# MARDIA CHEMICALS LTD. ETC. ETC. _[ v. UNION OF !NOIA AND ORS. ETC. ETC - **Citation:** [2004] 3 S.C.R. 982 - **Court:** Supreme Court of India - **Decided:** 2004-04-08 - **Bench:** V.N. Khare, Brijesh Kumar, Arun Kumar - **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/mardia-chemicals-ltd-etc-etc-v-union-of-noia-and-ors-etc-etc-19902 - **Pages:** 57 ## Headnote Securitisation and Reconstruction of Financial Assets and Enforcement I of Security Interest Act, 2002: + c Validity of the Act-Held: Act enacted for speedier recovery of dues declared as Non performing Assets, better availability of capital liquidity and economic growth of the country-Though some of the provisions have harsh effect on borrowers but they get reasonable protection under the Act-Hence, Act constitutionally valid except sub-section (2) of section 17-Constitution D of India, I950-Artic/e 14. Enactment of Act of 2002 for securitisation of debts and faster recovery of Non performing assets when Act of 1993 already in operation-Validity of-Held: On account of mounting dues of banks, recovery through court being time consuming, Act of 1993 failed to bring desired results and also E recommendation of expert committees to have such law, enactment of Act of 2002 not uncalled for nor superimposition of undesired law-Also legitimacy of such Act relating to financial policy which is in public interest cannot be tested-There is presumption of constitutionality inf avour of such enactment provided person aggrieved gets fair deal-Recovery of Debts due to Banks F and Financial Institutions Act, 1993. Section 13, 13(2), (4) and 34-Enforcement of secured assets without ,( , intervention of court under section 13_:.0bjections/dispute raised by borrower against recovery-Adequate and effective mechanism to resolve disputeDetermination of-Held: In terms of Section 13(2) it is mandatory to serve 60 G days notice before action is taken under Section 13(4)-Replylobjections to notice is to be considered with due application of mind and internal mechanism is to be evolved-Reasons for non-acceptance of objections is to be communicated to the borrower for his information/knowledge-Furthermore, • ,-,I before sale of property borrower can approach tribunal-Hence, there are adequate safeguards for the borrower before action is taken under section 13. H 982 \ MARDIA CHEMICALS LTD. v. U.0.1. 983 Section 17(2)-Right to appeal before tribunal-Availability of--On A taking over the secured assets /management thereof with transferable interest or selling the property under section 13(4) and pre deposit of 75% of amount claimed in demand notice-Validity of-Held: Requirement of deposit under Section 17(2) is oppressive, onerous, arbitrary and unreasonable-Hence, Section 17(2) invalid and liable to be struck down-Constitution of India, B 1950-Article 14. Sections I 3 and 34-Providing sale of property for enforcement of security assets without intervention of court-If akin to English mortgage under Section 69-Held: Since Section 69 is overridden by Section 13(/), it is not relevant whether transactions are akin to or amount to English mortgage, C since irrespective of the kind of mortgage, security interest is to be enforced without intervention of court as per section I 3-Extent of bar of jurisdiction of civil court under Section 34-Held: Section 34 bars jurisdiction of civil court-However, can be invoked to a limited extent in cases of English mortgage on which they are permissible-Transfer of Property Act, 1882Section 69. D Section 13-Private contract between borrower and financial institutions-Financial transactions-Unrealized dues of financial institutionsCurtailment of borrower's rights and enforcement of secured assets without intervention of court by section 13-Validity of-Held: Though the transaction is between the private parties yet transaction as a whole has impact on the E economy of the country-In view of public interest even if individual interest of few borrowers is affected to some extent, it would not impinge upon the validity of Act-Hence, the existing rights under contract entered into by private parties could be amended. Principle of lender's liability-If ignor~d while enacting 'the Act, its effect-Held: Lender's liability is not ignored-Financial institutions-lenders owe a duty to act fairly and in good faith-They are under obligat ## Text _Characters 0–36,166 of 145,633. This is a partial read: ask again with offset=36166 for what follows._ A MARDIA CHEMICALS LTD. ETC. ETC. _[ v. UNION OF !NOIA AND ORS. ETC. ETC. APRIL 8, 2004 B [V.N. KHARE, CJ., BRIJESH KUMAR AND ARUN KUMAR, JJ.] Securitisation and Reconstruction of Financial Assets and Enforcement I of Security Interest Act, 