assets of Banks and financial institutions by issue of debentures or bonds or other security in the nature of a debenture;

(d) empowering securitisation companies or reconstruction companies to raise funds by issue of security receipts to qualified institutional buyers;

(e) facilitating reconstruction of financial assets acquired by exercising powers of enforcement of securities or change of management or other powers which are proposed to be conferred on the Banks and financial institutions;

(f)    declaration of any securitisation company or reconstruction company registered with the Reserve Bank of India as a public financial institution for the purpose of Section 4A of the Companies Act, 1956;
 

(g)   defining 'security interest' as any type of security including mortgage and change on immovable properties given for due repayment of any financial assistance given by any Bank or financial institution;
 

(h)   empowering Banks and financial institutions to take possession of securities given for financial assistance and sell or lease the same or take over management in the event of default, i.e. classification of the borrower's account as non-performing asset in accordance with the directions given or under guidelines issued by the Reserve Bank of India from time-to-time;
 

(i)    the rights of a secured creditor to be exercised by one or more of its officers authorised in this behalf in accordance with the rules made by the Central Government;
 

(j)    an appeal against the action of any Bank or financial institution to the concerned Debt Recovery Tribunal and a second appeal to the Appellate Debts Recovery Tribunal;
 

(k)   setting up or causing to be set up a Central Registry by the Central Government for the purpose of registration of transactions relating to securitisation, asset reconstruction and creation of security interest;
 

(l)    application for the proposed legislation initially to Banks and financial institutions and empowerment of the Central Government to extend the application of the proposed legislation of non-Banking financial companies and other entities;
 

(m) non-application of the proposed legislation to security interest in agricultural lands, loans not exceeding rupees one lakh and cases where eighty per cent of the loans are repaid to the borrower. 
 

The Bill seeks to achieve the above objects."
 

"2(f) borrower means any person who has been granted financial assistance by any Bank or financial institution or who has given any guarantee or created any mortgage or pledge as security for the financial assistance granted by any Bank or financial institution and includes a person who becomes borrower of a securitisation company or reconstruction company consequent upon acquisition by it of any rights or interest of any Bank or financial institution in relation to such financial assistance." 
 

"2(i) Debts Recovery Tribunal means the Tribunal established under Sub-section (1) of Section 3 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993(51 of 1993)."
 

"2(j) Default means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor in accordance with the directions or guidelines issued by the Reserve Bank."
 

"2(1) Financial Asset means debt or receivables and includes--
   

(i)    a claim to any debt or receivables or part thereof, whether secured or unsecured; or
 

(ii)   any debt or receivables secured by, mortgage of, or charge on, immovable property; or
 

(iii) a moitgage, charge, hypothecation or pledge of movable property; or
 

(iv) any right or interest in the security, whether full or part underlying such debt or receivables; or
 

(v)   any beneficial interest in property, whether movable or immovable, or in such debt, receivables, whether such interest is existing, future, accruing, conditional or contingent; or
 

(vi) any financial assistance." 
 

"2(n)    Hypothecation means a charge in or upon any movable property, existing or future, created by a borrower in favour of a secured creditor without delivery of possession of the movable property to such creditor, as a security for financial assistance and includes floating charge and crystallization of such charge into fixed charge on movable property."
 

"2(o)    Non-performing asset means an asset or account of a borrower, which has been classified by a Bank or financial institution as sub-standard, doubtful or loss asset, in accordance with the directions or under guidelines relating to assets classifications issued by the Reserve Bank."
 

"2(q)    Obligor means a person liable to the originator, whether under a contract or otherwise, to pay a financial asset or to discharge any obligation in respect of a financial asset, whether existing, future, conditional or contingent and includes the borrower."
 

"2(r)     Originator means the owner of a financial asset which is acquired by a securitisation company or reconstruction company for the purpose of securitisation or asset reconstruction."
 

"2(z)    Securitisation means acquisition of financial assets by any securitisation company or reconstruction company from any obligator, whether by raising of funds by such securitisation company or reconstruction company from qualified institutional buyers by issue of security receipts representing undivided interest in such financial assets or otherwise."
 

"2(za)  Securitisation Company means any company formed and registered under the Companies Act, 1956 (1 of 1956) for the purpose of securitisation."
 

"2(zb) Security Agreement means an agreement, instrument or any other document or arrangement under which security interest is created in favour of the secured creditor including the creation of mortgage by deposit of title deeds with the secured creditor."
 

"2(zc)  Secured Asset means the property on which security interest is created." "2(ze)  Secured Debt means a debt which is secured by any security interest."
 

"2(zf)   Security Interest means right, title and interest of any kind whatsoever upon property, created in favour of any secured creditor and includes any mortgage, charge, hypothecation, assignment other than those specified in Section 31."
 

"5.   Acquisition of rights or interest in financial assets--
   

(1)   Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any Bank or financial institution--
   

(a)   by issuing a debenture or bond or any other security in the nature of the debenture, for consideration agreed upon between such company and the Bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or
 

(b)   by entering into an agreement with such Bank or financial institution for the transfer of such financial asset to such company on such terms and conditions as may be agreed upon between them. 
 

(2)   If the Bank or financial institution is a lender in relation to any financial assets acquired under Sub-section (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such Bank or financial institution shall vest in such company in relation to such financial assets.
 

(3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers-of-attorney, grants of legal representation, permissions, approvals, consents or non-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under Sub-section (1) and to which the concerned Bank or financial institution is a party or which are in favour of such Bank or financial institution shall, after the acquisition of financial assets, be of as full force and effect against or in favour of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said Bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of securitisation company or reconstruction company, as the case may be.

(4) If, on the date of acquisition of financial asset under Sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the Bank or financial institution, save as provided in the third proviso to Sub-section (1) of Section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be.”

“9. Measures for assets reconstruction–Without prejudice to the provisions contained in any other law for the time being in force, a securitisation company or reconstruction company may, for the purposes of asset reconstruction, having regard to the guidelines framed by the Reserve Bank in this behalf, provide for any one or more of the following measures, namely :

(a) the proper management of the business of the borrower, by change in, or takeover of, the management of the business of the borrower;

(b) the sale or lease of a part or whole of the business of the borrower;

(c) rescheduling of payment of debts payable by the borrower;

(d) enforcement of security interest in accordance with the provisions of this Act;

(e) settlement of dues payable by the borrower;

(f) taking possession of secured assets in accordance with the provisions of this Act.”

“13. Enforcement of security interest–

(1) Notwithstanding anything contained in Section 69 or Section 69A of the Transfer of Property Act, 1882 (4 of 1882), any security interest created in favour of any secured creditor may be enforced, without the intervention of the Court or Tribunal, by such creditor in accordance with the provisions of this Act.

