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Thursday, January 29, 2015

whether it is on the whims and fancies of the financial institutions to classify the assets as non- performing assets, as canvassed before us.

                                                                  Reportable
                        IN THE SUPREME COURT OF INDIA
                         CIVIL ORIGINAL JURISDICTION
                    WRIT PETITION (CIVIL) NO. 901 OF 2014

KESHAVLAL KHEMCHAND AND SONS PVT. LTD.
& OTHERS                                      ...  Petitioners

            Versus

UNION OF INDIA & OTHERS                        ... Respondents



                                    WITH

                      WRIT PETITION (C) NO. 902 OF 2014

                      WRIT PETITION (C) NO. 903 OF 2014

                      WRIT PETITION (C) NO. 904 OF 2014

                      WRIT PETITION (C) NO. 905 OF 2014

                      WRIT PETITION (C) NO. 907 OF 2014

                      WRIT PETITION (C) NO. 925 OF 2014

                      WRIT PETITION (C) NO. 926 OF 2014

                      WRIT PETITION (C) NO. 937 OF 2014

                      WRIT PETITION (C) NO. 938 OF 2014

                      WRIT PETITION (C) NO. 939 OF 2014

                      WRIT PETITION (C) NO. 940 OF 2014

                      WRIT PETITION (C) NO. 945 OF 2014

                      WRIT PETITION (C) NO. 946 OF 2014

                      WRIT PETITION (C) NO. 947 OF 2014

                      WRIT PETITION (C) NO. 948 OF 2014


                       CIVIL APPEAL NO. 1230  OF 2015
                (Arising out of SLP (Civil) No.2230 of 2014)

                        CIVIL APPEAL NO. 1231 OF 2015
                (Arising out of SLP (Civil) No.12008 of 2014)

                        CIVIL APPEAL NO. 1233 OF 2015
                (Arising out of SLP (Civil) No.12153 of 2014)

                        CIVIL APPEAL NO. 1234 OF 2015
                (Arising out of SLP (Civil) No.12233 of 2014)

                       CIVIL APPEAL NO.  1235 OF 2015
                (Arising out of SLP (Civil) No.12266 of 2014)

                        CIVIL APPEAL NO.1236 OF 2015
                (Arising out of SLP (Civil) No.12368 of 2014)

                        CIVIL APPEAL NO. 1237 OF 2015
                (Arising out of SLP (Civil) No.12408 of 2014)

                        CIVIL APPEAL NO.1238 OF 2015
               (Arising out of SLP (Civil) No. 12445 of 2014)

                        CIVIL APPEAL NO.1239 OF 2015
                (Arising out of SLP (Civil) No.12461 of 2014)

                        CIVIL APPEAL NO.1240 OF 2015
                (Arising out of SLP (Civil) No.12509 of 2014)

                        CIVIL APPEAL NO.1241 OF 2015
                (Arising out of SLP (Civil) No.12584 of 2014)

                        CIVIL APPEAL NO.1242 OF 2015
                (Arising out of SLP (Civil) No.12585 of 2014)

                        CIVIL APPEAL NO. 1243 OF 2015
                (Arising out of SLP (Civil) No.12588 of 2014)

                        CIVIL APPEAL NO.1244 OF 2015
                (Arising out of SLP (Civil) No.12589 of 2014)

                        CIVIL APPEAL NO.1245  OF 2015
                (Arising out of SLP (Civil) No.12590 of 2014)

                       CIVIL APPEAL NO. 1246  OF 2015
                (Arising out of SLP (Civil) No.12592 of 2014)

                        CIVIL APPEAL NO. 1247 OF 2015
                (Arising out of SLP (Civil) No.12593 of 2014)

                        CIVIL APPEAL NO.1248  OF 2015
                (Arising out of SLP (Civil) No.12594 of 2014)

                        CIVIL APPEAL NO.1249 OF 2015
                (Arising out of SLP (Civil) No.12596 of 2014)

                     CIVIL APPEAL NOS.1250-1251 OF 2015
            (Arising out of SLP (Civil) Nos. 13706-13707 of 2014)

                        CIVIL APPEAL NO.1252 OF 2015
                (Arising out of SLP (Civil) No.14100 of 2014)

                        CIVIL APPEAL NO.1253 OF 2015
                (Arising out of SLP (Civil) No.14259 of 2014)

                        CIVIL APPEAL NO.1254 OF 2015
                (Arising out of SLP (Civil) No.14343 of 2014)

                      CIVIL APPEAL NOS.1255-56 OF 2015
            (Arising out of SLP (Civil) Nos. 14345-14346 of 2014)

                        CIVIL APPEAL NO.1257 OF 2015
                (Arising out of SLP (Civil) No.14358 of 2014)

                        CIVIL APPEAL NO.1258  OF 2015
                (Arising out of SLP (Civil) No.14407 of 2014)

                        CIVIL APPEAL NO.1259 OF 2015
                (Arising out of SLP (Civil) No.14518 of 2014)

                        CIVIL APPEAL NO.1260 OF 2015
                (Arising out of SLP (Civil) No.14565 of 2014)

                        CIVIL APPEAL NO.1261  OF 2015
                (Arising out of SLP (Civil) No.15076 of 2014)

                        CIVIL APPEAL NO.1262 OF 2015
                (Arising out of SLP (Civil) No.15105 of 2014)