2002: + c Validity of the Act-Held: Act enacted for speedier recovery of dues declared as Non performing Assets, better availability of capital liquidity and economic growth of the country-Though some of the provisions have harsh effect on borrowers but they get reasonable protection under the Act-Hence, Act constitutionally valid except sub-section (2) of section 17-Constitution D of India, I950-Artic/e 14. Enactment of Act of 2002 for securitisation of debts and faster recovery of Non performing assets when Act of 1993 already in operation-Validity of-Held: On account of mounting dues of banks, recovery through court being time consuming, Act of 1993 failed to bring desired results and also E recommendation of expert committees to have such law, enactment of Act of 2002 not uncalled for nor superimposition of undesired law-Also legitimacy of such Act relating to financial policy which is in public interest cannot be tested-There is presumption of constitutionality inf avour of such enactment provided person aggrieved gets fair deal-Recovery of Debts due to Banks F and Financial Institutions Act, 1993. Section 13, 13(2), (4) and 34-Enforcement of secured assets without ,( , intervention of court under section 13_:.0bjections/dispute raised by borrower against recovery-Adequate and effective mechanism to resolve disputeDetermination of-Held: In terms of Section 13(2) it is mandatory to serve 60 G days notice before action is taken under Section 13(4)-Replylobjections to notice is to be considered with due application of mind and internal mechanism is to be evolved-Reasons for non-acceptance of objections is to be communicated to the borrower for his information/knowledge-Furthermore, • ,-,I before sale of property borrower can approach tribunal-Hence, there are adequate safeguards for the borrower before action is taken under section 13. H 982 \ MARDIA CHEMICALS LTD. v. U.0.1. 983 Section 17(2)-Right to appeal before tribunal-Availability of--On A taking over the secured assets /management thereof with transferable interest or selling the property under section 13(4) and pre deposit of 75% of amount claimed in demand notice-Validity of-Held: Requirement of deposit under Section 17(2) is oppressive, onerous, arbitrary and unreasonable-Hence, Section 17(2) invalid and liable to be struck down-Constitution of India, B 1950-Article 14. Sections I 3 and 34-Providing sale of property for enforcement of security assets without intervention of court-If akin to English mortgage under Section 69-Held: Since Section 69 is overridden by Section 13(/), it is not relevant whether transactions are akin to or amount to English mortgage, C since irrespective of the kind of mortgage, security interest is to be enforced without intervention of court as per section I 3-Extent of bar of jurisdiction of civil court under Section 34-Held: Section 34 bars jurisdiction of civil court-However, can be invoked to a limited extent in cases of English mortgage on which they are permissible-Transfer of Property Act, 1882Section 69. D Section 13-Private contract between borrower and financial institutions-Financial transactions-Unrealized dues of financial institutionsCurtailment of borrower's rights and enforcement of secured assets without intervention of court by section 13-Validity of-Held: Though the transaction is between the private parties yet transaction as a whole has impact on the E economy of the country-In view of public interest even if individual interest of few borrowers is affected to some extent, it would not impinge upon the validity of Act-Hence, the existing rights under contract entered into by private parties could be amended. Principle of lender's liability-If ignor~d while enacting 'the Act, its effect-Held: Lender's liability is not ignored-Financial institutions-lenders owe a duty to act fairly and in good faith-They are under obligation to comply with their part of contract-Even in absence of any such legislation, financial institution is to act in such manner-Furthermore, borrowers can F seek remedy in case of any wrong on part of the bank. G Various· banks and the financial institutions have heavily financed the petitioners and other industries. Petitioner-borrowers defaulted in repayment of secured debt to the banks and the financial institutionssecured creditors. Financial institutions and banks issued notices to the borrowers under Section 13 of the Securitization and Reconstruction of H 984 SUPREME COURT REPORTS [2004] 3 S.C.R. A Financial Assets and Enforcement of Security Interest Ordinance/ Act, 2002 to pay the amount of arrears indicated in the notice within 60 days, failing which the secured creditors would enforce security interest