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Babu Ganesh Singh Deepnarayan v. Union Of India & Anr.
Factual and Procedural Background
The petitioner challenged the constitutional validity of the Second Proviso to Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ("Securitisation Act") on the grounds that it violates Article 14 of the Constitution of India. The challenge arose in the context of the requirement under the proviso that a borrower must pre-deposit a certain amount before an appeal against orders of the Debts Recovery Tribunal can be entertained. The matter was heard on these constitutional grounds.
Legal Issues Presented
- Whether the Second Proviso to Section 18(1) of the Securitisation Act, which mandates a pre-deposit of a portion of the debt amount as a condition precedent to filing an appeal, violates the right to equality guaranteed under Article 14 of the Constitution of India.
- Whether the condition imposed by the proviso is oppressive, onerous, or makes the remedy of appeal illusory.
- The validity of imposing conditions regulating the exercise of statutory right of appeal under the Securitisation Act.
Arguments of the Parties
Petitioner's Arguments
- The proviso requiring pre-deposit is not aligned with the object and purpose of the Securitisation Act and renders the remedy of appeal illusory.
- The stipulation is oppressive and onerous since the secured creditor already controls the secured assets, so no amount should be required as a condition for filing an appeal.
- Even if the amount is deposited and the appeal is dismissed, the amount cannot be appropriated by the secured creditor, making the deposit unjustified.
- Relied on the Apex Court judgment in Mardia Chemicals Ltd. v. Union of India, AIR 2004 SC 2371, which held that a similar proviso under Section 17 was unreasonable and violative of Article 14, arguing the same principle applies to Section 18.
Union of India’s Arguments
- The right of appeal is a statutory creation and not an inherent right; thus, the legislature can impose reasonable conditions for its exercise.
- The Second Proviso to Section 18 does not require full debt payment but only 50%, which may be reduced to 25% by the Appellate Tribunal for reasons recorded in writing.
- Similar provisions exist in other statutes and have been upheld by the Apex Court.
- Relied on the Delhi High Court decision in R. V. Saxena v. Union of India, AIR 2006 Delhi 96, which upheld the validity of the Second Proviso to Section 18(1) of the Securitisation Act.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Mardia Chemicals Ltd. v. Union of India, AIR 2004 SC 2371 | Condition of pre-deposit under Section 17 of the Securitisation Act was held onerous and violative of Article 14. | The petitioner relied on this judgment to argue that the same principle applies to Section 18’s proviso; however, the court distinguished the cases and did not accept this argument. |
| R. V. Saxena v. Union of India, AIR 2006 Delhi 96 | Validity of the Second Proviso to Section 18(1) of the Securitisation Act was upheld. | The court concurred with the Delhi High Court’s view and relied on it to uphold the proviso’s constitutionality. |
Court's Reasoning and Analysis
The court observed that the right of appeal is a statutory right and not inherent, allowing the legislature to impose reasonable conditions on its exercise. The conditions in the Second and Third Provisos to Section 18(1) regulate the appeal process to prevent frivolous appeals and ensure enforceability of orders. The court noted that the provisos require only a partial deposit (50%, reducible to 25%) and that the amount deposited is refundable if the appeal is dismissed, thus not causing prejudice to the appellant. The court did not find the condition oppressive or discriminatory under Article 14. It also noted the absence of any provision allowing the secured creditor to appropriate the deposited amount. The court relied on the Delhi High Court’s decision in R. V. Saxena, which upheld the proviso, and rejected the petitioner’s contention that the proviso made the right of appeal illusory or violated equality principles.
Holding and Implications
The court dismissed the petition, holding that the Second Proviso to Section 18(1) of the Securitisation Act does not violate Article 14 of the Constitution of India and is constitutionally valid.
The decision directly affects the parties by confirming the validity of the pre-deposit condition for appeals under the Securitisation Act. No new precedent was established beyond affirming existing principles on statutory rights of appeal and reasonable legislative conditions.
Judgement
K. S. RADHAKRISHNAN, C.J. :- Petitioner has challenged constitutional validity of the Second Proviso to Section 18 of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter called "Securitisation Act"), on the ground that it is violative of Article 14 of the Constitution of India.
2. Learned counsel Mr. K. I. Shah, appearing for the petitioner submitted that proviso which insists pre-deposit of any amount for entertaining an appeal is not in consonance with the object and purpose of the Act, which makes remedy of appeal illusory.