(2) Where any borrower, who is under a liability to a secured creditor under a secured agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under Sub-section (4).

(3) The notice referred to in Sub-section (2) shall give details of the amount payable by the borrower and the secured assets intended to be enforced by the secured creditor in the event of non-payment of secured debts by the borrower.

(4) In case the borrower fails to discharge his liability in full within the period specified in Sub-section (2), the secured creditor may take recourse to one or more of the following measures to recover his secured debt, namely;

(a) take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset;

(b) take over the management of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale and realize the secured asset;

(c) appoint any person (hereinafter referred to as the manager), to manage the secured assets the possession of which has been taken over by the secured creditor;

(d) required at any time by notice in writing, any person who has acquired any of the secured assets from the borrower and from whom any money is due or may become due to the borrower, to pay the secured creditor, so much of the money as is sufficient to pay the secured debt.

(5) Any payment made by any person referred to in Clause (d) of Sub-section (4) to the secured creditor shall give such person a valid discharge as if he has made payment to the borrower.

(6) Any transfer of secured asset after taking possession thereto or takeover of management under Sub-section (4), by the secured creditor or by the manager on behalf of the secured creditor shall vest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner of such secured asset.

(7) Where any action has been taken against a borrower under the provisions of Subsection (4), all costs, charges and expenses which, in the opinion of the secured creditor, have been properly incurred by him or any expenses incidental thereto, shall be recoverable from the borrower and the money which is received by the secured creditor shall, in absence of any contract to the contrary, be held by him in trust, to be applied, firstly, in payment of such costs, charges and expenses and secondly, in discharge of the dues of the secured creditor and the residue of the money so received shall be paid to the person entitled thereto in accordance with his rights and interests.

(8) If the dues of the secured creditor together with all costs, charges and expenses incurred by him are tendered to the secured creditor at any time before the date fixed for sale or transfer, the secured asset shall not be sold or transferred by the secured creditor, and no further step shall be taken by him for transfer or sale of that secured asset.

(9) In the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor shall be entitled to exercise any or all of the rights conferred on him under or pursuant to Sub-section (4) unless exercise of such right is agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding as on a record date and such action shall be binding on all the secured creditors:

Provided that in the case of a company in liquidation, the amount realized from the sale of secured assets shall be distributed in accordance with the provisions of Section 529A of the Companies Act, 1956(1 of 1956):

Provided further that in the case of a company being wound up on or after the commencement of this Act, the secured creditor of such company, who opts to realize his security instead of relinquishing his security and proving his debt under proviso to Sub-section (1) of Section 529 of the Companies Act, 1956 (1 of 1956), may retain the sale proceeds of his secured assets after depositing the workmen’s dues with the liquidator in accordance with the provisions of Section 529A of that Act:

Provided also that the liquidator referred to in the second proviso shall intimate the secured creditor the workmen’s dues in accordance with the provisions of Section 529A of the Companies Act, 1956 (1 of 1956) and in case such workmen’s dues cannot be ascertained, the liquidator shall intimate the estimate amount of workmen’s dues under that section to the secured creditor and in such case the secured creditor may retain the sale proceeds of the secured assets after depositing the amount of such estimated dues with the liquidate:

Provided also that in case the secured creditor deposits the estimated amount of workmen’s dues, such creditor shall be liable to pay the balance of the workmen’s dues or entitled to receive the excess amount, if any, deposited by the secured creditor with the liquidator:

Provided also that the secured creditor shall furnish an undertaking to the liquidator to pay the balance of the workmen’s dues, if any.

Explanation–For the purpose of this Sub-section,–

(a) ‘record date’ means the date agreed upon by the secured creditors representing not less than three-fourth in value of the amount outstanding on such date;

(b) ‘amount outstanding’ shall include principal, interest and any other dues payable by the borrower to the secured creditor in respect of secured asset as per the books of account of the secured creditor.

(10) Where dues of the secured creditor are not fully satisfied with the sale proceeds of the secured assets, the secured creditor may file an application in the form and manner as may be prescribed to the Debts Recovery Tribunal having jurisdiction or a Competent Court, as the case may be, for recovery of the balance amount from the borrower.

(11) Without prejudice to the right conferred on the secured creditor under or by this section, the secured creditor shall be entitled to proceed against the guarantors or sell the pledged assets without first taking any of the measures specified in Clauses (a) to (d) of Sub-section (4) in relation to the secured assets under this Act.

(12) The rights of a secured creditor under this Act may be exercised by one or more of his officers authorized in this behalf in such manner as may be prescribed.

(13) No borrower shall, after receipt of notice referred to in Sub-section (2), transfer by way of sale, lease or otherwise (other than in the ordinary course of his business) any of his secured assets referred to in the notice, without prior written consent of this secured creditor.”

“17. Right to appeal.–

(1) Any person (including borrower), aggrieved by any of the measure 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 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 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.

(3) Save as otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, depose of the appeal in accordance with the provisions of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder.”

“19. Right of borrower to receive compensation and costs in certain cases.–If the Debts Recovery Tribunal or the Appellate Tribunal, as the case may be, on an appeal filed under Section 17 or Section 18 holds the possession of secured assets by the secured creditor as wrongful and directs the secured creditor to return such secured assets to the concerned borrower, such borrower shall be entitled to payment of such compensation and costs as may be determined by such Tribunal or Appellate Tribunal.”

“25. Securitisation company or reconstruction company or secured creditor to report satisfaction of security interest.–

(1) The securitisation company or the reconstruction company or the secured creditor as the case may be, shall give intimation to the Central Registrar of the payment or satisfaction in full, of any security interest relating to the securitisation company or the construction company or the secured creditor and requiring registration under this Chapter, within thirty days from the date of such payment or satisfaction.

(2) The Central Registrar, on receipt of such intimation, cause a notice to be sent to the securitisation company or reconstruction company or the secured creditor calling upon it to show cause within a time not exceeding fourteen days specified in such notice, as to why payment or satisfaction should not be recorded as intimated to the Central Registrar.

(3) If no cause is shown, the Central Registrar shall order that a memorandum of satisfaction shall be entered in the Central Register.

(4) If cause is shown, the Central Registrar shall record a note to that effect in the Central Register, and shall inform the borrower that he has done so.”