without intervention of the court, by taking over possession and/or management of the secured assets including right to transfer by way of sale, lease or B otherwise. Hence, the present bunch of cases by petitioner-borrowers challenging the validity of the Act of 2002 on the ground that that the banks and the financial institutions have been vested with arbitrary powers, without any guidelines for its exercise, without any appropriate and adequate mechanism to decide the disputes relating to the correctness of the demand, its validity and the actual amount of dues sought to be C recovered from the borrowers. The main questions which arose for consideration in these matters are: (i) Whether the Securitization and Reconstruc~ion of Financial Assets and Enforcement of Security Interest Act, 2002 is valid? D (ii) Whether the Act of 2002 could be challenged on the ground that it was not necessary to enact it when Recovery of Debts due to Banks and Financial Institutions Act, 1993 was already in operation? (iii) Whether sections 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised E by a borrower against the recovery, in view of bar to approach the civil court under section 34 of the Act? F (iv) Whether the remedy available under section 17 of the Act is illusory since it is available only after the action is taken under section 13( 4) and on deposit of 75% of the amount claimed in the demand notice? (v) Whether the provisions under sections 13 and 17(2) of the Act are unconstitutional? (vi) Whether provision for sale of the properties without intervention of the court under section 13 of the Act is akin to the English mortgage G and its effect on the scope of the bar .of jurisdiction of the civil court? H (vii) Whether the existing rights under the contract entered into by two private parties could be amended by the provisions of law providing certain powers in favour of one of the parties to the contract? and (viii) Whether the principle of lender's liability has been absolutely I • . .,.. /' \ y \ y MARDIA CHEMICALS LTD. v. U.0.1. 985 ignored while enacting the Act and its effect? Partly allowing the transfer cases, appeals and t!te petitions, the Court HELD: I. The Securitization and Reconstruction of Financial Assets A and Enforcement of Security Interest Act, 2002 and its provisions are valid B except sub-section (2) of Section 17 of the Act, which is declared ultra vi res of Article 14 of the Constitution of India. [1037-F) 2.1. Liquidity of finances and flow of money is essential for any healthy and growth oriented economy. Law enacted should not be in derogation of the rights guaranteed to the people under the Constitution. C The procedure should be fair, reasonable and valid, though it may vary looking to the different situations needed to be tackled and object sought to be achieved. [1009-A-BI 2.2. Unrealized dues of banking companies and financial institutions D utilizing public money for advances were mounting and the economic progress was going down; that the normal process of recovery of debts through courts was time consuming and not suited for recovery of such dues; that the Recovery of Debts due to Banks and Financial Institutions Act, 1993 enacted for recovery of debts due to banks and financial institutions failed to bring desired results; and that the experts committees E recommended to have law providing speedier remedy for recovery of dues, as such the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 was enacted. It cannot be said that a step taken towards securitisation of debts and to evolve means for faster recovery of Non Performing Assets (NPA) by the enactment of Act of 2002 was uncalled for or that it was superimposition of undesired law F since the Act of 1993 was already operating in the field. Such a policy decision relating to financial policy cannot be faulted with nor it is a matter to be gone into by the courts to test the legitimacy of such a measure. [1030-D; 1008-D, E, H; 1009-A; 1008-G; 1011-CI 3. I. Under sub-section (2) of Section 13 of the Act it is incumbent G upon the secured creditor to serve 60 days notice containing details of the amounts payable and the secured assets before proceeding to take any of the measures as provided under sub-section (4) of Section 13 of the Act. The purpose of notice is to allow the borrower to submit reply explaining the reasons as to why measures may or may not be taken under sub-section H 986 SUPREME COURT REPORTS [2004] 3 S.C.R. A (4) of Section 13. The creditor must consider the objection raised in reply to the notice with due application of mind and an internal mechanism must be particularly evolved to consider such objections. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions B in dealing with their borrowers to apprise/communicate them of the reasons for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under subsection (4) of Section 13. 11036-F; 1019-E-HI 3.2. Communication of reasons not to accept the objections of the C borrower would certainly provide information/knowledge to the secured debtors in general. It would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/ business of viz. secured assets without intervention of the court under Section 13(4) of the Act. Such persons cannot be denied this right. This D will also be in keeping with the coucept of right to know and lender's liability of fairness to keep the borrower informed particularly the developments immediately before taking measures under sub-section (4) of Section 13. It will also cater the cause of transparency and not secrecy and would be conducive in building an atmosphere of confidence and E healthy commercial practice. Such a duty is inherent under Section 13(2) of the Act. 11020-C, B, D, G-H; 1021-AI 3.3. Till the stage of making of the demand and notice under Section 13(2) of the Act, no hearing can be claimed by the borrower. Issue of a notice to the debtor by the creditor does not attract the application of F principles of natural justice. It is always open to tell the debtor what he owes to repay. But looking to the stringent nature of measures to be taken without intervention of court with a bar to approach the court or any other forum at that stage, it becomes only reasonable that the secured creditor must bear in mind the say of the borrower before such a process of recovery is initiated. 11035-E, C; E-FI G Kishan Chand Arora v. Commissioner of Police, 119611 3 SCR 135; Lachhman Das v. State of Punjab, 119631 2 SCR 353; Chairman, Board of '\ I Mining Examination v. Ramjee, 119771 2 SCC 256 and Haryana Financial Y Corporation v. Jagdamba Oil Mills, 120021 3 SCC 496, referred to. H 3.4. Reserve Bank of India lays down guidelines in the matter for t \ MARDIA CHEMICALS LTD. v. lJ.0.1. 987 classifying the debt to be NPA as early as possible. The dues or disputes A ..,. regarding classification of NPAs should be considered and resolved expeditiously by some internal mechanism. These are safeguards for a borrower, before a secured asset is classified as NPA. (1019-D-EI 3.5. Under Rule 9 of the Security Interest (Enforcement) Rules, 2002 B before putting the property on sale the authorized officer has to obtain the valuation of immovable property, a reserved price is to be fixed and a notice of 30 days before sale is to be served on the borrower. During this period borrower could approach the tribunal for appropriate relief and the tribunal in exercise of its ancillary powers would have jurisdiction to pass any stay/interim order subject to the condition that it may deem c fit and proper to impose. (1021-G-H; 1037-B( -· JTO v. Mohd.Kunhi, 11969( 2 SCR 65 and Allahabad Bank, Calcutta v. Radha Krishna Maity and Ors., (19991 6 SCC 755, referred to. 3.6. By virtue of section 13(4), borrowers right of redemption of D property is not completely lost. 'It is preserved under section 13(8) where \ a borrower tenders to the creditor the amount due with costs and expenses incurred, no further steps for sale of the property are to take place. In " cases where there is no such dispute, the right can be exercised and in other cases the question of difference in amount may be kept open and got decided before the sale. 11023-G-H; 1000-E-F; 1024-CI E -j Naraindas Kavsondas v. S.A. Katam, 1197713 SCC 247, referred to. ... 3.7. The provision under section 9 is for purpose of assets reconstruction. What is envisaged under Section 9 is, the taking over of the management of the business of the borrower company and continuance F • ~ of the business of the company by resorting to the measure as provided " under Section 9 of the Act. The provisions as contained under Section 15 of the Act are referable to Section 9 and not to Section 13. The steps as provided to be taken for the purpose, are different from those provided in Chapter Ill relating to enforcement of security interest contained in G Section 13 of the Act. 11028-G, D-FI Ramaswamy Aiyengar v. Kailasa Thevar, 11951ISCR292, referred to. "(- 4.1. Communication of the reasons not accepting the objections taken by the secured borrower may not be taken to give an occasion to resort H J 988 SUPREME COURT REPORTS [2004] 3 S.C.R. ,• A to such proceedings which are not permissible under the provisions of the Act. Borrower's right to approach Debt Recovery Tribunal as provided ~ under section 17 matures on any measure having been taken under section 13(4) of the Act and before the date of sale of the property it would be open for the borrower to file an appeal under section 17. B 11020-C, D, E; 1037-AI 4.2. Proceedings under Section 17 of the Act are not appellate proceedings. It is in fact a forum where proceedings are originally initiated in case of any grievance against the creditor in respect of any measure j taken under section 13(4) of the Act. The position of the appeal under c section 17 is like that of a suit in the court of the first instance under CPC. As a matter of fact proceedings under Section 17 are in lieu of a civil suit which remedy is ordinarily available but for the bar under Section 34 of the Act. 11026-A-BI Smt. Ganga Bai v. Vijay Kumar and Ors,. 