                       CIVIL APPEAL NO. 1263  OF 2015
                (Arising out of SLP (Civil) No.15756 of 2014)

                        CIVIL APPEAL NO.1264  OF 2015
                (Arising out of SLP (Civil) No.15818 of 2014)

                      CIVIL APPEAL NOS.1265-66 OF 2015
            (Arising out of SLP (Civil) Nos.15835-15836 of 2014)

                     CIVIL APPEAL NOS. 1267-68  OF 2015
            (Arising out of SLP (Civil) Nos.15837-15838 of 2014)

                      CIVIL APPEAL NOS. 1269-70 OF 2015
            (Arising out of SLP (Civil) Nos.15841-15842 of 2014)

                        CIVIL APPEAL NO.1271 OF 2015
                (Arising out of SLP (Civil) No.15963 of 2014)

                        CIVIL APPEAL NO.1272 OF 2015
                (Arising out of SLP (Civil) No.15964 of 2014)

                        CIVIL APPEAL NO. 1273 OF 2015
                (Arising out of SLP (Civil) No.16163 of 2014)

                       CIVIL APPEAL NO. 1274  OF 2015
               (Arising out of SLP (Civil) Nos.16164 of 2014)

                        CIVIL APPEAL NO.1275  OF 2015
                (Arising out of SLP (Civil) No.16165 of 2014)

                        CIVIL APPEAL NO.1276 OF 2015
                (Arising out of SLP (Civil) No.18478 of 2014)

                       CIVIL APPEAL NO. 1277  OF 2015
                (Arising out of SLP (Civil) No.18756 of 2014)

                        CIVIL APPEAL NO.1278 OF 2015
                (Arising out of SLP (Civil) No.18949 of 2014)

                        CIVIL APPEAL NO. 1279 OF 2015
               (Arising out of SLP (Civil) No. 21232 of 2014)

                       CIVIL APPEAL NO. 1280  OF 2015
                (Arising out of SLP (Civil) No.22198 of 2014)

                     CIVIL APPEAL NOS. 1281-82  OF 2015
            (Arising out of SLP (Civil) Nos. 24451-24452 of 2014)

                       CIVIL APPEAL NO. 1283  OF 2015
               (Arising out of SLP (Civil) No. 25752 of 2014)

                       CIVIL APPEAL NO. 1284  OF 2015
               (Arising out of SLP (Civil) No. 28796 of 2014)

                      CIVIL APPEAL NOS. 1285-86 OF 2015
            (Arising out of SLP (Civil) Nos. 29722-29723 of 2014)

                        CIVIL APPEAL NO.1287 OF 2015
                (Arising out of SLP (Civil) No.29792 of 2014)

                        CIVIL APPEAL NO. 1288 OF 2015
               (Arising out of SLP (Civil) No. 30196 of 2014)

                       CIVIL APPEAL NO. 1289  OF 2015
               (Arising out of SLP (Civil) No. 25444 of 2014)

                        CIVIL APPEAL NO. 1290 OF 2015
               (Arising out of SLP (Civil) No. 25445 of 2014)

                      CIVIL APPEAL NOS. 1291-92 OF 2015
            (Arising out of SLP (Civil) Nos. 32028-32029 of 2014)

                                     AND

                        CIVIL APPEAL NO. 1293 OF 2015
               (Arising out of SLP (Civil) No. 33096 of 2014)



                               J U D G M E N T

Chelameswar, J.

1.    Leave granted in all the SLPs.

2.     The  Securitisation  and  Reconstruction  of  Financial  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:-
"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 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 recovery of defaulting loans  and  mounting  levels
of non-performing assets of banks and financial institutions."



The enactment was preceded by three Committee Reports - two  headed  by  Mr.
M. Narasimham[1] and the third by Mr. T.R. Andhyarujina[2].

3.    Recovery of money from a debtor by resorting to the filing of  a  suit
takes painfully long time in this country,  for  various  reasons[3].   Huge
amounts  of  money  are  lent  by  various   banks   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.

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, 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 due  from  the  borrowers  to
the CREDITORS.   Apart from 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.
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 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 tribunal[6] constituted under Act 51  of
1993 by following the procedure under Section 13 of 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 instalment thereof, and his  account  in  respect  of  such  debt  is
classified by the  secured  creditor  as  non-performing  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 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 upon  the  borrower[7],
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).
Sub-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 classified  by  the  secured  creditor  as  a  'non-
performing asset' (hereinafter referred to as "NPA")

7.    Sub-section (3) stipulates[9] that notice referred to  in  sub-section
(2) shall give the details of  the  amounts  payable  by  the  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 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  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 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 provides  that  upon
such acquisition of an asset, the SC or RC, as the case may be,  steps  into
the shoes of the original SECURED CREDITOR from whom the asset is acquired.

10.   Under the Act, SCs and RCs are also treated to  be  SECURED  CREDITORS
by definition.   [See Section 2(1)(zd)]

11.   The constitutional validity of the Act was examined by this  Court  in
Mardia Chemicals Ltd. & Others v. Union of India  &  Others,  (2004)  4  SCC
311.  This Court upheld the constitutionality of the Act except that of sub-
section (2) of Section 17.
"82.  We, therefore, subject to what is provided in para  80  above,  uphold
the validity of the Act and its provisions except that  of  sub-section  (2)
of Section 17 of the Act, which is declared ultra vires Article  14  of  the
Constitution of India."