Learned counsel submitted that such a stipulation is oppressive and onerous. Counsel further submitted that secured assets or its management with transferable interest has already been taken over by the secured creditor and it is under its control and therefore, there is no reason to insist for payment of any amount as a condition precedent for filing appeal. Learned counsel further submitted that secured creditor can only proceed against secured assets and after having taken control of the secured assets, there is no justification in directing the aggrieved party to deposit any amount as a pre-condition for filing appeal. Learned counsel further submitted that even if any amount is deposited as a condition precedent for entertaining an appeal and ultimately if appeal is dismissed, the amount deposited cannot be appropriated by secured creditor and hence, there is no justification in directing aggrieved person to deposit any amount as a pre-condition for filing an appeal. Learned counsel placed heavy reliance on the judgment of the Apex Court in Mardia Chemicals Ltd. v. Union of India, AIR 2004 SC 2371 and submitted that when proviso to section 17 of securitization act was challenged the Apex Court took the view that such a condition is onerous and unreasonable and violative of Article 14 of the Constitution of India. Learned counsel therefore, submitted that same principle would apply when a challenge made to the proviso to Section 18 of the Act as well.
3. Learned Assistant Solicitor General Mr. Harin Raval, appearing for the Union of India submitted that right of appeal is not an inherent right, but a creature of the statute, and the legislature can impose conditions under which such a right is to be exercised. Further learned counsel submitted that second proviso to section 18 of the securitization act does not require that entire debt amount to be deposited, and only 50% thereof, which can in a given case be further reduced to a minimum of 25% of the sum. Learned counsel also submitted that there are similar provisions in many other enactments, the validity of those provisions have been upheld by the Apex Court. Reliance was also placed on the decision of the Delhi High Court in R. V. Saxena v. Union of India - AIR 2006 Delhi 96, in which the Division Bench has upheld validity of the Second proviso to Section 18 (1) of the Securitization Act.
4. We heard learned Counsel for either side at great length and we find unable to accept the arguments of the petitioner that second proviso to Section 18(1) of the Securitization Act has effect of creating a discrimination, and it is offensive to the principle of equality enshrined under Article 14 of the Constitution of India. For easy reference, we may extract below section 18 of the securitization act in its entirety.
Section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 inserted by Act 30 of 2004 with effect from 21-6-2002 reads as follows :-
"S. 18. - Appeal to the Appellate Tribunal :-
(1) Any person aggrieved by any order made by the Debts Recovery Tribunal (under Section 17 may prefer an appeal along with such fee, as may be prescribed) to an Appellate Tribunal within thirty days from the date of the receipt of the order of Debts Recovery Tribunal.
(Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower).
Provided further that no appeal shall be entertained unless the borrower has deposited with the Appellate Tribunal fifty per cent of the amount of debt due from him, as claimed by the secured creditors or determined by the Debts Recovery Tribunal, whichever is less :
Provided also that the Appellate Tribunal may, for the reasons to be recorded in writing, reduce the amount to not less than twenty five per cent of debt referred to in the second proviso.
(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be, dispose of the Appeal in accordance with the provision of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) and rules made thereunder.
section 18 of the securitization act, as it stood prior to the Amendment Act of 2004 reads as under :-
"18. Appeal to the Appellate Tribunal :-
(1) Any person aggrieved by any order made by the Debts Recovery Tribunal under Section 17 may prefer an appeal to the Appellate Tribunal within thirty days from the date of the receipt of the order of Debts Recovery Tribunal.
(2) Save as otherwise provided in this Act, the Appellate Tribunal shall, as far as may be dispose 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.
5. Right of appeal is a creature of the statute. Legislature can impose conditions under which it is to be exercised. Without a statutory provision creating such a right, a person aggrieved is not entitled to prefer an appeal. Legislature while granting right of appeal can impose conditions which it thinks reasonable. Such conditions merely regulate the exercise of right of appeal so that the same is not abused by a recalcitrant party, and there is no difficulty in the enforcement of the order appealed against in case the appeal is ultimately dismissed. Imposition of such a condition is essential, so that frivolous appeals would not be filed. Ultimately if the appeal is dismissed, the aggrieved party can always seek refund of the amount deposited and therefore, he is not in any way aggrieved. Further the Third Proviso to Section 18 (1) of the Securitization Act also enables the Appellate Tribunal, for the reasons to be recorded in writing, reduce the amount to not less than 25% of the debt referred to in the Second Proviso. We are not prepared to accept the contention that conditions imposed in the second and third proviso to Section 18(1) of the Securitization Act are onerous in nature so as to make the right of appeal illusory. Delhi High Court in R. V. Saxenas case (supra) also upheld the validity of Second Proviso to Section 18(1) of the Securitization Act with which we fully concur.
6. We have also not come across any provision in the Statute, enabling the secured creditor to adjust or appropriate the amount deposited by the borrower to prefer an appeal under Section 18(1) of the Act. On dismissal of the appeal the amount deposited as a pre-condition for filing the appeal will be refunded to the appellant and therefore, he is no way prejudiced. We therefore, find no merit in the contention raised by the petitioner that the second proviso to Section 18(1) of the Act is discriminatory or violative of Article 14 of the Constitution of India. Petitions lack merit and the same are dismissed.
Petition dismissed.
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