1197412 SCC 393, referred D to. 4.3. The condition of pre-deposit of 75 % of the demand notice under I section 17(2) is bad rendering the remedy illusory on the grounds that (i) it is imposed while approaching the adjudicating authority of the first instance, not in appeal, (ii) there is no determination of the amount due E as yet, (iii) the secured assets or its management with transferable interest is already taken over and under control of the secured creditor and in some cases property is sold, (iv) no special reason for double security in ~ respect of an amount yet to be determined and settled, (v) 75% of the amount claimed by no means would be a meager amount (vi) it will leave the borrower in a position where it would not be possible for him to raise le F any funds to make deposit of 75% of the undetermined demand, and (vii) power given to the tribunal under proviso to section 17(2) to waive or 1 .. reduce the amount is discretionary. Such condition is onerous, oppressive and arbitrary against all the canons of reasonableness. Therefore, the requirement of deposit of 75% of amount claimed before entertaining an G appeal under sub-section (2) of Section 17 of the Act is unreasonable, arbitrary and violative of Article 14. 11028-A-Cf Anant Mills Co. ltd. v. Stale of Gujarat, 1197512 SCC 175; Seth Nandlal v. Slate of Hat)'ana, 119801 (Supp.) SCC 574; Vijay Prakash D. Mehta and y H Anr. v. Collector of Customs (Preventive) Bombay, [198814 SCC 402; Shyam Kishore v. Municipal Corporation of Delhi, 119931 I SCC 22; Kishanchand ' ru I I \ MARDI A CHEMICALS LTD. v. U.0.1. 989 Arora v. Commissioner of Police. 1196113 SCR 135; Chi/1/a Lingam and Ors. A v. Government of India and Ors., 119701 3 SCC 768 and Organo Chemical Industries and Anr. v. Union of India and Ors., 119791 4 SCC 573, referred to. 4.4. It cannot be said that the secured assets which may be taken possession of or sold may fall short of the dues, therefore, such a deposit B may be necessary. In such an eventuality recourse may have to be taken to sub-section 10 of Section 13 where a petition may have to be filed before the tribunal for the purpose of making up of the short-fall. 11027-G-HI 5. A full reading of section 34 shows that the jurisdiction of the civil C court is barred in respect of matters which Debt Recovery Tribunal or appellate Tribunal is empowered to determine in respect of any action taken or to be taken in pursuance of any power conferred under this Act. The prohibition covers even matters which can be taken cognizance of by the Debt Recovery Tribunal though no measure in that direction has so far been taken under section 13(4). The bar of civil court thus applies to D all such matters which may be taken cognizance of by the DRT, apart from those matters in which measures have already been taken under subsection (4) of Section 13. However, to a very limited extent jurisdiction of the civil court can also be invoked, in the cases of English mortgages on which they are permissible. (1022-D-F; 1022-GI V. Narasimhachariar v. Egmore Benefit Society. AIR (1955) Madras 343 and A. Batcha Saheb v. Nariman K. Irani and Anr., AIR (1955) Madras 491, approved. E 6. The non-obstante clause under Section 13(1) of the Act provides that notwithstanding anything contained in Section 69 of the Transfer of F the Property Act, a secured interest can be enforced without intervention of the cpurt. It overrides the provision as contained under Section 69 where it is said that in no cases, other than those as enumerated in clauses (a), (b) and (c), a mortgage shall be enforced without intervention of the court. Clause (a) relates to English mortgage in which a mortgaged property is G permitted to be sold without intervention of the court. Once the said condition, in section 69 the general law on the subject has been overridden by the special enactment namely the Securitisation Act, it would not make much of a difference as to whether the transactions in question are akin to or amount to English