12. Before coming to the scope of the Act, 2002 one has to know the connotation of the words “Non-performing assets”. The main source of income for Banks comes from Advances and Investments. Advances are divided into performing and non-performing assets. An advance, returning income on continuous basis is called a performing asset, whereas an advance, which remains out of Order for 180 days, is called a non-performing asset. In the case of a Term Loan it becomes a non-performing asset if interest instalments remain overdue for 180 days. The Cash Credit and Over-Draft Accounts become non-performing assets if the outstandings thereunder remain over and above the sanctioned limits for more than 180 days. Similarly, Bills purchased become non-performing assets if they remain unpaid for 180 days. The IIIrd Schedule of Banking Regulation Act, 1949 classifies Advances on the basis of tangible securities, Bank guarantees, etc. Advances may also be unsecured for example advances against Book-Debts (receivables). On the other hand, advances where equitable mortgage has been created or advances against pledge of plant and machinery are advances (secured).

13. With this introduction, let us now consider the scope of the NPA Act, 2002.

14. The object of the NPA Act, 2002 is to enable Banks and financial institutions to realize long term assets, management of liquidity, asset liability mis-matches and reduction of non-performing assets by adopting measures for recovery/reconstruction. Under Section 2(zf) the NPA Act, 2002, “Security Interest” is defined as any type of security including mortgage and charge on immovable properties given by the borrower to the Banks for due repayment of any financial assistance given by Banks or financial institutions. The Act, 2002 empowers Banks/financial institution to take possession of securities given for due repayment of any financial assistance. The Act also empowers Bank and financial institutions to sell the Security Interest as defined under the Act or take over the management in the event of default by the borrower. Under the Act, 2002 classification of borrower’s account as a non-performing asset shall be done in accordance with guidelines/directions issued by the Reserve Bank of India from time-to-time. Under the Act, 2002 appeal is provided against the action of any Bank/financial institution to Debt Recovery Tribunal and a further appeal is provided to the Appellate Tribunal. Under Section 2(f) a “borrower” is defined to mean any person who is given financial assistance by any Bank/financial institution. It includes a guarantor. It also includes any person, who becomes a borrower of the Reconstruction Company consequent upon such company acquiring any right, title or interest of any Bank/financial institution in relation to such financial assistance. Section 2(j) defines the word “default” to mean non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor and in accordance with, the directions/guidelines issued by the Reserve Bank of India, Under Section 2(k) “financial assistance” is defined to mean any loan or advance granted or any debenture or bond or any guarantee or letter of credit or any other credit facility given by Banks/financial institutions. Under Section 2(1) a “financial asset” is defined to mean a debt or receivable whether secured or unsecured. It includes any right or interest in the security underlying such debt/receivable. It also includes any beneficial interest in the property movable or immovable, which is given as security for repayment of financial assistance extended by Banks/financial institutions. Section 2(o) defines “non-performing asset” to mean any asset or account of a borrower, which has been classified by a Bank/financial institution as sub-standard, doubtful or loss asset in accordance with directions of Reserve Bank of India. Section 2(q) defines the word “obligator” to mean a person liable to the Bank/financial institution (originator) to discharge any obligations in respect of a financial asset, whether existing, future, conditional or contingent. The word “obligatory” includes a borrower. Section 2(r) defines the word “originator” to mean the owner of & financial asset, which is acquired by a reconstruction company for asset reconstruction. Section 2(z) defines the word “securitisation” to mean acquisition of financial assets by any securitisation company or reconstruction company from any originator either by raising funds or by issuing shares/debentures. Section 2(zc) defines the expression “secured asset” to mean the property on which security interest is created. Section 2(zf) defines the expression “security interest” to mean any right, title or interest upon the property in favour of Bank/financial institution. It includes mortgage, charge, hypothecation, assignment, etc. However, it excludes a lien, a pledge of movables, conditional sale, hire-purchase, properties not liable to be attached under Section 60, C.P.C., any security interest created in agricultural land etc. as mentioned in Section 31 of the impugned NPA Act, 2002. Section 5 of the impugned NPA Act, 2002 deals with acquisition of rights/interest in financial assets. Under Section 5, any securitisation company/reconstruction company is empowered to acquire financial assets of any Bank/financial institution by issue of debentures, bonds, shares etc. Such assets can be acquired by agreement between such Banks/financial institutions on one hand and securitisation company/reconstruction company on the other hand. Under Section 5, if the Bank/financial institution is a lender in relation to any financial asset acquired by securitisation company/reconstruction company, then such securitisation company/reconstruction company shall be deemed to be the lender and all rights of Bank/financial institution shall vest in the reconstruction company/securitisation company. Under Section 5(4) it is further provided that if on the date of acquisition of any financial asset by reconstruction company/securitisation company, any suit, appeal or other proceedings is pending by or against the Bank/financial institution, the same shall not abate. Under Section 6 of the impugned NPA Act, 2002, the Bank or financial institution may give notice of acquisition of any financial asset by securitisation company/reconstruction company to the concerned obligator (borrower) and in cases, where such notice is given, the obligator (borrower) shall make payment to the concerned reconstruction company/securitisation company and such payment with discharge his obligations in relation to the financial asset. Under Section 9, the Reconstruction Company is empowered to take measures for asset reconstruction. It provides that a securitisation company or a reconstruction company may take over the management of the business of the borrower or it may sell or lease the business of the borrower or reschedule payment of debt. The said company can also enforce the security interest or provide for one time settlement or take possession of the secured assets in accordance with the impugned NPA Act, 2002. However, these measures can be taken only as per the guidelines of Reserve Bank of India. Under Section 11 of the impugned NPA Act, 2002, in the event of any dispute, relating to securitisation or reconstruction or non-payment of the dues, then such disputes shall be settled by arbitration or conciliation as provided under Arbitration and Conciliation Act, 1996. Under Section 12 of the impugned NPA Act, 2002, Reserve Bank of India is empowered, in public interest, to issue guidelines/directions to any securitisation company/reconstruction company in order to regulate the financial system of the country. Under Section 12 of the impugned NPA Act, 2002, Reserve Bank of India is empowered to give directions to all securitisation/reconstruction companies in matters relating to income recognition, accounting standards, capital adequacy ratio and deployment of funds by reconstruction company/securitisation company.