12.   One of  the  grounds  on  which  the  Act  was  challenged  in  Mardia
Chemicals (supra) was that the said Act enables  the  SECURED  CREDITORS  to
classify the account of a borrower as NPA at the whims and fancies  of  such
SECURED CREDITORS.  This Court rejected the said submission for the  reasons
that the guidelines laid down by the Reserve Bank of India  for  classifying
the account of a borrower as a NPA would eliminate the  possibility  of  the
SECURED CREDITOR arbitrarily declaring the account of a borrower as a NPA.
"37.  Next we come to the question as to whether it  is  on  the  whims  and
fancies of the  financial  institutions  to  classify  the  assets  as  non-
performing assets, as canvassed before us.  We find it not to be  so.  As  a
matter of fact a policy  has  been  laid  down  by  Reserve  Bank  of  India
providing guidelines in the matter for declaring  an  asset  to  be  a  non-
performing asset known as "RBI's prudential  norms  on  income  recognition,
asset classification and provisioning - pertaining to  advances"  through  a
circular dated  30-8-2001.    It  is  mentioned  in  the  said  circular  as
follows:

      ****       ****        ****       ****
      ****       ****        ****       ****

From what is quoted above, it is quite evident that guidelines as laid  down
by Reserve bank of India which are in more details but not necessary  to  be
reproduced here, lay down the terms  and  conditions  and  circumstances  in
which the debt is to be classified as non-performing  asset  as  clearly  as
possible.  Therefore, we find no substance in the submission made on  behalf
of the petitioners that there are no guidelines for treating the debt  as  a
non-performing asset."


13.   Section 2(1)(o) of the Act defines NPA.  The said definition  came  to
be amended by Act 30 of 2004.  It is the amended  definition  which  is  the
subject matter of dispute  in  this  bunch  of  matters.  The  said  amended
definition came to be challenged in various High Courts.

14.   The High Court of Gujarat, by a common judgment  dated  24.4.14  in  a
batch of writ petitions, held that the amended Section 2(1)(o)  of  the  Act
is unconstitutional.
"55.  In view of the  above-discussions,  the  writ  application  is  partly
allowed by holding that the amended provisions of  Section  2(1)(o)  of  the
Securitisation Act are ultra vires the Article 14 of  the  Constitution  and
the object of  the  above  Act  itself  and  consequently,  we  restore  the
provisions which existed earlier, i.e., prior to the amendment of  2004  and
existed at the time of decision of the Supreme Court in the case  of  Mardia
Chemicals  (supra).   We,  however,  uphold  the  guidelines  of   the   RBI
challenged in this application."

15.   On the other hand, in another  common  judgment  dated  18.5.14  in  a
batch of writ petitions, the Madras High Court rejected the challenge.

16.   Hence these appeals by  the  various  aggrieved  parties,  either  the
borrowers  or  the  SECURED  CREDITORS.   Various  writ  petitions  invoking
Article 32 of the Constitution also came  to  be  filed  by  some  borrowers
against whom proceedings under Section 13 of the Act were  initiated  during
the pendency of the appeals from the two judgments referred to above.

17.   Since the bone of contention in this bunch of matters is  the  amended
Section 2(1)(o) of the Act, we deem it appropriate to extract the  provision
as it existed both prior to and after the amendment.
|THE SECURITISATION AND            |THE ENFORCEMENT OF SECURITY       |
|RECONSTRUCTION OF FINANCIAL ASSETS|INTEREST AND RECOVERY OF DEBTS    |
|AND ENFORCEMENT OF SECURITY       |LAWS (AMENDMENT) ACT, 2004        |
|INTEREST ACT, 2002                |                                  |
|2.  Definitions                   |2.  Definitions                   |
|                                  |                                  |
|(1)  In this Act, unless the      |(1)  In this Act, unless the      |
|context otherwise requires:       |context otherwise requires:       |
|                                  |                                  |
|(o)  "Non-Performing Asset" means |(o) "Non-Performing Asset" means  |
|an asset or account of a borrower,|an asset or account of a borrower,|
|which has been classified by a    |which has been classified by a    |
|bank or financial institution as  |bank or financial institution, as |
|sub-standard, doubtful or loss    |sub-standard, doubtful or loss    |
|assets, in accordance with the    |asset.-                           |
|directions or under guidelines    |                                  |
|relating to assets classification |                                  |
|issued by the Reserve Bank.       |                                  |
|                                  |(a)  In case such bank or         |
|                                  |financial institution is          |
|                                  |administered or regulated by any  |
|                                  |authority or body established,    |
|                                  |constituted or appointed by any   |
|                                  |law for the time being in force,  |
|                                  |in accordance with the directions |
|                                  |or guidelines relating to assets  |
|                                  |classifications issued by such    |
|                                  |authority or body;                |
|                                  |                                  |
|                                  |(b)  In any other case, in        |
|                                  |accordance with the directions or |
|                                  |guidelines relating to assets     |
|                                  |classifications issued by the     |
|                                  |Reserve Bank.                     |


18.   It can be seen from the above, that prior to its amendment 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 to  be  made  in  accordance  with  the  directions  or  guidelines
relating to assets classification issued by the Reserve Bank.

