# KESHAVLAL KHEMCHANDAND SONS PVT. LTD. &OTHERS v. UNION OF INDIA & OTHERS - **Citation:** [2015] 2 S.C.R. 51 - **Court:** Supreme Court of India - **Decided:** 2015-01-28 - **Bench:** J. Chelameswar, S.A. Bobde - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/keshavlal-khemchandand-sons-pvt-ltd-others-v-union-of-india-others-30381 - **Pages:** 49 ## Headnote Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: A B c s. 2(1 }(o) (as amended by Act 30 of 2004)- Constitutional validity of- Prior to amendment of s.2(1)(o) of the Act, NPA was defined as 'an account of a borrower which has been classified' by a creditor either 'as a sub-standard asset or a doubtful asset or a loss asset' of the creditor and such a D classification is required to be made in accordance with the directions or guidelines relating to assets classification issued by the Reserve Bank - But, under the amended definition, such a classification of the account of a borrower by the creditor is required to be made in accordance with the E directions or guidelines issued by an "authority or body either established or constituted or appointed by any Jaw for the time being in force", in all those cases where the creditor is either administered or regulated by such an authority - F Whether the amended s.2(1)(o) amounts to class legislation - Held: Authorizing different regulators to prescribe different norms for the identification of a NPA with reference to different creditors do not amount to unreasonable classification for the reason that all the creditors do not form a uniform! G homogenous class - There are innumerable differences among the creditors based on the legal structure of the creditors' organization, nature of the Joan advanced by them, 51 H 52 SUPREME COURT REPORTS (2015] 2 S.C.R. A and the terms and conditions subject to which such loans or advances are made by each of those creditors, etc. - Enabling them to follow different norms would not be violative of Article 14 - Therefore, amended definition of the expression "NPA" u/s.2(1)(o) of the Act is constitutionally B valid. s.2(1)(o) (as amended by Act 30 of 2004) - Under s.2(1 )(o), the Parliament left it to the RBI and other Regulators to prescribe guidelines for classifying a borrower's account C as a NPA - Whether in making such a prescription, the Parliament has delegated any essential legislative function - Held: The laying down of such norms requires a constant and close monitoring of the financial system demanding considerable amount of expertise in the areas of public D finance, banking etc. -All that activity involves too much of detail and promptitude of action - The stipulation under the Act of classifying the account of the borrower as NPA as a condition precedent for enforcing the security interest is an additional obligation imposed by the Act on the creditor - E The borrower cannot complain that defining of the conditions subject to which the creditor could classify the account as NPA, is part of the essential legislative function - If the Parliament chose to define a particular expression by F providing that the expression shall have the same meaning as is assigned to such an expression by a body which is an expert in the field covered by the statute and more familiar with the subject matter of the legislation, the same does not amount to any delegation of the legislative powers - G Parliament is only stipulating that the expression "NPA" must be understood by all the creditors in the same sense in which such expression is understood by the expert body i.e., the RBI or other regulators which are in turn subject to the supervision of the RBI - Legislation - Delegated legislative H function. KESHAVLAL KHEMCHANDAND SONS PVT. LTD. 53 v. UNION OF INDIA Interpretation of statutes: Expression not defined in a A statute- Held: If a statute does not contain the definition of a particular expression employed in it, it becomes the duty of the courts to expound the meaning of the undefined expressions in accordance with the well established rules of statutory interpretation. B Disposing of the appeals and writ petition, the Court HELD: 1. Prior to amendment of Section 2(1)(o) of the Securitisation and Reconstruction of Financial C Assets and Enforcement of Security Interest Act, 2002 by Act 30 of 200 ## Text _Characters 0–39,917 of 94,342. This is a partial read: ask again with offset=39917 for what follows._ [2015] 2 S.C.R. 51 KESHAVLAL KHEMCHANDAND SONS PVT. LTD. &OTHERS v. UNION OF INDIA & OTHERS (Writ Petition (Civil) No. 901 of2014) JANUARY 28, 2015 [J. CHELAMESWAR AND S.A. BOBDE, JJ.] Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002: A B c s. 2(1 }(o) (as amended by Act 30 of 2004)- Constitutional validity of- Prior to amendment of s.2(1)(o) of the Act, NPA was defined as 'an account of a borrower which has been classified' by a creditor either 'as a sub-standard asset or a doubtful asset or a loss asset' of the creditor and such a D classification is required to be made in accordance with the directions or guidelines relating to assets classification issued by the Reserve Bank - But, under the amended definition, such a classification of the account of a borrower by the creditor is required to be made in accordance with the E directions or guidelines issued by an "authority or body either established or constituted or appointed by any Jaw for the time being in force", in all those cases where the creditor is either administered or regulated by such an authority - F Whether the amended s.2(1)(o) amounts to class legislation - Held: Authorizing different regulators to prescribe different norms for the identification of a NPA with reference to different creditors do not amount to unreasonable classification for the reason that all the creditors do not form a uniform! G homogenous class - There are innumerable differences among the creditors based on the legal structure of the creditors' organization, nature of the Joan advanced by them, 51 H 52 SUPREME COURT REPORTS (2015] 2 S.C.R. A and the terms and conditions subject to which such loans or advances are made by each of those creditors, etc. - Enabling them to follow different norms would not be violative of Article 14 - Therefore, amended definition of the expression "NPA" u/s.2(1)(o) of the Act is constitutionally B valid. s.2(1)(o) (as amended by Act 30 of 2004) - Under s.2(1 )(o), the Parliament left it to the RBI and other Regulators to prescribe guidelines for classifying a borrower's account C as a NPA - Whether in making such a prescription, the Parliament has delegated any essential legislative function - Held: The laying down of such norms requires a constant and close monitoring of the financial system demanding considerable amount of expertise in the areas of public D finance, banking etc. -All that activity involves too much of detail and promptitude of action - The stipulation under the Act of classifying the account of the borrower as NPA as a condition precedent for enforcing the security interest is an additional obligation imposed by the Act on the creditor - E The borrower cannot complain that defining of the conditions subject to which the creditor could classify the account as NPA, is part of the essential legislative function - If the Parliament chose to define a particular expression by F providing that the expression shall have the same meaning as is assigned to such an expression by a body which is an expert in the field covered by the statute and more familiar with the subject matter of the legislation, the same does not amount to any delegation of the legislative powers - G Parliament is only stipulating that the expression "NPA" must be understood by all the creditors in the same sense in which such expression is understood by the expert body i.e., the RBI or other regulators which are in turn subject to the supervision of the RBI - Legislation - Delegated legislative H function. KESHAVLAL KHEMCHANDAND SONS PVT. LTD. 53 v. UNION OF INDIA Interpretation of statutes: Expression not defined in a A statute- Held: If a statute does not contain the definition of a particular expression employed in it, it becomes the duty of the courts to expound the meaning of the undefined expressions in accordance with the well established rules of statutory interpretation. B Disposing of the appeals and writ petition, the Court HELD: 1. Prior to amendment of Section 2(1)(o) of the Securitisation and Reconstruction of Financial C Assets and Enforcement of Security Interest Act, 2002 by Act 30 of 2004, NPA is defined as 'an account of a borrower which has been classified' by a creditor either 'as a sub-standard asset or a doubtful asset or a loss asset' of the creditor and such a classification is required D to be made in accordance with the directions or guidelines relating to assets classification issued by the Reserve Bank. But, under the amended definition, such a classification of the account of a borrower by the creditor is required to be made in accordance with the E directions or guidelines issued by an "authority or body either established or