15. Chapter II of the impugned Act, 2002 deals with regulation of securitisation and construction of financial assets of Banks and financial institutions, whereas chapter III deals with enforcement of security interest. It is important to note that reconstruction of financial assets of Banks and financial institutions goes hand-in-hand with enforcement of security interest. The two cannot be segregated. Before coming to Chapter II of the impugned Act, 2002, one must know the correct meaning of the word “Margin”. Banks have three types of assets, namely, loan assets, investment and other assets. Advances are also assets (see Schedule III of Banking Regulation Act, 1949). A non-performing asset including a leased asset becomes non-performing when it ceases to generate income for the Bank. When interest/instalment of principal on the outstanding amount under the credit facility remains unpaid for a specified duration, the Credit Facility Account is treated as non-performing asset. This is indicated by Reserve Bank of India Norms as asset classification contained in Reserve Bank of India circular dated 4th July, 2002. Under these Norms, the objective criteria is contemplated in order to classify an asset as Non-performing Asset vis-a-vis an asset, which is a Performing Asset. Under these Norms, Banks are directed to classify even an Account as non-performing asset if the interest charged for the specified period is not serviced within 180 days. Under these Norms, when the Loan Account becomes Out of Order, it is treated as Non-performing Asset. Under the Norms, Advances are of two types; secured and unsecured. Where advances are made against the bills discounted, they are unsecured advances. Similarly, where advances are made against mortgage/pledge/hypothecation, they are secured advances. The point to be noted is that the value of the security has a direct nexus with the Advances. Whenever a Bank advances loans to a borrower it keeps a margin. For example, if the loan advanced is Rs. 50/-, the Bank takes the security of Rs. 75/-. The borrower is required to keep a margin of Rs. 25/- for all limes. Now when the interest accumulates, that margin is narrowed down and ultimately it is wiped out. At that stage, the asset becomes a Loss Asset. Therefore, the violation of the security is directly linked with the Advance made by the Bank and similarly, it has a direct link with the performance/non-performance of the asset. This discussion is important because the impugned Act, 2002 deals with classification of assets by the Bank and where such assets become non-performing, the Bank is entitled to enforce the security interest in the property on which a charge is created for repayment of the loan. Therefore, the word “security interest” is defined under Section 2(zf) to mean right, title and interest of any kind whatsoever upon the property created in favour of any secured creditor and it includes mortgage, charge. Hypothecation, assignment, etc. This Act, 2002, therefore, deals with enforcement of security interest under Chapter III in cases where the account of the borrower goes Out of Order. This Act, 2002 does not deal with adjudication, which subject matter is dealt with by Debt Recovery Tribunal Act, 1993. As stated above, the non-performing assets of the Banks have gone beyond redemption. They are approximately Rs. 90,000/- crores. Before the Debt Recovery Tribunal, there are several cases, which are pending. They may take several years. In the meantime, on account of mounting non-performing assets, the Legislature had to step-in to reduce non-performing assets by taking measures for recovery. As stated above, prior to this Act under Transfer of Property Act, enforcement of security interest was subject to intervention of the Court or Tribunal. This was in view of Sections 69/69A of the Transfer of Property Act. Under Section 13, it is provided that notwithstanding provisions of Sections 69/69A any security interest created in favour of any secured creditor may be enforced without the intervention of the Court in accordance with the provisions of the Act. Under Section 13(2), where any borrower who is under a liability, makes default in repayment of secured debt and his account is classified as a non-performing asset, then the Bank/financial institution may call upon the borrower by notice in writing to discharge his liabilities to the secured creditor within 60 days failing which Banks/financial institutions shall be entitled to exercise powers under Section 13(4) of the Act. The said notice shall give details of the amounts payable by the borrower. The notice will also give details of the secured assets intended to be enforced by the secured creditors in the event of non-payment of secured debts. Under Section 13(4) if the borrower fails to discharge his liability in full within the period of 60 days, the secured creditor may take one of the steps contemplated by Section 13(4) of the Act namely, it can take possession of the secured assets; it can take over the management of the secured assets; it can appoint a receiver to manage the secured assets. Under Section 13(5) any payment made by the borrower to the secured creditor shall be given a valid discharge. Under Section 13(6) any transfer of the asset after taking possession or management shall vest in the transferee, all rights in relation to the secured asset as if the transfer has been made by the owner of the secured asset. Under Section 13(8) if the dues of the secured creditor are tendered before the date of the sale or transfer, the secured asset shall not be sold. Under Section 17, there is a right of appeal. Under Section 17(1) any person aggrieved by the steps taken by the Bank/financial institution under Section 13(4) may prefer an appeal to Debts Recovery Tribunal having jurisdiction in the matter within 45 days from the date on which such steps have been taken. No appeal shall be entertained by Debts Recovery Tribunal unless the borrower deposits 75% of the claim amount mentioned in the notice under Section 13(2). However, the Debt Recovery Tribunal may for reasons recorded in writing waive the pre-deposit. Under Section 19, it is provided that if the Debt Recovery Tribunal comes to the conclusion that possession of secured assets is wrongly taken by Bank/financial institution, then the Tribunal shall order the return of the secured assets to the borrower and the borrower will also be entitled to payment of compensation and cost as determined by the Tribunal.

16. Under the impugned Act, 2002 Security Interest Enforcement Rules, 2002 have been enacted. Under the Rule 4(2) it is provided that after taking possession, the authorized officer shall make an inventory of the assets taken over and a copy of the inventory will be given to the borrower. Under Rule 4(3) the authorized officer shall keep the property in his own custody till it is sold and the authorized officer shall take steps to preserve the property. Under Rule 8(5) the authorized officer is required to obtain valuation of the property from an approved valuer and in consultation with the secured creditor, the authorized officer is required to fix a reserve price. Under Rule 8(5) the authorized officer may sell the property by obtaining quotations or by inviting tenders from the public or by holding public auction or by private treaty.

Scope of the impugned Act, 2002 vis-a-vis DRT Act, 1993:

17. DRT Act, 1993 was enacted for establishment of Tribunals for expeditious adjudication and recovery of debts due to Banks and financial institutions. Under that Act, the word “debt” is defined to mean any liability including interest, which is claimed as due from any person by a Bank/financial institution. Chapter III of that Act deals with jurisdiction, power and authority of the Tribunal. Under Section 17 of that Act, the Tribunal shall entertain and decide applications from Banks and financial institutions for recovery of debts due to such Banks and financial institutions. Under Section 18 exclusive jurisdiction is vested in the Tribunal in the matter of recovery of debt. In the present case, one of the points raised by the petitioner is that the Banks/financial institutions have been wrongly invoking the impugned Act, 2002 even in case pending before the Debts Recovery Tribunal under the DRT Act, 1993. It is contended that an arbitrary option has been given to Banks and financial institutions to select and apply any of the two laws at the sole discretion of the Banks/financial institutions. It is contended that the provisions of the impugned Act, 2002 cannot be invoked in matters which are pending before Debts Recovery Tribunal under the DRT Act, 1993 particularly in view of the provisions of Section 17 and Section 18 of the DRT Act, 1993. It is for these reasons that we have analysed the provisions of the DRT Act, 1993. It is important to recognize the difference between two types of suits namely suits to recover debts and suits to enforce securities given to secure payment of debts. In this connection, we may refer to Section 22 of Sick Industrial Companies Act, 1985 which deals with suspension of legal proceedings, contracts, etc. pending reference before BIFR. Under Section 22, it is provided that no suit for recovery of money or for enforcement of security or for enforcement of guarantee in respect of loans/advances, shall lie or proceeded with except with the consent of BIFR. This indicates that suit for recovery of money is different from the suit for enforcement of security. This difference is required to be kept in mind. Under the DRT Act, 1993 adjudication and recovery of debts is provided for. Principally, the DRT Act, 1993 gives power to the Tribunal to decide applications from Banks and financial institutions for recovery of debts. In case where a debt becomes due and payable by the borrower under the loan agreement, the Bank can enforce its rights under the loan agreement by filing a suit before the Debts Recovery Tribunal under the DRT Act, 1993, whereas under the impugned NPA Act, 2002 if an Account becomes irregular/Out of Order, the Bank can invoke provisions of Section 13(2) even before the amount becomes due and payable at the foot of the Account. This difference is of importance. In the case of suits filed before Debts Recovery Tribunal under the DRT Act, 1993 the borrower commits breach of the loan agreement by failure to pay interest or principal amount and the Bank is required to sue the borrower for recovery of the amount at the foot of the Account. In such a suit, under the DRT Act, 1993, the Bank can also enforce the security. However, the impugned Act, 2002 operates in a different sphere. Under the impugned Act, 2002, no sooner the Accounts become Out of Order/irregular as per guidelines of Reserve Bank of India, the Bank gives notice to the borrower giving details of his Account, which has become a non-performing asset and if despite notice if the borrower fails to regularize the account then the Bank can invoke Section 13(4). In other words, the impugned Act, 2002 is a special Act visa-vis DRT Act, 1993, which is a general Act. The DRT Act, 1993 covers loans, advances and all types of recoveries of receivables, whereas the impugned NPA Act, 2002 deals only with and in the event of a given Account becoming irregular/Out of Order. A receivable is an asset for the Bank. Under the Norms of Reserve Bank of India, these receivables are treated as advances. These assets of the Banks including advances are income bearing assets and when the income on these assets is not received by the Bank, the criteria laid down by Reserve Bank of India comes into force and the very Account is then treated as non-performing asset and when the Account is classified as non-performing asset, then the provisions of the impugned NPA Act, 2002 qua the NPA will apply. As stated above, the figure of non-performing assets is around 90,000 crores as of date. This has compelled the Government to enact the impugned law 2002 cases where the Accounts have become irregular and as a remedial measure, power is given to the Banks to enforce the securities at the earliest. Moreover, the impugned Act, 2002 provides for securitisation and reconstruction of financial assets, which is not contemplated by DRT Act, 1993. Therefore, the DRT Act, 1993 is a general law vis-a-vis the impugned NPA Act, 2002, which is a special law.

Constitutional Provision vis-a-vis Economic and Financial Legislations:

18. It is now well settled, that, in the matter of policy decisions of the Government in respect of economic matters the Court cannot interfere unless such policy is contrary to the Constitution [See (2002) 2 SCC page 333].

19. In applying the test of reasonableness the board criterion is: whether the law strikes a proper balance between social control on one hand and the rights of the individual on the other hand. The Court must take into account the following aspects while deciding the reasonableness of the law. These aspects are the nature of the right infringed; the underlying purpose of the restriction; the civil sought to be remedied by law; how far is the restriction proportionate to the evil and lastly conditions prevailing at the time of the enactment.

20. In financial and economic matters the Courts permit great latitude to the Legislature. In matter of economics and finances, greater public interest, demands such latitude in favour of the Legislature. In such cases the Legislature can make reasonable discrimination between objects, persons, districts in the larger interest of the economy.

21. The above Constitutional principles are enshrined under Articles 14 and 19(1)(g) of the Constitution.

22. Further, it is well settled that there no right of substantive nature in procedural laws. While substantive law imposing liability or penalty cannot be altered retrospectively, there is no vested right in the procedure. The impugned NPA Act, 2002 is a procedural law dealing with enforcement of security interest. In this connection, we agree with the judgment of the Gujarat High Court reported in 117 Company Cases 412.

23. Lastly, it is well settled that compliance of rules of natural justice depends upon fact and circumstances of each case. The totality of the situation should be considered and if on examination of such totality, it comes to notice of the Court that the executive action suffers from the vice of non-compliance of the rules of natural justice then the Court can set right the wrong inflicted-upon the concerned person [See Kumaun Mandal Vikas Nigam v. Cirija Shankar Pant, AIR 2001 SC page 24]. In the present case, petitioners are defaulters. In the present case petitioners are account holders. In the present case the Accounts have become out of order. Every customer of the Bank is periodically entitled to collect Bank statements and check his outstandings in the Account at regular intervals. As can be seen from guidelines issued by Punjab National Bank adequate opportunity is given to the customers to repay before the Bank invokes Section 13(2) of the impugned NPA Act, 2002. In such cases the issue of pre-decisional hearing does not arise. Hence, Section 13(2) is valid.

Findings :

24. We do not find any merit in the arguments advanced on behalf of the petitioner. It was firstly argued before us that the impugned NPA Act, 2002 has been enacted at the behest of the World Bank and at the behest of international Financial Institutions. In this connection, reliance is placed on Statement of Objects and Reasons to the impugned NPA Act, 2002. As stated above India is a signatory to several International Conventions. Our gross fiscal deficit is approximately 10%of GDP per annum. This is a very high ratio. One of the contributory factors is high amount of non-performing assets. As stated above the non-performing assets are to the tune of Rs. 90,000/- crores which is not a good indication for Banks/financial institutions. Therefore, the Act has been enacted as a remedial measure to reduce non-performing assets. Hence, there is no merit in the argument that the impugned NPA Act, 2002 is enacted at the behest of the World Bank, I.M.F. and other Financial Institutions. Hence, there is no merit in the first ground of attack.

