IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGNAL CIVIL JURISDICTION
WRIT PETITION NO. 1956 OF 2011
M/s. Sea Poly Plast India
Pvt. Ltd. & Ors. .. Petitioners.
Versus
Union of India & Ors. .. Respondents.
.....
Mr. Vishwas Shah with Mr. K.I. Shah and Mr. Jeetendra
Ranawat i/by Mr. Manoj Kadam for Petitioners.
Mr. M.S. Bhardwaj with Mr. Rajinderkumar for R. No. 1.
......
CORAM : DR.D.Y.CHANDRACHUD &
A. A. SAYED, JJ.
14 November 2011.
ORAL JUDGMENT : (PER DR. D.Y.CHANDRACHUD, J.)
The Petitioners have challenged the constitutional validity of Rule 8 (5) of the Security Interest (Enforcement) Rules, 2002. These Rules have been framed by the Central Government in exercise of powers conferred by the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. A notice under Section 13 (2) was issued to the Petitioners on 20 January 2011 demanding an amount of Rs. 268 crores. The Petitioners raised objections on 14 March 2011 which were disposed of on 12 May 2011. Symbolic possession of the secured assets has been taken on 17 June 2011. The Petitioners have a remedy available under Section 17 of the Act of moving the Debt Recovery Tribunal. In these proceedings the Petitioners have questioned the constitutional validity of Rule 8 (5) which reads as follows:-
8(5) Before effecting sale of the immovable property referred to in subrule (1) of rule 9, the authorized officer shall obtain valuation of the property from an approved valuer and in consultation with the secured creditor, fix the reserve price of the property and may sell the whole or any part of such immovable secured asset by any of the following methods :-
a) by obtaining quotations from the persons dealing with similar secured assets or otherwise interested in buying the such assets; or
(b) by inviting tenders from the public;
(c) by holding public auction; or
(d) by private treaty.
3. The ground of challenge to Rule 8 (5) is that the authorised officer is empowered in consultation with the secured creditor to fix the reserve price. According to the Petitioners, Rule 8 (5) does not contemplate that the borrower should be consulted. Hence, according to the Petitioners, the Rule is ultra vires.
4. Under Rule 8(5), the authorised officer has to obtain a valuation of the property from an approved valuer before effecting a sale under subrule (1) of Rule 9. The reserve price of the property is required to be fixed in consultation with the secured creditor by the authorised officer. Subrule (5) then provides the methods by which the property can be sold. Subrule (6) of Rule 8 stipulates that the authorised officer shall serve to the borrower a notice of 30 days for the sale of the immovable secured assets under subrule (5). Under Subrule (1) of Rule 9, no sale of immovable property can take place before the expiry of 30 days from the date on which a public
notice of the sale is published in the newspapers or a notice of sale has been served upon the borrower.
5. Section 13 (8) of the Act stipulates that 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 assets shall not be sold or transferred to the secured creditor and no further steps shall be taken by him for transfer or sale of the secured assets. The object of giving a notice to the borrower under subrule (6) of Rule 8 is not only to enable the borrower to exercise the option which is conferred upon him of paying the dues of the secured creditor together with the costs, charges and expenses incurred. Undoubtedly such a right is given to the secured creditor under Section 13 (8). The right can be exercised prior to the date fixed for sale or transfer. But, on receipt of the notice under Subrule (6) of Rule 8 a borrower can also raise objections to the valuation submitted under Rule 8(5). Hence, though Rule 8 (5) contemplates consultation with the secured creditor before the reserved price is fixed, the scheme under the Rules, when read in its entirety, would indicate that sufficient safeguards have been provided to the borrower to whom a notice is issued under subrule (6) of Rule 8. The issuance of a notice is not without purpose. One of the purposes is to enable the borrower to repay the dues of the secured creditor together with the costs, charges and expenses under Section 13 (8). The borrower can also object to the valuation upon receipt of a notice under rule 8(6). This is implicit in Rule 8(6).
6. In view of this legal position, there is no merit in the constitutional challenge to Rule 8(5). The view which we have taken accords with the law laid down in a judgment of the Gujarat High Court in Kanha International & Ors. v. Union of India & Ors, AIR 2011 Guj 108. A Division Bench of the Gujarat High Court consisting of Mr. Justice S.J. Mukhopadhaya, (as His Lordship then was) and Mr. Justice J.B. Pardiwala while interpreting Rule 8(5) and Rule 8 (6) held as follows.
“13. According to us, Rule 8(6) of the Rules of 2002 provides the necessary safeguard if the action is taken in arbitrary and unreasonable manner and if the valuation of the property is not properly fixed. The whole object of Rule 8 (6) of the Rules of 2002 appears to be that the borrower gets clear thirty days notice before the ’ sale takes place. During this period, the borrower can raise objections and can also point out before the appropriate forum as regards the correct and true valuation of the property. The essential purpose of subrule (5) of Rule 8 of the Rules of 2002 is to see that there is proper valuation by an approved valuer, who would be considered as an expert, and the view of the secured creditor on the aspect of fixation of reserved price is taken into consideration by the authorized officer. Just because the borrower is excluded from Rule 8 (5) of the Rules valuation is fixed and the reserved price is also fixed, by itself will not render Rule 8 (5) unconstitutional.”
The Division Bench of the Gujarat High Court further clarified the matter thus:
“18. We would like to clarify while upholding the constitutional validity of Rule 8 (5) of the Rules of 2002 that Rule 8 (6) of the Rules of 2002 protects the interest of the borrower. The whole idea of the Legislature in giving thirty days’ clear notice to the borrower regarding the sale of the mortgaged property is to give him an opportunity to redress any grievance as regards the fixation of the valuation of the property and the upset price. We clarify that if any action under Rule 8 (5) is arbitrary and unreasonable, such action can be gone into by appropriate forum and if in a given case the borrower is having the valuation of the property by another approved valuer having substantial difference, he may forward the copy of the valuation report to the authorized officer to take into consideration the said aspect and such material may also be considered by the authorized officer even after fixation of the reserved price.”
We are in respectful agreement with the judgment of the Division Bench of the Gujarat High Court.
7. For these reasons, we do not find any merit in the petition. The Petition is accordingly dismissed. We, however, leave it open to the Petitioners, if they are aggrieved by the measures adopted under Section 13 (4), to take recourse to Section 17. There shall be no order as to costs.
(Dr. D.Y. Chandrachud, J.)
(A. A. Sayed, J.)