constituted or appointed by any law for the time being in force", in all those cases where the creditor is either administered or regulated by such an authority. By the amendment, the Parliament made it F possible that different sets of guidelines made by different bodies may be followed by different creditor depending upon the fact as to who is the administering or regulating authority of such creditor. [Paras 18 to 20) [69-F-H; 70-A-D] G 2.1. One of the two main purposes of the Act is to facilitate the secured creditors to recover the amounts due to them from the borrowers by enforcing the security interest created by the borrowers without the intervention H 54 SUPREME COURT REPORTS [2015] 2 S.C.R. A of the civil court or the tribunal. The Parliament made the Act under which the process of ascertainment of the amounts due from a borrower by an independent adjudicatory body is dispensed with. The secured creditor is made the sole judge of the amount due and B outstanding from a borrower subject to an appeal under Section 17 of the Act. Such an ascertainment of amount due and outstanding is not the only criteria on the basis of which the secured creditor is entitled to initiate proceedings under Section 13(4) of the Act, but the C secured creditor is also required to classify the account of the borrower (asset of the creditor) as an NPA. [Paras 29, 40, 41] [76-G-H; 77-A; 82-H; 83-A-C] Mardia Chemicals Ltd. & Others v. Union of India & Ors. D (2004) 4 SCC 311: 2004 (3) SCR 982; /CIC/ Bank Limited v. Official Liquidator of APS Star Industries Limited & Ors. (2010) 10 sec 1: 2010 (12) SCR 644; In re Art. 143, Constitution of India and Delhi Laws Act (1912) etc. AIR 1951 SC 332; Kathi Raning Rawat v. State of Saurashtra AIR 1952 E SC 123: 1952 SCR 435; B. Shama Rao v. Union Territory of Pondicherry, AIR 1967 SC 1480: 1967 SCR 650; Devi Das Gopal Krishnan etc. v. State of Punjab & Ors. AIR 1967 SC 1895: 1967 SCR 557; Municipal Corporation of Delhi v. Bir/a F Cotton, Spinning and Weaving Mills, Delhi & Anr. AIR 1968 SC 1232: 1968 SCR 251; M.K. Papiah & Sons v. The Excise Commissioner&Anr. (1975) 1SCC492: 1975 (3) SCR 607 - referred to. 2.2. De hors the Act, when the borrower of a term G loan defaults in the repayment, the creditor can initiate legal proceeding straight away for recovery of the amounts due and outstanding from the borrower. The Act places an additional legal obligation on the creditor H to examine and decide whether the account of the KESHAVLAL KHEMCHANDAND SONS PVT. LTD. 55 v. UNION OF INDIA borrower has become an NPA before initiating action A under the Act. Under the scheme of Section 13(4), the 'secured asset' (generally the assets of an industrial concern, like plant and machinery etc.) could be taken possession of and could either be sold or the management could be taken over etc. Such an action, if B not taken after an appropriate deliberation in a given case could result in the disruption of industrial production and consequently resulting in unemployment and loss of GDP etc. impacting larger interests of the nation. C Therefore, Parliament must have thought that the secured creditors are required to assess whether the default in repayment by the borrower is due to any factor which is a temporary phenomenon and the same could be managed by the borrower if some accommodation is 0 given. The said analysis of the scheme of Section 13 of the Act would derive support from the fact that even prior to the coming into force of the Act, the creditors were classifying the accounts of the borrowers as NPAs under the statutory guidelines issued by the RBI. Under the E said guidelines FINANCIAL ASSETS are sub-divided into 4 categories i.e. (i) standard, (ii) sub-standard, (iii) doubtful, and (iv) loss. Therefore, all NPAs do not belong to the same class. Their characters vary depending on the length of time for which they remained NPAs. Such a F classification is relevant and assumes importance in the decision making process of the secured creditor under Section 13(2) as to which one of the steps contemplated under Section 13(4) should be resorted to in the case of a given defaulting borrower. It may not be the only factor G which determines the cause of action to be taken by the secured creditor. The magnitude of the amount due and outstanding in a given case, the reasons which prompted the borrower to default in the repayment H 56 SUPREME COURT REPORTS [2015] 2 S.C.R. A schedule, the nature of the business carried on by the defaulting borrower, the overall prospects of the defaulter's