25. In the present case the impugned NPA Act, 2002 has been further challenged on the ground that there is no opportunity given to the borrowers prior to giving of notice under Section 13(2) of the impugned NPA Act, 2002. It was argued that the impugned NPA Act, 2002 is arbitrary and reasonable as it gives drastic powers to the Manager of the Bank to invoke the impugned NPA Act, 2002. That there is no guidelines under the impugned NPA Act, 2002 as to in which cases Banks/financial institutions would proceed whether under DRT Act, 1993 or under this Act, 2002. It was argued that there are two Acts in the field namely, the DRT Act, 1993 and the impugned NPA Act, 2002. It was argued that there is no guidelines under the impugned NPA Act, 2002 as to in which cases the Banks/financial institutions would proceed. That the Bank is given an option to choose either the DRT Act, 1993 or the impugned NPA Act, 2002 depending on the whims and fancies of the Bank officer. We do not find any merit in this argument. As stated above, the impugned NPA Act, 2002 has been passed primarily for Securitisation and Reconstruction of Financial Assets and in that regard Enforcement of Security Interest is a step-in-aide. We have already discussed the parameters of non-performing assets. We do not wish to repeat those parameters. It is important to note the guidelines which are issued by Nationalised Banks like Punjab National Bank indicate that prior to invocation of Section 13(2) of the impugned NPA Act, 2002 there is a detailed machinery provided for in those guidelines. Those guidelines clearly indicate giving of recall notice to the borrowers. Those guidelines indicate opportunities given to the borrowers from time-to-time to make their Accounts regular before the Bank adopts drastic measures under Section 13(2) of the Act. In the circumstances, there are adequate safeguards and opportunities provided under the guidelines which gives opportunity to the borrowers to repay the loan. In fact the guidelines indicate opportunity to the borrowers to make their Accounts proper and regular. The guidelines indicate hierarchy of officers in the Bank who are in-charge of certifying the Account as non-performing asset. Therefore, it is no left to the whims and fancies of an individual Branch Manager to classify an Account as non-performing asset. In fact the certification of an Account as non-performing asset is primarily in respect of High Value Loan Accounts. It is for this reason that certain security interest under Section 31 arc excluded from the provisions of the impugned NPA Act, 2002. Moreover, as indicated by the norms of Reserve Bank of India, an Account is classified as non-performing asset only if the interest/principal amount is not paid for 180 days to the Bank. In such circumstances the Account goes out of order. The Reserve Bank of India norms have classified non-performing assets based on objective criteria, and therefore, there is no scope for any subjectivity of the Branch Manager in the matter of classification of an Account as non-performing asset. It was argued that under Section 36 of the Act, 2002, it is left to the Bank officer to decide whether the Banks action is within time or it is time-barred. We do not find merit. A time-barred claim cannot come under non-performing asset. Moreover, under Section 13(2), notice is given to the borrower only after giving recall notice and after giving adequate opportunities to the borrower to regularize the Account. Under Section 13(5) of the impugned NPA Act, 2002, even after the notice under Section 13(2) the borrower can repay the loan even before the property is sold and even before confirmation of sale if the borrower regularizes the Account, the sale will not take place. Even under Section 13(8) of the impugned NPA Act, 2002 if the dues of the Banks/financial institutions arc tendered to the secured creditor before the fixed date for sale or transfer the secured asset shall not be sold and no further steps shall be taken for sale of the secured asset. Therefore, we do not find any merit in the argument advanced on behalf of the petitioner that no adequate opportunity is provided for before classifying the Account of a borrower as non-performing asset. We are informed that the guidelines issued by Punjab National Bank we identical with guidelines issued by all other Nationalised Banks qua their borrowers. In the circumstances, we uphold the validity of Section 13(2) and Section 13(4) of the impugned NPA Act, 2002. Lastly, a right of appeal is given under the impugned NPA Act, 2002 is the borrower who is aggrieved by the steps taken by the Banks/financial institutions under Section 13(4) of the impugned NPA Act, 2002. Section 17(2) specifically empowers the Tribunal to waive or reduce pre-deposit amount in particular cases. Section 17 read with Section 19 further shows that if the Debts Recovery Tribunal comes to the conclusion that secured assets have been wrongly seized then it will direct the Bank/financial institutions to return the secured assets to the borrower and the Tribunal is also empowered to award compensation and costs for wrongful seizure of the secured assets. Similarly, under Rule 4 of Security Interest Enforcement Rules the property of the borrower upon being seized would be sole either through public auction or private treaty. That the reserved bid will be fixed in consultation with the borrower, That before confirmation of sale opportunity is available with the borrower to repay the dues and if he pays the dues then the sale will not take place. Therefore, every such opportunity is given to the borrower to regularize his Account. Hence, there is no merit in the argument of the petitioners that they have no opportunity to regularize the Account. Moreover, the Accounts of the borrowers which are termed as non-performing assets are scrutinized by statutory Auditors of the Banks. Therefore, adequate safeguards arc provided for under Reserve Bank of India norms as also under the internal norms of Nationalised Banks. After all, credit-off take is one of the important business functions of a Bank/financial institutions. We are quite sure that the Banks will not act arbitrarily as in the process they will lose their customers. Secondly, if the Bank officer acts arbitrarily he will be subjected to costs and compensation under Section 19 of the impugned NPA Act, 2002. Therefore, the apprehensions expressed by the borrowers (petitioners) are all ill-founded. Hence, there is no merit in his second set of arguments advanced on behalf of the petitioners.