mortgage or not, since irrespective of the kind of the mortgage the secured interest is liable to be enforced without H 990 SUPREME COURT REPORTS [2004) 3 S.C.R. A intervention of the court as per section 13 of the Act. 11017-D-FI B V. Narasimhachariar v. Egmore Benefit Soc;ety, AIR (1955) Madras 135; VP. Padmavati v. P.S. Swaminathan lyer, AIR (1955) Madras 343 and Bank of Maharashtra ltd, Puna v. Official liquidator, High Court Buildings, AIR (1969) Mysore 280, referred to. 7.1. The transaction between the borrower and the financing bank may have a character oi a private contract yet the question of great importance behind such transactions as a whole having far reaching effect on the economy of the country cannot be ignored, purely restricting it to C individual transactions more particularly when financing is through banks and financial institutions utilizing the money of the people in general namely, the depositors in the banks and public money at the disposal of the financial institutions. Therefore, wherever public interest to such a large extent is involved and it may become necessary to achieve an object which serves the public purposes, interest of an individual may, to some D extent, be affected but it cannot have the potential of taking over the public interest having an impact in the socio-economic drive of the country. 11029-C-EI 7.2. Impugned Act was enacted for improvement of general financiai now of money necessary for the economy of the country. Undoubtedly such E legislation would be in the public interest and the individual interest shall be subservient to it. Even if a few borrowers are affected here and there, that would not impinge upon the validity of the Act which otherwise serves the larger interest. 11030-E-FI Ramaswamy Aiyengar v. Kailasa Thevar, 11951 I SCR 292; Dahya Lala, F v. Rasul MohdAbdul Rahim, 1196313 SCR I; Swami Motor Transports Pvt. ltd. v. Shri Sankraswamigal Mutt, 1963 (Supp.) 1 SCR 282; Raval & Co. v. K.G. Ramachandran, 1197411 SCC 424; Kanshi Ram v. lachhman, [200115 SCC 546; Pathumma v. State of Kera/a, 119781 2 SCC l; Fatehchand Himmat/al v. State of Maharashtra, 119771 2 SCC 670 and Ramdhandas v. G State of Punjab, 119621 I SCR 852, referred to. 7.3 The contract between the parties is no more private. The contract entered into between the two private parties, are now governed by the statutory provisions relating to recovery of debts and bar of jurisdiction of the civil court to entertain any dispute in respect of such matters. It H cannot be said that the petitioners cannot complain of the conduct of the I '\ I MARDIA CHEMICALS LTD. v. U.0.1. 991 4 banking companies and financial institutions for whatever goes in between A the two is absolutely a matter of contract between private parties, therefore, no adjudication may be necessary. 11031-F, G-HI 8. Lender-financial institutions possess all drastic powers for speedier recovery of NPA which calls for exercise of higher degree of good faith and fair play. Lenders owe a duty to act fairly and in good fa.ith. There B has to be a fair dealing between the parties and the financing companies/ + institutions are not free to ignore performance of their part of the obligation as a party to the contract. Even in absence of any legislation, it is incumbent upon the financial institutions to act in such manner. This is the basic principle of concept of lender's liability. Borrowers cannot be c denied possible and reasonable remedies in case they have been wronged against or subjected to unfair treatment violating the terms and conditions of the contract. They can always take a plea against the financial institutions. [1032-G, E, F, HI KMC Co. v. Irving Trust Co., 757 F2d 752 (6th Cir.1985) and Palisades D \, Properties, Inc. v. Brunetti, 44 NJ 117, 207 A2d 522; 531 (1965), referred to. )' 9.1. In view of the provisions of section 34 and section 17 of the Act virtually there is no remedy for the borrowers. Also before filing an appeal under Section 17, decision taken by the bank or financial institution itself E can be hardly said to be an independent agency rather they are a party to the transaction under Section 13(4) of the Act. Furthermore, remedy under Artitle 226 of the Constitution, may not always be available since the dispute may be only between two private parties, the ban1.ing \ companies, co-operative Banks or financial institutions, foreign banks, F some of them may not be authorities within the meaning of Article 12 against whom a writ petition could be maintainable. Thus, the borrower is virtually left with no remedy. Where access to the court is prohibited • and no proper adjudicatory mechanism is provided such a law is unconstitutional and cannot survive. 