business, national and international market conditions relevant to the business of a defaulter are some of the factors which are germane to a decision that B action under Section 13(4) is required to be taken against a defaulting borrower. Even in a case where on rational and objective consideration of all the relevant factors including the representations/objections referred to C under Section 13(3A), the creditor comes to a conclusion that steps contemplated under Section 13(4) are required to be taken in the case of a particular defaulter, the further question as to which one of the steps contemplated under Section 13(4) is required to be taken or would meet 0 the ends of justice is a matter for a further rational decision on th~ part of the secured creditor. [Paras 42 to 46] [83-C-H; 84-A-H; 85-A-B] 3. The basic definition under the various circulars of the Reserve Bank of India and also other REGULATORS E of a NPA is an asset which ceases to generate income for the creditor (banks or financial institutions) i.e. a loan or advances made by the banks on which interest and/ or instalment of principal amount is overdue for a F specified period depending upon the nature of the loan or advance - whether the loan or advance is a term loan or agricultural loan, money advanced on bill discounting etc. To make any attempt to define the expression 'nonperforming asset' valid for the millions of cases of loan G transactions of various categories of loans and advances, lent or made by different categories of creditors for all time to come would not only be an impracticable task but could also simply paralyse the entire banking system thereby producing results which H are counter productive to the object and the purpose KESHAVLAL KHEMCHANDAND SONS PVT. LTD. 57 v. UNION OF INDIA sought to be achieved by the Act. Realising the same, A the Parliament left it to the RBI and other REGULATORS to prescribe guidelines from time to time in this regard. The Reserve Bank of India is the expert body to which the responsibility of monitoring the economic system of the country is entrusted under various enactments like B the RBI Act, 1934, the Banking Regulation Act, 1949. [Paras 48 to 50] [85-E-H; 86-A-C] 4. It is not necessary that legislature should define every expression it employs in a statute. If such a C process is insisted upon, legislative activity and consequentially governance comes to a standstill. It has been the practice of the legislative bodies following the British parliamentary practice to define certain words employed in any given statute for a proper appreciation D of or the understanding of the scheme and purport of the Act. But if a statute does not contain the definition of a particular expression employed in it, it becomes the duty of the courts to expound the meaning of the undefined expressions in accordance with the well E established rules of statutory interpretation. Therefore, the function of prescribing the norms for classifying a borrower's account as a NPA is not an essential legislative function. The laying down of such norms F requires a constant and close monitoring of the financial system demanding considerable amount of expertise in the areas of public finance, banking etc., and the norms may require a periodic revision. The crux of the impugned Act is the prescription that a secured creditor G could take steps contemplated under Section 13(4) on the "default" of the borrower. The stipulation under the Act of classifying the account of the borrower as NPA as a condition precedent for enforcing the security interest is an additional obligation imposed by the Act on the H 58 SUPREME COURT REPORTS [2015] 2 S.C.R. A creditor. The borrower cannot complain that defining of the conditions subject to which the creditor could classify the account as NPA, is part of the essential legislative function. If the Parliament did not choose to define the expression "NPA" at all, Court would be B bound to interpret that expression as long as that expression occurs in Section 13(2). In such a situation, Courts would have resorted to the principles of interpretation (i) as to how that expression is understood in the commercial world, and (ii) to the existing practice C if any of either the particular creditor or creditors as a class generally. If the Parliament chose to define a particular expression by providing that the expression shall have the same meaning as is assigned to such an 0 expression by a body which is an expert in the field covered by the statute and more familiar with