26. Thirdly, it was argued that the impugned NPA Act, 2002 cannot apply retrospectively. It was argued that the impugned NPA Act, 2008 cannot be applied to cases which are pending before the Debts Recovery Tribunal under the DRT Act, 1993. We do not find any merit in this argument. Firstly, as stated above the impugned NPA Act, 2002 is a special Act vis-a-vis the DRT Act, 1993- The impugned NPA Act, 2002 comes into picture only when the Account of the borrower becomes non-performing asset. It is in such circumstances that the Bank gets powers to sell the security, whereas the DRT Act, 1993 essentially deals with the adjudication of the liabilities. A suit for fore-closure/sale lies before Debts Recovery Tribunal under the DRT Act, 1993 but if pending that suit if an Account of the borrower becomes a non-performing asset for non payment of interest on the outstandings under the credit facility for specific period then the Banks were helpless in the past and they had to wait till the final decree is passed in the suit before the Debts Recovery Tribunal under the DRT Act, 1993. The cases before Debts Recovery Tribunal are mounting everyday. Simultaneously, the non-performing assets were mounting the today they are at the figure of Rs. 90,000 crores. It is for this reason that the Parliament thought it fit to by-pass Section 69/Section 69A of Transfer of Property Act. The Receiver under the DRT Act, 1993 or even the Receivers appointed by Civil Court in pending suits had no power to sell the property pending the suit for want of decree. Therefore, the Parliament has provided for enforcement of security interest immediately in cases where the Accounts become irregular so that the security interest could be immediately encashed and the proceeds could be handed over to Banks/financial institutions who is turn would provide credit to the borrower and make his Account regular to the extent possible. There is a difference between retrospectivity and retroactivity. In the case of retroactivity the Parliament takes note of the existing conditions and it lakes remedial measures to rectify the conditions. In the preset case, if one looks at the various provisions of the impugned NPA Act, 2002 it is clear that the impugned NPA Act, 2002 is retroactive in nature. Firstly, the Act is enacted to reduce the non-performing assets of Banks and financial institutions which has accumulated. This is mentioned in Statement of Objects and Reasons. Secondly, even at present in case where Order 40, Civil Procedure Code applies, the Court can appoint a Receiver to take possession or custody of [he property before or after the decree. Order 40, Rule 1 of Civil Procedure Code is a part of procedural law. Similarly, under the impugned NPA Act, 2002 we have the procedural law which enables the Bank to take possession of the property for non payment of dues. Therefore, Chapter III of impugned NPA Act, 2002 is procedural law under which remedy is provided for enforcement of security interest without intervention of the Court but at the same time appeal is provided to the Tribunal and in cases where possession is wrongly taken the Tribunal can correct the position. Thirdly, the various Sections of the Act indicate that the impugned NPA Act, 2002 is retrospective. In this connection, one has to look at Section 2(f) which defines the word borrower to mean any person who has been granted financial assistance by any Bank or who is given guarantee. Section 2(f) shows intention of the Parliament to include all borrowers who are given financial assistance before the Act came into force. Section 2(j) defines the word default and the language used is ‘Account of such borrower which is classified as non-performing asset’. This shows that the Act is retroactive. Similarly, Section 2(k) defines financial assistance to mean any ‘loan or advance granted’. This also shows that the Act is retroactive. Similarly, Section 2(n) provides for definition of the word hypothecation to mean ‘credit by a borrower’ which also indicates that the Act is retroactive. So also Section 2(zc) defines secured asset to mean property on which ‘security interest is created’. This also indicates that the Act is retroactive. Therefore, reading the various sections of the impugned NPA Act, 2002 it is clear that the Act is retroactive. Lastly, Section 13(2) uses the expression ‘any person who makes default’ which clearly shows that the Act is retroactive. In the circumstances, there is no merit in the argument that the impugned NPA Act, 2002 is prospective and it cannot be read as retroactive/retrospective. There is one more aspect which needs to be pointed out. A security interest is an interest in the personal property of the borrower which secures repayment or performance of an obligation by the borrower. A security interest has no existence independent of the obligation to repay and if the underlying obligation is unenforceable then the security interest is invalid. A security interest is always given for an antecedent debt. This is clearly indicated by Section 13(2) of the impugned NPA Act, 2002, therefore, the Act is retrospective.

27. As stated above, it was argued on behalf of the one of the petitioners, that prior to the impugned NPA Act, 2002, sick industrial companies had an opportunity of rehabilitation under the provisions of the Sick Industrial Companies (Special Provisions) Act, 1985. That under the Sick Industrial Companies Act, 1985, sick industrial companies were protected from legal action of recovery and enforcement of security interest by virtue of the legal proceedings being suspended under Section 22 of that Act, 1985. It was contended that by virtue of the impugned NPA Act, 2002 all references to BIFR stand abated and, therefore, there is no scope for rehabilitation of the borrower company under the Act. It was further argued that the Sick Industrial Companies Act, 1985 has not been repealed and yet that Act has become redundant in view of the impugned NPA Act, 2002, We do not find any merits in these arguments. Now in economics and finance, there is a concept of ‘Account Receivables’. This concept finds place in the definition of the words ‘financial asset’ as defined under Section 2(1) of the impugned NPA Act, 2002 read with Section 5 and Section 9 of the impugned NPA Act, 2002. Just as any immovable property can become a subject matter of security interest so also an Account Receivable can be transferred, assigned or sold. In other words, there can be an assignment of Account Receivable as a security interest (See Corpus Juris Secundum Vol. 79). This point is very important as Section 5 and Section 9 of the impugned NPA Act, 2002 is based on this concept. When the Account Receivable in the books of the Banks/financial institutions goes Out of Order the Bank is empowered to give notice under Section 13(2) of the borrower. When the Account Receivable does not letch interest income for the Bank that Account Receivable becomes a non-performing asset. Opportunity is, therefore, given to the borrower to make such Account regular by repaying the interest and principal amount. If the borrower fails to regularize such Account Receivable then the consequences under Section 13(4) follows. Basically, non-performing assets are Accounts Receivables which have gone out of order. Under Section 2(1) a financial asset is defined to mean a ‘debt or receivable’. As stated above a security interest has no existence dehors the obligation to repay. The Account Receivable is a financial asset for the Bank/financial institution. If the borrower does not regularize the Account Receivable the Bank/financial institution cannot allow that Account to become a Loss Asset. Under Banking Regulation Act such Account Receivables constitute an asset of Bank/financial institution. Therefore, if the borrower despite opportunity fails to regularize Account Receivable then under Section 5 read with Section 9 such Account Receivables which constitute security interest could be assigned to the Securitisation company or Reconstruction company. Therefore, Section 5 of the impugned NPA Act, 2002 contemplates assignment of the Account Receivable by the Bank/financial institution to the Securitisation company/Reconstruction company when such Account receivable becomes a non-performing asset as that a transferee company can take measures provided for under Section 9 to reconstruct such financial assets of the Bank/financial institutions which have become non-performing assets. Even under Section 9(e) there are adequate safeguards. Even if at that stage the borrower settles his dues with the Bank/financial institution his property will not be sold. Similarly, under Section 11 of the Act, 2002 if any dispute relating to securitisation/reconstruction arises then the parties are at liberty to settle such disputes by conciliation or by arbitration under the provisions of Arbitration Act, 1996. Lastly, under Section 12 of the impugned NPA Act, 2002 Reserve Bank of India is given powers to issue directions from time-to-time in public interest in the matter of constitution of reconstruction company or Securitisation company. Under Section 12, Reserve Bank of India is given authority to issue directions in the matter of take over of financial assets of the Bank/ financial institutions. Further, Reserve Bank of India is authorized to give directions in the matter of income recognition, accounting standards, capital adequacy, etc. In the circumstances, the impugned NPA Act, 2002 not only gives adequate safeguards to the borrowers but it also provides adequate safeguards before any drastic measure is taken under the impugned NPA Act, 2002. The impugned NPA Act, 2002 gives ample opportunity to the borrower to repay the loan. Hence, the impugned NPA Act, 2002 does not violate Article 14 and Article 19(1)(g) of the Constitution. Further, the BIFR experiment has failed in many cases. As stated above the object of the impugned NPA Act, 2002 is to reduce non-performing assets of Banks/financial institutions and, therefore, under the impugned NPA Act, 2002 now the emphasis is shifted from rehabilitation of companies to recovery, particularly in cases of suits filed by Banks/financial institutions as huge amount of public money is blocked in the non-performing assets and, therefore, the impugned NPA Act, 2002 provides for abatement of references under Section 15 of the Sick Industrial Companies Act, 1985.