11030-H; 1031-A-C[ G Indian National Congress (I) v. Institute of Social Welfare and Ors., ) 12002[ 5 SCC 685; Kihoto Hallahan v. Zachillhu and Ors. 11992[ Suppl. 2 SCC 65; Associated Cement Companies ltd. v. P. N. Sharma, ( 1965( 2 SCR 365; l. Chandrakumar v. Union of India and Ors., (1997( 3 SCC 261 and Surya Dev Rai v. Ram Chander Rai and Ors., (2003( 6 SCC 675, referred H to. 992 SUPREME COURT REPORTS (2004] 3 S.C.R. A 9.2. rt is true that presumption is in favouc of validity of an .J enactment and a legislation may not be declared unconstitutional lightly more so, in the matters relating to fiscal and economic policies resorted to in the public interest, but while resorting to such legislation it would be necessary to see that the persons aggrieved get a fair deal at the hands B of those who have been vested with the powers to enforce drastic steps to make recovery. 11035-F-GI R.K.Garg v. Union of India, [1981] 4 SCC 675; Bhavesh D.Parish & I .. Ors. v. Union of India and Anr., 120001 5 SCC 471; Srinivas Enterprises v. Union of India, [ 19801 4 SCC 507; Jalan Trading v. Union of India, 119671 c I SCR 15 and Collector of Customs, Madras v. Nathe/la Samapathu Chetty, [ 1962 [ 3 SCR 786, referred to. 9.3. The borrowers would get a reasonably fair deal and opportunity to get the matter adjudicated upon before the Debt Recovery Tribunal. The effect of some of the provisions may be a bit harsh for some of the D borrowers but on that ground the impugned provisions of the Act cannot be said to be unconstitutional since the object of the Act is to achieve ,/ speedier recovery of the dues declared as NP As and better availability of capital liquidity and resources to help in growth of economy of the country and welfare of the people in general which would subserve the public E interest. [1037-D-EI 9.4. In cases where a secured creditor has taken action under Section 13(4) of the Act, it would be open to borrowers to file appeals under Section 17 of the Act within the limitation as prescribed therefor, to be counted with effect from the date of this judgement. [1037-G-HI F CIVIL ORIGINAL JURISDICTION : Transfer Case (C) Nos. 92-95 of 1 , 2002. WITH G W.P. (C) Nos.:140/2003, 649, 673/2002, T.C.(C) No. 10/2003, W.P.(C) No. 322/2003, T.C. (C) No. 46/2003, W.P.(C) No. 643/2002, T.C. (C) No. 12/2003, W.P.(C) No. 48/2003, C.A.No. 2177/2004, W.P.(C) Nos. 176, 190, 21911003, C.A.No. 2181/2004, W.P.(C) No. 147/2003, T.P.(C) No. 326/2003, ' W.P.(C) Nos. 279, 231/2003, C.A.No. 2176/2004, W.P.(C) No. 292/2003, C.A.Nos. 2175, 2174/2004, T.P.(C) No. 403/2003, W.P.(C) No. 379/2003, H C.A.No. 2173/2004, T.C.(C) No. 11/2003, W.P.(C) Nos. 366/2003, 541/2002, MAROIA CHEMICALS LTD. v. U.0.1. 993 J.rC.A.No. 2172/2004, W.P.(C) Nos. 477, 496, 499/2003, T.P.(C) No. 756/ A 2003, W.P.(C) Nos. 545, 557/2003, C.A.Nos. 2171, 2180/2004, W.P.(C) Nos. 590/2003, 13/2004 and 546 of 2003. L. Nageswara Rao, Additional Solicitor General, Kapil Sibal, Ashok H. Desai, S.K. Dholakia, V.K. Munshi, Bhaskar P. Gupta, T.R. Andhyarujina, Harish N. Salve, Dr. A.M. Singhvi, N.S. Sistani, Sunil Kumar Jain, S. B Borthakur, Ansar Ahmad Chaudhary, Brijesh Kalappa, Ms. Radha ~ Rangaswamy, B. Devasekhar, Ravi Ashri, P.K. Manohar, Ajay Choudhary, Paras Kuhad, R.N. Karanjawala, Hrishikesh Baruah, Ms. Jasmine Damkewala, Gaurav Khanna, Krishan Kumar Gogna, Ms. Nandini Gore, Ms. Padmalakshmi Nigam, Arunabh Chouwdhury, Ms. Manik Karnajawala, Shakeel Ahmed, A.T. Patra, Nipun Malhotra Prateek Jalan, Siddharth Bhatnagar, Nirnimesh c Dube, Ms. Sonat Tripathi, Ms. Indra Sawhney, V. Sudeer, M.B. Rama Subba Raju, Balaji Srinivasan, S. Srinivasan, Ms. S. Sunita, Ms. Kiran Suri, Ms. Kirti R. Mishra, Bhupender Yadav, Ms. Babita Yadav, R.C. Kohli, Tripurari Ray, Vishwajit Singh, Ritesh Agrawal, P.O. Shanna, Ashish Dholakia, Ms. Sumita Hazarika, Manoj Swarup, Uday Gupta, P.N. Puri, Y. Raja Gopala D ). Rao, Mahesh Agarwal, Rishi Agarwal, Vivek Yadav, E.C. Agrawala, M.l.S. y Rupal, Madhup Singhal, Ms. Suruchii Aggarwal, Jitendra Mohan Sharma, Manoj Swarup, Ms. Lalita Kohli, Anubhav Kumar, Ashok Kumar Gupta, S.N. Bhat, Nikhil Nayyar, Ms. Shobha, Manoj Sharma, Ms. Sheetal Aggarwal, Manish Jain, Atul Sharma, Praveen Jain, Pramod Swarup, Uday Gupta, Vivek E Narayan, Prem Malhotra, Saurabh Kirpal, Rajiv Shakdhar, Manish Singhvi, Ms. V. Mohana, Ms. Sushma Suri, Ms. P.S. Shroff, Sunil Dogra, Ms. Rashi Malhotra, Vikram B. Trivedi, Bharat Sangal, Ms. Sangeeta S. Panicker, R.R.Kumar, S. Mehta, Pranab Kumar Mullick, Rajeev Sharma, Deepak Goel, ... Rishi Malhotra, M.P.S. Thomar, Ms. Sandhya Goswami, V. Maheshwari, .... ' Rameshwar Prasad Goyal, S.H. Bhujani, Ms. Sayali Phatak, O.P. Gaggar, F Dhruv Mehta, Mohit