19.   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 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   (hereinafter   referred   to   as   the
"REGULATOR").  If the CREDITOR is not administered or regulated by any  such
REGULATOR then the CREDITOR  is  required  to  classify  the  account  of  a
borrower as NPA in accordance with the guidelines and directions  issued  by
the Reserve Bank of India.

20.   In other words, by the amendment,  the  Parliament  made  it  possible
that different sets of guidelines made by different bodies may  be  followed
by  different  CREDITORS  depending  upon  the  fact  as  to  who   is   the
administering  or  regulating  authority  of  such  CREDITOR.   Hence,   the
challenge to the amended provision.

21.   Before we examine the various submissions made at the Bar, we deem  it
appropriate to give a brief analysis of the judgments  of  the  Madras  High
Court as well as the Gujarat High Court.

22.   The High Court of Madras rejected the submission  of  the  petitioners
that the impugned provision suffers from the vires of excessive  delegation.




(a)   The High Court took note of the fact that the Reserve  Bank  of  India
introduced in the year 1992 the prudential  norms  of  "income  recognition,
asset classification, provisioning  and  other  related  matters"  and  such
norms were revised periodically keeping in mind various developments in  the
banking system, both nationally and internationally.   The High  Court  took
note of the practice  of  the  Reserve  Bank  of  issuing  master  circulars
annually which contain the consolidated instructions issued by  the  Reserve
Bank from time to time on the above-mentioned matters.

(b)   The High Court took note of the fact that the Reserve  Bank  of  India
in exercise of the statutory authority under Section 21 and Section  35A  of
the Banking Regulation Act, 1949 prescribes norms for  the  various  aspects
of banking specified under the Act.

(c)   The High Court  held  that  the  Parliament,  while  defining  a  non-
performing asset under Section 2(1)(o) of the Act, only  adopted  the  norms
prescribed from time to time by the Reserve Bank of India  for  the  purpose
of identifying the NPA.[13]
"34.....In this case, the Legislature has left the  job  of  defining  "non-
performing asset' in the hands of Reserve Bank of  India.   Therefore,  when
once the Legislature has approved the power of Reserve Bank of India on  the
classification  of  assets,  the  resultant  consequence  would  be  that  a
subsequent amendment pertaining to such a classification  would  apply  with
its vigour and force to the new Act as well.

35.   In the light of the discussions made above, we are of  the  view  that
it is a case of an adoption involved in the  present  case.    Therefore  it
can only be termed as  legislation  by  reference  and  hence  the  impugned
Circular is valid in law."

23.   On the other hand, the Gujarat High  Court  opined  that  the  amended
definition of the expression 'NPA' creates two  classes  of  borrowers.   In
the context of the classification of the account of a borrower as a  NPA  of
the CREDITOR, while one class of borrowers are governed  by  the  guidelines
issued by the Reserve Bank of  India,  the  other  class  of  borrowers  are
governed by the guidelines issued by different  authorities.[14]   The  High
Court also placed reliance on the statement of objects and  reasons  of  the
Act, as it was originally enacted, which inter alia stated as:
"(h)  empowering banks and financial  institutions  to  take  possession  of
securities given for financial assistance and sell  or  lease  the  same  or
take over management in the event of default,  i.e.  classification  of  the
borrower's  account  as  non-performing  asset  in   accordance   with   the
directions given or guidelines issued by the  Reserve  Bank  of  India  from
time to time."

and recorded a conclusion that the Parliament  deviated  from  the  original
aims and objects propounded by it.  It also took note of the fact that  this
Court in Mardia Chemicals  (supra)  repelled  the  attack  on  the  original
definition of a NPA on the ground  that  the  CREDITORS  are  bound  by  the
policy guidelines issued by the Reserve Bank of India, and therefore,  there
is no possibility of the CREDITORS arbitrarily  or  whimsically  classifying
the account of any borrower as a NPA.
The High Court  therefore  opined  that  the  deviation  from  the  original
objects and reasons would be violative of Article 14 of the Constitution  of
India.

24.   Learned counsel appearing for the borrowers argued  that  the  amended
Section 2(1)(o) is unconstitutional for the following reasons:
(1)   that the Parliament, by authorizing the various bodies  to  frame  the
guidelines in accordance with which the  account  of  a  borrower  could  be
classified as a NPA abdicated its essential legislative function  by  making
an excessive delegation;
(2)   that while the un-amended  Section  2(1)(o)  provided  for  a  uniform
standard by which an account of a borrower is to be  classified  as  NPA  of
the CREDITOR by applying the guidelines issued  by  the  Reserve  Bank,  the
amended provision enables different CREDITORS to adopt different  guidelines
which prescribe different standards for arriving at a  conclusion  that  the
account of a borrower is NPA.  Such a provision according to the  borrowers,
is violative of Article 14 of the Constitution of India as it amounts  to  a
class legislation forbidden by Article 14;
(3)    Since  the  Act  recognizes  the  possibility  of  acquisition  of  a
"financial  asset"[15]  of  a   CREDITOR   by   either   a   "securitization
company"[16] or a "reconstruction company"[17] it introduces  a  great  deal
of  uncertainty  in  the  matter  of  the  application  of  the   guidelines
appropriate for classification of an account of a borrower  as  a  NPA.   It
all depends on the fact as to who is the current holder  of  such  financial
asset when the proceedings under Section 13 are sought to be invoked.
(4)    As  the  Act  does  not  provide  for  a  reasonable  opportunity  to
demonstrate that the classification of the borrower's account as  a  NPA  is
untenable, the power to make such a classification itself becomes  arbitrary
and violative of Article 14 of the Constitution.