28. Lastly, it has been argued on behalf of several petitioners before us that under the Act residential properties should not be permitted to be sold by Banks/financial institutions. It is argued that Chapter III of the impugned NPA Act, 2002 which deals with enforcement of security interest cannot permit Banks/financial institutions to disbouse the occupants of residential houses which are charged for repayment of loan. We do not find any merit in this argument. Section 2(zf) defines ‘security interest’ to mean right, title and interest of any kind whosoever in the property, created in favour of a secured creditor including mortgage, charge, hypothecation, assignment other than those specified in Section 31 of the impugned NPA Act, 2002, Section 31 of the impugned NPA Act, 2002, therefore, excludes a lien on goods, a pledge of movables under Section 172 of the Contract; a conditional sale, hire-purchase, lease, security interest created in agricultural hands and properties falling under Section 60 C.P.C. from the provisions of the impugned NPA Act, 2002. In other words, small value accounts for which security interests are created are exempted from the provisions of the impugned NPA Act, 2002. In the State of Uttaranchal many industrialists have taken the benefit of subsidies from the Government to establish industries and the Directors have given their residential properties as security in most cases. This is because in this State trade and commerce is yet to reach the requisite level and in the absence of any other security in most cases residential houses have been given as security for repayment of loans by the principal borrower. It has been argued on behalf of Banks/financial institutions before us that in this State Banks have lent huge amounts in most cases against residential properties and if the Banks are restrained from selling these residential properties then the purpose of the Act would be defeated. As stated above the Act provides for drastic measures. However, at the same time the impugned NPA Act, 2002 also provides adequate opportunity to the borrowers to repay. That the drastic measures are contemplated by the Act only if the borrower including the guarantor refuses to repay and make his Account regular despite opportunities. It may be mentioned that even a guarantor is included in the definition of the word ‘borrower’ under Section 2(f) and under Section 13(13) the guarantor is also given 60 days time to carry out his obligations pursuant to notice under Section 13(2) of the impugned NPA Act, 2002. In the circumstances, we uphold the validity of the Securitisation and Reconstruction of financial Assets and Enforcement of Security Interest Act, 2002.

Recommendations:

29. Though we have upheld the validity of the impugned NPA Act, 2002, we have come across in the present writ petitions certain facts. In one of the matters before us it has been pointed out that the Bank/financial institution has given notice to the borrower pending the dispute before the Debts Recovery Tribunal under the DRT Act, 2002. That notice is given without prejudice to the claim of the Bank in the pending suit before the Debts Recovery Tribunal under the DRT Act, 1993. That notice states that Account of the borrower has become non-performing asset since 1996 and in view of the impugned NPA Act, 2002 the borrower is asked to pay immediately the entire amount failing which the borrower is threatened with action under Section 13(4) of the impugned NPA Act, 2002. It is, therefore, argued that the provisions of the impugned NPA Act, 2002 are likely to he misused by Banks/financial institutions. That in any event this Court should recommend guidelines so that the interest of the borrowers in such cases is also protected.

30. The impugned NPA Act, 2002 does contain stringent measures. In the circumstances, as a matter of recommendation to the Reserve Bank of India which is empowered to issue directions, we hereby make following suggestions, which suggestions will not provide any cause of action for litigation. The suggestions are as follows:

(a) Every Bank/financial institution should have a Cell, known as non-performing asset Cells. The function of that Cell should be to certify an Account Receivable as a non-performing asset. The Cell should consist of internal Auditors and also high ranking officers who should certify a particular Account Receivable as non-performing asset before the Branch Manager invokes Section 13(2) of the impugned NPA Act, 2002. This direction is relevant particularly in cases of the above nature where the Account has become non-performing several years ago as mentioned in the above example.

(b) The takeover of the management of the company contemplated under Section 9(a) of the impugned NPA Act, 2002 should be resorted to in the rarest of the rare cases. The modality of such takeover should be subject to the directives of Reserve Bank of India. In this connection, we may point out that Reserve Bank of India has not till date formulated directives for securitisation/reconstruction. No such directions have been shown to us. Takeover of management of company should be resorted to only if the borrower company has become defunct or where the net worth of the company is nil. Therefore, takeover of the management of the company should be as a matter of last resort. If the company is taken over by the reconstruction company then RBI’s permission should be taken. The RBI should satisfy itself that the reconstruction company is in a position to manage the company which is taken over under Section 9(a) of the impugned NPA Act, 2002.

(c) Pre-decisional hearing in the matter of classification of assets as non-performing assets may be considered only where Account receivables have become non-performing asset in the past several years ago or in cases where a Standard Asset becomes a non-performing asset on the cut off date that is 21st June, 2002. We may clarify that this recommendation is suggested only for those cases where recall notice has not been given by Banks/financial institutions prior to invocation of Section 13(2) of the impugned NPA Act, 2002.

(d) We are also recommending to Reserve Bank of India to formulate directions regarding circumstances under which the security interest could be sold through public auction and circumstances under which the security interest could be sold through private treaty. In this connection, we may point out that shares of the company particularly Controlling shares are required to be sold after proper valuation. In certain cases they can be sold through public auction. In other cases they can be sold through private treaty. Hence, particular directions are required to be issued by RBI for valuation of such properties.

(e) As far as sale of residential houses are concerned Banks should try to recover the loan amount from principal borrower. They should try to encash securities other than the residential property in the first instance and it is only if the balance remains after selling other securities that the Banks can sell the residential property after giving notice. In other words, residential house should be sold as a matter of last resort.

31. We once again clarify that above suggestions are only recommendatory in nature. They are not binding on Reserve Bank of India. They will not provide any cause of action for the borrower to litigate.

32. Accordingly, we uphold the validity of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. Accordingly, all the above Writ Petition Nos. W.P. No. 1002 (M/B) of 2003, W.P. No. 179 (M/B) of 2003, W.P. No, 362 (M/B) of 2003, W.P. No. 363 (M/B) of 2003, W.P. No. 498 (M/B) of 2003, W.P. No. 505 (M/B) of 2003, W.P. No. 644 (M/B) of 2003, W.P. No. 727 (M/B) of 2003, W.P. No. 766 (M/B) of 2003, W.P. No. 925 (M/B) of 2003, W.P. No. 952 (M/B) of 2003, W.P. No. 1046 (M/B) of 2003 are dismissed with no order as to costs. However, petitioners are at liberty to challenge the action of the Bank/financial institutions under the said Act 2002, if so advised.

33. Interim order, if any, in the above writ petitions to continue for eight weeks from today.

34. Learned Standing Advocate for Reserve Bank of India should collect copy of this judgment from the Registry.