the subject matter of the legislation, the same does not amount to any delegation of the legislative powers. Parliament is only stipulating that the expression "NPA" must be E understood by all the creditors in the same sense in which such expression is understood by the expert body i.e., the RBI or other REGULATORS which are in turn subject to the supervision of the RBI. Therefore, the amendment of the definition of the expression 'nonF performing asset' under Section 2(1)(o) cannot be said to be bad on account of excessive delegation of essential legislative function. Thus, by authorizing different REGULATORS to prescribe different norms for the identification of a NPA with reference to different G creditors do not amount to unreasonable classification for the reason that all the creditors do not form a uniform/ homogenous class. [Paras 65 to 67] [93-F-H; 94-A-G; 95A-E] H 5. There are innumerable differences among the KESHAVLAL KHEMCHANDAND SONS PVT. LTD. 59 v. UNION OF INDIA creditors. Differences based on the legal structure of the A creditors' organization, differences based upon the nature of the loan advanced by them, and differences based on the terms and conditions subject to which such .. loans or advances are made by each of those creditors, etc. Enabling them to follow different norms would not B be violative of Article 14. The amended definition of the. expression "NPA" under Section 2(1)(o) of the Act is, therefore, constitutionally valid. [Paras 68, 71, 76) [95-FG; 97-F; 99-8-C] Registrar of Cooperative Societies v. K. Kunjaboo AIR 1980 SC 350:1980 (2) SCR 260 - referred to. Cobb & Co. v. Kropp 1967 1 AC 141; Queen v. Burah 1878 (5) Ind App 178 - referred to. Case Law Reference 2004 (3) SCR 982 referred to Para 11 2010 (12) SCR 644 referred to Para 51 AIR 1951 SC 332 referred to Para 53 1952 SCR 435 referred to Para 53 1967 SCR 650 referred to . Para 54 1967 SCR 557 referred to Para 55 1968 SCR 251 referred to Para 56 1975 (3) SCR 607 referred to Para 58 1878 (5) Ind App 178 referred to Para 59 1980 (2) SCR 260 referred to Para 60 (1975) 3 SCR 607 referred to Para 60 c D E F G H 60 SUPREME COURT REPORTS [2015] 2 S.C.R. A CIVIL ORIGINAL JURISDICTION : Writ Petition (C) No. 901 of 2014 Under Article 32 of the Constitution of India with Writ Petition (C) Nos. 902, 903, 904, 905, 907, 925, 8 926, 937, 938, 939, 940, 945, 946, 947 and 948 of 2014 Civil Appeal Nos. 1230, 1231, 1233, 1234, 1235, 1236, 1237, 1238, 1239, 1240, 1241, 1242, 1243, 1244, 1245, 1246, 1247, 1248, 1249, 1250, 1251, 1252, 1253, 1254, 1255-56, c 1257, 1258, 1259, 1260, 1261, 1262, 1263, 1264, 1265-66, 1267-68, 1269-70, 1271, 1272, 1273, 1274, 1275, 1276, 1277, 1278, 1279, 1280, 1281-82, 1283, 1284, 1285-86, 1287, 1288, 1289, 1290, 1291-92and 1293of2015 D TusharMehta,ASG, Soli J. Sorabjee, P. 8. Majumdar,Amit Sibal, 8asava Prabhu S. Patil, A.TM. Rangaramanujam, Sidharth Luthra, 8. 8. Sawhney, Jaideep Gupta, V. Giri, Vivek K. Tankha, K. Ramamoorthy, Nikhil Goel, Naveen Goel, Marsook 8afaki, Amit Kotak, Vishwas K. Shah, Abhishek E Singh, Dharmesh Gurjar, Priyanka Rai, Masoom K. Shah, Mitul Shelat, Chirag Shroff, Sharvil P. Majumdar, Shakti Jadeja, Rahul Pratap, Vaibhav Tyagi, Apoorve Karol, Abhirup Dasgupta, Sabarish Subramanian, C. 8. Gururaj (For Legion of Lawyers), S. Gowthaman, Chinmay Deshpande, Venkatesh Mohanty, Neeraj Kumar Gupta, Anil Kumar, Harmish Sah, Arjun F Mahajan, Manik Karanjawala (For Karanjawala & Co.), Hitesh Kumar Sharma, M. A. Chinnasamy, V. Senthil Kumar, T. Narasimhan, V. N. Subramaniam, Aniruddha P. Mayee, Nitin Lonkar, Selvin Raja, Chandan Tiwari, Charudatta Mahindrakar, A. Selvin Raja, A. P. Mayee, Anup Jain, Suruchi Aggarwal, G Shashank Menon, Anil Kumar Sangal, Siddharth Sangal, D. P. Mohanty, Ritesh Kumar, D. L. Chidananda. Gargi Khanna, Sadhana Sandhu, Sushma Suri, Kuldeep S. Parihar, H. S. Parihar, Surjodipta Seth, Karan Khanna, Firasat Ali, Ram Swarup Sharma, R. Anand Padmanabhan, Romil Pathak, H Shashi Bhushan Kumar, Amritha Sarayoo, Pooja Singh, Arti KESHAVLAL KHEMCHAND AND SONS PVT. LTD. q'..1 v. UNION OF INDIA Singh, Rishabh Sancheti, D. Kumanan, M. T. George, Kavitha A K.T., Praveena Gautam, Pusshp Gupta, Vipin Kumar Jai, Vipul Jai, Badri Prasad Singh, 0. P. Gaggar, Aditya Gaggar, Madhumita Bhattacharjee, P. S. Sudheer, Rishi Maheshwari, Anne Mathew, Raj Kumar Kaushik, Amit Bajaj, Sanjay Bhatt, Dushyant Kumar, Rabin Majumdar, Venkita Subramoniam T.R., B Mumtaj Bhalla, B. Kumaran Zaidi, Pankaj Jain, Ashok Jain, Bijoy Kumar Jain, Arun Aggarwal, Shalu Lal, Anil Rai, Ram