25.   On the other hand, the learned counsel  appearing  for  the  Union  of
India, the RBI  and  the  various  CREDITORS  submitted  that  the  impugned
amendment is a constitutionally valid piece of legislation.
In recognition of the fact that the assessment of an account of borrower  as
NPA  depends  upon  innumerable  factors  which  constantly  keep  changing,
Parliament thought it fit to stipulate that the assessment be  made  in  the
light of the guidelines made by either the RBI or various  other  REGULATORS
regulating the activities of various CREDITORS.  There is no  delegation  of
any essential legislative functions.

The prescription that the classification of NPA is to be made on  the  basis
of the guidelines  framed  by  different  bodies  regulating  the  different
CREDITORS is a constitutionally permissible classification having regard  to
the nature of the  different  credit  facilities  extended  by  the  various
CREDITORS to different categories of borrowers and on  different  terms  and
conditions.

The third submission made on  behalf  of  the  borrowers  is  sought  to  be
repelled on two grounds:
that, it is a purely hypothetical submission in the context of  the  present
set of cases  as  in  none  of  the  cases  the  original  SECURED  CREDITOR
transferred the financial asset in favour of any other body;

assuming for the sake of argument that there is a possibility  of  an  asset
of the SECURED CREDITOR being acquired either by  a  securitization  company
or a reconstruction company and therefore are  governed  by  the  guidelines
(for the determination of the question whether an acquired asset has  become
a non-performing asset) other than those promulgated by the Reserve Bank  of
India, it has not been demonstrated in any one  of  these  cases  that  such
guidelines are less favourable to the borrowers than the guidelines  of  the
Reserve Bank of India.

26.   We would like to make  it  clear  that  we  are  not  undertaking  the
examination of a second round of attack on the constitutionality of the  Act
in its entirety. It is nobody's case that judgment of this Court  in  Mardia
Chemicals  (supra)  requires  reconsideration.   As  pointed  out   by   the
borrowers, the definition of the expression "NPA"  [under  Section  2(1)(o)]
underwent an amendment subsequent to the decision in Mardia  Chemicals,  the
validity of such an amendment only is  required  to  be  examined  in  these
matters.

27.   We have already noticed that under Section 13 of the Act the right  to
invoke the provisions of the Act for enforcement of a security  interest  is
permissible only on the  satisfaction  of  the  three  conditions  specified
under Section 13(2) of the Act.  One of them being that the account  of  the
borrower is classified by the SECURED CREDITOR  as  a  non-performing  asset
(NPA) of the CREDITOR.

28.   The expression  'asset'  is  not  defined  under  the  Act.   But  the
expressions 'financial asset'[18] and 'non  performing  asset'  are  defined
under Section 2(1)(l) and 2(1)(o) of the Act. The claim  of  a  CREDITOR  to
any debt or receivables etc. from the borrower becomes the  financial  asset
of the CREDITOR. Under the unamended definition, an asset (of  the  CREDITOR
i.e., the account of the borrower) which is classified by  the  CREDITOR  as
"sub-standard, doubtful or loss asset" in accordance with the  direction  or
guidelines relating to the assets classification issued by the Reserve  Bank
becomes an NPA.  The amended definition however defines a NPA  as  an  asset
classified by the CREDITOR as "sub-standard,  doubtful  or  loss  asset"  in
accordance with the relevant guidelines issued by the appropriate body.   In
the case of the CREDITORS "administered or regulated  by  any  authority  or
body established, constituted or appointed by any law for the time being  in
force",  such  'REGULATOR',  and  with  reference  to  CREDITORS,   not   so
administered  or  regulated,  the   Reserve   Bank   are   the   appropriate
authorities.

29.   We have already noticed that one of the two main purposes of  the  Act
is to facilitate the SECURED CREDITORS[19] to recover  the  amounts  due  to
them from the borrowers by enforcing the security interest  created  by  the
borrowers without the intervention of the civil court or the tribunal.

30.   We think that it  is  necessary  to  trace  out  the  history  of  the
concepts of (i) NPA and (ii) loan transaction for  the  better  appreciation
of the controversy before us.

31.   On 14th August, 1991, the Government of India appointed a  nine-member
Committee headed by Mr. M. Narasimham, (13th Governor of  the  Reserve  Bank
of  India)  to  examine  various  aspects   relating   to   the   structure,
organization, functions and procedures of the  banking  system.    The  said
Committee came to be appointed in the backdrop of  the  Balance  of  Payment
Crisis which the country was facing at that point of time.

32.   The Committee submitted its 1st Report on  the  16th  November,  1991.
While examining the various  aspects  of  the  financial  system,  the  said
Committee considered the functioning of the banking system in  the  country.
 It took note of the existing guidelines  issued  by  the  Reserve  Bank  of
India from time to time and  also  the  various  practices  of  the  banking
industry.   The Committee was of the view that the "ratio of  capital  funds
in  relation  to  bank's  deposits  or  its  assets  is  a  well  known  and
universally  accepted  measure  of  the  strength  and  stability   of   the
institution".

