MARDIA CHEMICALS LTD V. UNION OF INDIA & ORS (2004) 4 SCC 311
FACTS:
- SARFAESI’s (The Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2000) constitutionality was contested, in particular, the legality of sections 13,15,17 and 34 on the grounds that they are arbitrary and unjust.
- Mardia Chemicals Ltd received a warning from IDBI Bank after the Act went into effect. When Mardia failed to appear in Court, several related petitions were combined and answered collectively.
ISSUE:
- If another statute was already in place, would it be possible to challenge SARFAESI on the grounds that it was not necessary to enact it in the current circumstances?
- How far did section 13 of the Act go beyond what the Constitution allows?
- Does Sec. 17 in particular 17(2) infringe the constitution because it is arbitrary and unreasonable?
APPELLANT ARGUMENTS
- The rights of defaulters are ignored by section 13 because it grants banks and Fls full rights. Borrower interest was completely ignored by sec.13 also the borrowers had no access to any kind of adjudicative or representational rights.
- The UOI argued that there were numerous other laws that provided for such prerequisite, arguing that sec. 17(2) stated that the defaulter had to deposit 75% of the amount in order to prefer and appeal, amount was too great and therefore restricted access to judicial recourse of appeal. Petitioner maintained that they were for appeal and not for first- instance applications. UOI attempted to rebut that by claiming that the marginal heading of section 17 was “appeal”.
- Section 15 addressed the process for assuming control of an entity’s operations and management, particularly a company.
- 34 was pari materiae to the RDB (Recovery of Debts due to Banks and Financial Institution) Act, which declared that DRTs have exclusive jurisdiction (i.e civil courts are barred from hearing cases under SARFAESI and also no civil court may issue any orders or injunction against a bank using the Act’s power)
- SARFAESI was not essential because there was already a law addressing same thing and numerous laws were not necessary to cover the same issue.
DECISION:
- The Superiority of the parliament in deciding the need to enact laws was highlighted and rejected the connection between the RDB Act and SARFAESI because, among other things, the later deals with only with secured creditors while the former deals with the extremely unique issue of NPAs.The parliament must therefore determine if legislation is necessary.
- The Court held that Sec. 13 was constitutionally legitimate. The only reason the secured creditors is exercising his entitlement is because the Non performing Assets and the additional 60 days granted to repay after notice, which might be viewed as a “second default” in the context of the default that led to the sec. 13 action.
- A type of recognition of the Right of Redemption existed in sec.13 prior to the 2016 amendment. Rule 8 and 9 of the SI Rules stipulated that the bank had to give notice of the sale of secured property, and that the borrower might settle the debt and reclaim possession at any time prior to the sale.
- Although SC affirmed the section’s validity, it advocated for debtors to have access to the right of representation.
- The SC ordered that the heading be altered from “appeal” to “application” after finding that sec. 17(2) was arbitrary.