Chaudhary, Ms. Shalini Gupta, Pradeep Dewan, Dr. Manmohan Sharma, Pramod B. Agarwala, G.S. Sistani, Rajender Wali, Rakesh Singh, Arun K. Sinha, Sanjay R. Hegde, P.S. Shetty, Anil K. Misra Janendra Lal, Ms. Yasmin Tarapore, Ms. Divya Lal, V. Ramasubramanian, M.T. George, Ms. Kamini Jaiswal, Ms. Shomila Bakshi, Ms. Barooah, R.N. Keshwani, Ms. G Ruchi A Mahajan, Ms. S. Janani, Ms. Reena Kumar, Akhil Sibal, S.U.K. ") Sagar, Ms. Bina Madhavan, Ms. Pooja Nanekar, Arun Aggarwal, Sanjay Kapur, Rajiv Kapur, Ms. Shubhra Kapur, Rakesh Singh, D.K. Sinha, Ms. Jayashree Wad, Ashish Wad, Ms. Yugandhara Jha, Anshu Bhanot, Satyajit A Desai, Venkateswara Rao Anumolu, Ashok Kumar Jain, B.K. Jain, Pankaj Jain, Bijoy Kumar Jain, Rajesh Jain, S.S. Ray, Ms. Rakhi Ray, Ms. Pooja H 994 SUPREME COURT REPORTS [2004) 3 S.C.R. A Bhatnagar, Ms. Shilpi Jha, Nina Gupta, Bina Gupta, Rajiv Mehra, M. Dutta and Rajiv Mehta for the appearing parties. The Judgment of the Court was delivered by BRIJESH KUMAR, J. I. Leave granted in Special Leave Petition B (Civil) Nos.5013/2003, 9658/2003, 11089/2003, 11267/2003, 11268/2003, 15566/2003, 17465/2003 and special leave petition@ CC I 0728 and SLP(C) No.6723/2003. 2. By means of the above noted bunch of cases some of those having c been transferred to this court, the validity of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002) (for short 'the Act') has been challenged. Some writ petitions were filed in different High Courts on promulgation of Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Second Ordinance), 2002. However, the Act 54 of 2002 was enacted and D enforced, vires of which is in question, more particularly, the provisions as contained in Sections 13, 15, 17 and 34 of the Act. Besides others, we may, for the sake of convenience, refer to the averrnents made and documents filed in Transferred Case Nos. 92-95 of 2002 - Mis. Mardia Chemicals Ltd Etc. Etc. v. Union of India and Ors. Etc. Etc. E 3. It appears that a notice dated July 24, 2002 .was issued to the petitioner - Mardia Chemicals Ltd. by the Industrial Development Bank of India (for short 'the IDBI') under Section 13 of the Ordinance, then in force, requiring it to pay the amount of arrears indicated in the notice within 60 days, failing which the IDBI as a secured creditor would be entitled to enforce the security F interest without intervention of the court or Tribunal, taking recourse to all or any of the measures contained in sub-section (4) of Section 13 namely, by taking over possession and/or management of the secured assets. The petitioner was also required not to transfer by way of sale, lease or otherwise any of the secured assets. Similar notices were issued by other financial institutions and banks under the provisions of Section 13 of the Ordinance/ Act to different G parties who filed petitions in different High Courts. 4. The main contention challenging the vires of certain provisions of the Act is that the banks and the financial institutions have been vested with arbitrary powers, without any guidelines for its exercise and also without providing any appropriate and adequate mechanism to decide the disputes H relating to the correctness of the demand, its validity and the actual amount J ,.I, ~ -f ~ y MARDIA CHEMICALS LTD. v. U.0.1. [BRIJESH KUMAR, J.) 995 of dues, sought to be recovered from the borrowers. The offending provisions A as contained under the Act, are such that, it all has been made one sided affair while enforcing drastic measures of sale of the property or taking over the management or the possession of the secured assets without affording any opportunity to the borrower. Before further detailing the grounds of attack, we may peruse some of the relevant provisions of the Act. 5. The term "borrower" has been defined in claus~ (t) of Section 2, which provides as under : B "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 C 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;" 6. "Financial Assistance" has been defined in clause (k), which reads as under: D "financial assistance" means any Joan or advance granted or any debentures or bonds subscribed or any guarantees given or letters of E credit established or any other credit facility extended by any bank or financial institution;" 7. Similarly, the term "default" is defined in clause (j), as quoted below: "default" means non-payment of any principal debt or interest thereon F 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" 8. "Non Performing Asset" has been defined in clause(o) of Section 2 which means : G "non-performing asset" means an asset or account of a borrower, which has been classified by a bank or financial institution as substandard, doubtful or loss