33.   It took note of the  capital  adequacy  standards  prescribed  by  the
Committee known as Basle Committee[20] and opined that it is necessary  that
the Indian banks also conform to those standards.   But as a prelude to  the
compliance with the BIS standards,  the  Committee  opined  that  the  banks
should have their assets revalued on a  more  realistic  basis  and  on  the
basis of their realizable value.

34.   It also  took  note  of  the  fact  that  the  banks  and  development
financial institutions (DFIs) had not been following  a  universal  practice
with  regard  to  the  income  recognition,  valuation  of  investments   or
provisioning  against  doubtful  debts.   It  is  in  this  background,  the
Committee recommended as follows:-

"..The  international  practice  is  that  an  asset  is  treated  as  "non-
performing" when interest  is  overdue  for  at  least  two  quarters.    In
respect of such non-performing assets interest is not recognized on  accrual
basis but is booked as income only when actually received.    The  Committee
is of the view that a similar practice  should  be  followed  by  banks  and
financial institutions in India and accordingly recommends that interest  on
non-performing assets should not be  booked  as  income  on  accrual  basis.
The non-performing assets would be defined as an advance where,  as  on  the
balance sheet date

in respect of term loans, interest remains past due for  a  period  of  more
than 180 days.

(b)   in respect of overdraft and  cash  credits,  accounts  remain  out  of
order for a period of more than 180 days,

(c)   in respect  of  bills  purchased  and  discounted,  the  bill  remains
overdue and unpaid for a period of more than 180 days,

(d)   in respect of other accounts, any amount to be received  remains  past
due for a period of more than 180 days.

An amount is considered past due when it remains outstanding 30 days  beyond
the date.

      ****       ****        ****       ****
The Committee is of the view that for the purposes  of  provisioning,  banks
and financial institutions should classify their assets by  compressing  the
Health Codes into the following broad groups:

Standard
Sub-standard
Doubtful    and
Loss

The RBI should  prescribe  clear  and  objective  definitions  for  these  4
categories  to  ensure  a  uniform,  consistent  and   logical   basis   for
classification of assets.   Broadly stated,  sub-standard  assets  would  be
those which exhibit problems and would include  assets  classified  as  non-
performing for a period not  exceeding  two  years.    Doubtful  assets  are
those non-performing assets which remain as such for a period exceeding  two
years and would also include loans  in  respect  of  which  instalments  are
overdue for a period exceeding 2 years.   Loss  assets  are  accounts  where
loss has been identified but the amounts have not been written off."


35.   Narasimham Committee Report on asset classification by  the  CREDITORS
was accepted by the Reserve Bank of India and guidelines  are  being  issued
from time  to  time.   Different  instructions  culminating  into  different
"Master Circulars" with respect to various classes of  banks  and  financial
institutions came to be issued by the Reserve Bank from time to  time.   For
example, the Reserve Bank of India issued instructions dealing with the  Non
Banking  Financial  Companies  (NBFCs)[21]  and  also   the   Securitisation
Companies and Reconstruction Companies.   Originally  such  guidelines  were
meant only to enable  the  CREDITORS  to  have  a  rational  view  of  their
"assets"/"financial assets" for the better  administration  of  their  funds
and the banking business.  The Parliament thought it fit to adopt the above-
mentioned guidelines issued by the  Reserve  Bank  of  India  even  for  the
purpose of identifying NPAs under the Act.


36.   Now, we proceed to examine what exactly is a loan  transaction  -  the
rights and obligations arising out of a loan transaction and the  impact  of
the Act on such rights and obligations.

37.   The expression 'loan', though not defined under the Act, has  a  well-
settled connotation i.e., advancing of money by one person to another  under
an agreement by which the recipient of the money agrees to repay the  amount
on such agreed terms with regard to the time of repayment and the  liability
to pay interest.
"Definition of loan.  A contract of loan of money is a contact  whereby  one
person lends or agrees to lend a sum of money to another,  in  consideration
of a promise express or implied to repay that sum on demand, or at  a  fixed
or determinable future time, or conditionally upon an event which  is  bound
to happen, with or without interest."
                              - Chitty on Contracts, Vol.II 30th Edn., p.909

38.   The person advancing the money is generally called a CREDITOR and  the
person receiving the money is generally called a borrower. The  most  simple
form of a loan transaction is a contract by which  the  borrower  agrees  to
repay the amount borrowed on demand by the creditor with  such  interest  as
stipulated under the agreement.  Such a loan transaction may be attended  by
any arrangement of a security like a mortgage or pledge etc. depending  upon
the agreement of the parties.