Lal Roy, R. N. Keshwani, Sanjay Kapur,Anmol Chandan, Priyanka ·Das, Daisy Hannah, Sudhakar Pandey, Lalit Bhasin, Nina Gupta, Mudit Sharma, Sachin Sharma, Jos Chiramel, Sanjeev c Kumar, Sharmila Upadhyay, Basit Kamran Zaidi, Subramonium Prasad, Nikhil Singhvi, Abhishek Gupta, Mayuri Raghuvanshi, E. Sreyas, Madhumita Bhatacharya, Brajesh Pandey, P. R. Kovilan Poonguntran, B. Khushbansi, Sanjeev Sagar, Chandra Bhushan Prasad, Revathy Raghavan, D Jayaseelan S., Prabha Swami for the Appearing Parties. The Judgment of the Court was delivered by CHELAMESWAR, J. 1. Leave granted in all the SLPs. 2. The Securitisation and Reconstruction of Financial E Assets and Enforcement of Security Interest Act, 2002, (hereinafter referred to as the 'Act'), was made by the Parliament in the year 2002. The Statement of Objects and Reasons appended to the Act explained the purpose behind the enactment as follows:- F "There is no legal provision for facilitating securitization of financial assets of banks and financial institutions. Further, unlike international banks, the banks and financial institutions in India do G 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 place (sic pace) of H 62 SUPREME COURT REPORTS [2015] 2 S.C.R. A recovery of defaulting loans and mounting levels of non-performing assets of banks and financial institutions." The enactment was preceded by three Committee Reports 8 -two headed by Mr. M. Narasimham1 and the third by Mr. TR. Andhyarujina2. 3. Recovery of money from a debtor by resorting to the filing of a suit takes painfully long time in this country, for various reasons3 . Huge amounts of money are lent by various banks C and other financial institutions. Speedy recovery of the monies due to such institutions is an important element determining the efficiency not only of such institutions but also becomes an important factor for the financial health of the country. D 4. In order to facilitate banks and financial institutions (hereinafter collectively referred to as "CREDITORS" for the sake of convenience) to speedily recover the monies due to them from the borrowers, Parliament made a law called 'The Recovery of Debts due to Banks and Financial Institutions Act, E 1993' (51 of 1993) under which banks and financial institutions could approach a tribunal constituted under the said Act. It deals exclusively with the claims for the recovery of the monies 1 Ex. Governor, Reserve Bank of India 'Senior Advocate, Supreme Court of India F ' 1.31 There has been a perception, and not without reason, that our legal system have not kept pace with measures of financial sector reform and indeed economic reforms more generally. As far as the banking sector is concerned, there is continuing need for an appropriate legal framework to · help enforce contracts and protect the interests of secured creditors especially in bankruptcy proceedings. Some of our laws are outdated and legal G procedures are cumbersome and time consuming. Even where Court decrees are obtained their enforcement has been marked by delays. Our experience with the Debt Recovery Tribunals has not been altogether satisfactory in view of the legal issues that have been raised. Our laws indeed seem marked by a basic asymmetry in their protection of creditors as distinct from borrowers which comes in the way of the proper and smooth functioning of banking and H credit systems. [See: Introduction : The Issues, Report of the Committee on Banking Sector Reforms (April 1998), Ch.I page 6] KESHAVLAL KHEMCHAND AND SONS PVT. LTD. 63 v. UNION OF INDIA[J. CHELAMESWAR, J.] due from the borrowers to the CREDITORS. Apart from A creating such an exclusive forum, the Act also provided for a more simpler procedure for the adjudication of the legality of the claims brought before it by the CREDITOR and a procedure for speedy recovery of sums so adjudicated. B 5. After a decade of working of the tribunals constituted under Act 51 of 1993, the Parliament felt that even machinery and procedure established under the Act 51 of 1993 is not able to produce the desired result of efficiently recovering monies from the borrowers. The Parliament, therefore, made c the Act. The crux of the Act is that any 'security interest'4 created in favour of a 'CREDITOR'5, who by definition under the Act becomes a 'SECURED CREDITOR', can be enforced without the intervention either of the court or tribunal6 constituted under Act 51of1993 by following the procedure under Section 13 of D the Act. Section 13(2) of the Act provides as follows: "(2) Where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any 'Section 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; E 5 Section 2(zd) "secured creditor" means any bank or financial institution or F any consortium or group of banks or financial institutions and includes- (i) debenture trustee appointed by any bank or financial institution: or (ii) securitisation company or reconstruction company, whether acting as such or managing a trust set up by such securitisation company or reconstruction company for the securitisation or reconstruction, as the case may be; or (iii) any other trustee holding securities on behalf of a bank or financial G institution in whose favour security interest is created for due repayment by any borrower of any financial assistance; 6 Section 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 H in accordance with the provisions of this Act. 64 SUPREME COURT REPORTS [2015] 2 S.C.R. A instalment thereof, and his account in respect of such debt is classified by the secured creditor as nonperforming 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 B 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)." 6. It provides that the SECURED CREDITOR may call c upon the borrower7, by issuing a notice in writing to discharge his liabilities in full within a period of sixty days from the date of the notice. If the borrower fails to discharge his liabilities after such a demand, the secured creditor is entitled to take any one of the steps contemplated under Section 13(4). SubD section (2) also stipulates three conditions precedent for the issuance of such notice - (i) that the borrower must have a liability under a 'security agreement'8; (ii) that the borrower made a default in repayment of the debt or the instalment thereof; and (iii) that the account in respect of such debt is E classified by the secured creditor as a 'non-performing asset' (hereinafter referred to as "NPA") 7. Sub-section (3) stipulates9that notice referred to in sub7 Section 2(1) "borrower" means any person who has been granted financial F 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; G 'Section 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; 'Section 13(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 H enforced by the secured creditor in the event of non-payment of secured debts by the borrower. KESHAVLAL KHEMCHANDAND SONS PVT. LTD. 65 v. UNION OF INDIA[J. CHELAMESWAR, J.] section (2) shall give the details of the amounts payable by the A borrower and details of the secured assets intended to be enforced by the secured creditor in the event of borrower not complying with the demand made in the notice. 8. Sub-section (4) provides that in the event of the B borrower failing to discharge his liability in spite of notice under sub-section (2), the secured creditor may take recourse to any one or more of the measures indicated under sub-section 13(4)10 . 9. Another important aspect of the Act is that the activity C of the Securitisation Companies (SC) and Reconstruction Companies (RC) are given a statutory recognition. Their activity is regulated under Sections 3 and 4 of the Act. Under Section 3 such companies are required to be registered with the RBI. Such registration is liable for cancellation under Section 4 on 10 Section 13(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:- D (a) take pQssession of the secured assets of the borrower including the right E to transfer· by way of lease, assignment or sale for realising the secured asset; (b) take over the management of the business of the borrower including the right to transfer by way of lease, assignment or sale for realising the secured asset: PROVIDED that the right to transfer by way of lease, assignment or sale F shall be exercised only where the substantial part of the business of the borrower is held as security for the debt: PROVIDED FURTHER that where the management of whole of the business or part of the business is severable, the secured creditor shall take over the management of such business of the borrower which is relatable to the security or the debt. (c) appoint any person (hereafter referred to as the manager), to manage the G secured assets the possession of which has been taken over by the secured creditor; (d) require 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. H 66 SUPREME COURT REPORTS [2015] 2 S.C.R. A the happening of any one of the events specified therein. Section 5 confers statutory authority upon SCs and RCs to acquire the "financial assets"11 of any CREDITOR. Section 5(2)12 further pr