39.   The Act provides for a mode of speedy recovery of the monies due  from
the borrowers to  one  class  of  creditors  who  are  banks  and  financial
institutions   (CREDITORS).      Advances/loans   made   by   CREDITORS   to
businessmen and industrialists are generally not  repayable  on  demand  but
repayable in accordance with a  fixed  time  schedule  agreed  upon  by  the
parties known as "term loans".
"Term loans. A loan may be made for  a specified period (a term  loan).   In
such a case repayment is due at the end of the specified period and, in  the
absence of any express provision or implication to the contrary, no  further
demand for repayment is necessary."
                              - Chitty on Contracts, Vol.II 30th Edn., p.913

In other words, such loans are repayable in instalments  over  a  period  of
time the terms of which are evidenced by a  written  agreement  between  the
parties.  A default in the repayment, (in  terms  of  the  agreed  schedule)
generally provides a cause of action for  the  CREDITOR  to  initiate  legal
proceedings for the recovery of the entire amount due and  outstanding  from
the borrower.  Normally  such  term  loans  are  also  accompanied  by  some
'security interest' in a 'secured asset' of the borrower.   Such a  recovery
is to be made normally by instituting a suit for recovery of the amounts  by
enforcing the 'security interest'.  The Recovery of Debts due to  Banks  and
Financial Institutions Act, 1993 created an exclusive  forum  for  a  speedy
ascertainment of the amounts actually due from the defaulting  borrower  and
also provided for  a  mechanism  for  speedy  recovery  of  the  amounts  so
ascertained from such borrowers.

40.   Since such a system was also found to be  inadequate  for  the  speedy
recovery of the  monies  due  from  the  borrowers  to  the  CREDITORS,  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 outstanding from a borrower subject to an appeal  under  Section  17
of the Act.

41.    Be  that  as  it  may,  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 SECURED CREDITOR is also required to classify  the  account  of
the borrower (asset of the CREDITOR) as an NPA.

42.   De hors the Act, when the borrower of a  term  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 to examine and  decide
whether the account of the borrower has  become  an  NPA  before  initiating
action under the Act.

43.   The question - why  did  the  Parliament  impose  such  an  additional
obligation on the CREDITORS while proposing to create a  mechanism  for  the
expeditious recovery of the money due to the SECURED  CREDITORS  -  requires
examination.  The answer appears to be that  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 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.
 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 given.

44.   The above 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.   We  have  already
noticed that under the said  guidelines  FINANCIAL  ASSETS  are  sub-divided
into 4 categories i.e. (i) standard, (ii) sub-standard, (iii) doubtful,  and
(iv) loss.    Depending  upon  the  length  of  the  period  for  which  the
installment of money is over due, such assets are  classified  as  NPA.   As
the length of the period of over due increased, the account of the  borrower
is progressively classified from "sub-standard" to "loss".

45.   The same classification is adopted by the  Parliament  while  enacting
the Act.  Therefore, all NPAs do  not  belong  to  the  same  class.   Their
characters vary depending on the length of  time  for  which  they  remained
NPAs.

46.   In our view, such a 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.  We  hasten  to  add
that it may not be the only factor 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 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 - in our opinion, are some of the factors which are germane  to  a
decision that 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 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 the ends of justice is  a  matter  for  a
further rational decision on the part of the SECURED CREDITOR.

47.   The international practice - noted by Narasimham Committee -  is  that
"an asset is treated as non-performing  when  interest  is  overdue  for  at
least two quarters".  Such a practice  of  classifying  the  asset  for  the
administrative purposes of  the  Banks  only  indicates  that  a  borrower's
account is not treated as a  written  off  asset,  the  moment  there  is  a
default.   CREDITORS  keep  a  watch  on  such  account  and   monitor   the
performance of the  borrower's  activity  to  ensure  the  recovery  of  the
amounts due having regard to the needs  of  the  industrial  sector  of  the
country and the importance of protecting the industry as far as possible  in
the larger interest of the economy of the State.

48.   The basic definition under the various circulars of the  Reserve  Bank
of India and also other REGULATORS of a NPA is  an  asset  which  ceases  to
generate income for the CREDITORS (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  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.

49.   To make any attempt to define the  expression  'non-performing  asset'
valid for the millions of cases of loan 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
are counter productive to the object and the purpose sought to  be  achieved
by the Act.

50.   Realising the same, the Parliament left it  to  the  Reserve  Bank  of
India 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  the  RBI  Act,  1934,  the  Banking
Regulation Act, 1949. Various banks like the State Bank of  India,  National
Housing Bank, which are  though  bodies  created  under  different  laws  of
Parliament enjoying a large amount of autonomy, are  still  subject  to  the
overall control of the Reserve Bank of India.

51.   Regulation of monetary system and  banking  business  is  one  of  the
fundamental responsibilities of any  modern  State  and  essential  for  the
economic and political  stability  of  the  State.   The  vast  increase  of
commerce both national and the international made  easy  by  the  tremendous
developments of technology,  renders  such  regulation  a  very  complicated
matter with complex variables.  The span of each variable  could  vary  from
minutes to years.  Therefore,  it  requires  constant  monitoring  on  daily
basis sometime even on minute to minute basis.  In lieu  of  the  importance
and complexities, the Reserve  Bank,  the  prime  regulator  of  the  Indian
economy and banking system, has been issuing guidelines and directions  from
time to  time  not  only  to  the  banks  but  to  various  other  financial
institutions which are amenable  to  its  jurisdiction.   Such  instructions
given from time to time are consolidated annually and published in the  form
of "Master Circulars".   One of such circular  dated  30.08.2001  was  taken
note of by this Court in Mardia Chemicals.  Incidentally, the  authority  of
the Reserve Bank to issue such instructions was considered by this Court  in
ICICI Bank Limited v. Official Liquidator of APS Star Industries  Limited  &
Others, (2010) 10 SCC 1, and this Court held that the Reserve Bank did  have
such authority by virtue of Sections 21 and 35-A of the  Banking  Regulation
Act, 1949[22].

52.   The question is whether in making such a prescription, the  Parliament
has delegated any essential legislative function?  To  answer  the  question
it is required to understand what is an essential legislative  function  and
what are the limits subject to which such function could be delegated.

53.   The first major decision of this Court on the subject of the  validity
of delegated legislation is In re Art. 143, Constitution of India and  Delhi
Laws Act (1912) etc., AIR 1951 SC 332, by a Constitution bench of  7-Judges.
  Seven separate judgments were delivered.  It was a case  where  Section  7
of the Delhi Laws Act authorized the provincial government to  extend  by  a
notification in  the  official  gazette  to  the  provinces  of  Delhi,  any
enactment which was in force in any part of British India as on the date  of
such  notification.     Similar  provisions  were  contained  in  two  other
enactments.   One of the questions was whether such conferment of  power  on
the executive amounted to excessive delegation  of  the  legislative  power.
Even according to Patanjali Sastri, J., who was a member of the Bench  which
decided the case, in a subsequent decision in Kathi Raning  Rawat  v.  State
of Saurashtra, AIR 1952 SC 123, while dealing with  the  decision  in  Delhi
Laws Act's case observed thus:
"While  undoubtedly  certain  definite  conclusions  were  reached  by   the
majority of the Judges who took part  in  the  decision  in  regard  to  the
constitutionality of certain specified enactments,  the  reasoning  in  each
case was  different,  and  it  is  difficult  to  say  that  any  particular
principle has been laid down by the majority which can be of  assistance  in
the determination of other cases.".


54.   In the case of B. Shama Rao v. Union  Territory  of  Pondicherry,  AIR
1967 SC 1480, J.M. Shelat, J. speaking for majority (3)  of  a  Constitution
Bench of  5  Judges,  after  summarizing  the  views  of  the  7-Judges  who
delivered the judgment in Delhi Laws Act's case opined;
"5.  .......In view of the intense divergence of opinion  except  for  their
conclusion partially  to  uphold  the  validity  of  the  said  laws  it  is
difficult to deduce any general principle which on the  principle  of  stare
decisis can be taken as binding for future cases.     It  is  trite  to  say
that a decision is binding not because of its conclusion but  in  regard  to
its ratio and the principle laid down therein.  The utmost, therefore,  that
can be said of this decision is that the minimum on which there  appears  to
be consensus was (1) that legislatures in India both before  and  after  the
Constitution had plenary power within  their  respective  fields;  (2)  that
they were never the delegates of the British Parliament; (3) that  they  had
power to delegate within certain limits not by reason of such a power  being
inherent in the legislative power but because such power is recognised  even
in the United States of America where separatist ideology  prevails  on  the
ground that it is necessary to effectively exercise  the  legislative  power
in a modern State with multifarious activities and complex  problems  facing
legislatures; and (4) that delegation of an essential  legislative  function
which amounts to abdication even partial is not permissible.   All  of  them
were agreed that it could be in respect of subsidiary and ancillary power."


55.   In Devi Das Gopal Krishnan etc. v. State of Punjab & Others, AIR  1967
SC  1895,  another  Constitution  Bench  though  struck  down  the  impugned
provision on the ground of excessive  delegation,  recognized  the  need  of
delegating and this Court opined as follows:-
 "......... But in view of the multifarious activities of a  welfare  State,
it cannot presumably work out all the details to suit  the  varying  aspects
of a complex situation.  It must necessarily delegate  the  working  out  of
details to the executive or any other agency.  But there is danger  inherent
in such a process  of  delegation.   An  over-burdened  legislature  or  one
controlled by a  powerful  executive  may  unduly  overstep  the  limits  of
delegation.  It may not lay down any policy  at  all;  it  may  declare  its
policy in vague and general terms; it may not set down any standard for  the
guidance of  the  executive;  it  may  confer  an  arbitrary  power  on  the
executive to change or modify the policy laid down by it  without  reserving
for itself any control over subordinate legislation.  Thus  self  effacement
of legislative power in favour of another agency either in whole or in  part
is beyond the permissible limits of delegation.  It is for a court  to  hold
on a fair, generous and liberal construction of an impugned statute  whether
the legislature exceeded such limits.


      But the said liberal construction should not be carried by the  courts
to the extent of always trying to discover a dormant or  latent  legislative
policy to sustain an arbitrary power  conferred  on  executive  authorities.
It is the duty of the  court  to  strike  down  without  any  hesitation  an
arbitrary power conferred on the executive by the legislature."

56.   In 1968, a Constitution Bench of 7-Judges in Municipal Corporation  of
Delhi v. Birla Cotton, Spinning and Weaving  Mills,  Delhi  &  Another,  AIR
1968 SC 1232 considered the  question  whether  Section  150  of  the  Delhi
Municipal Corporation Act (66 of 1957) is  unconstitutional  on  the  ground
that it provided for impermissible delegation of the 'essential  legislative
function'.  On an examination of the abovementioned authorities, apart  from
others, Chief Justice Wanchoo, speaking  for  himself  and  Justice  Shelat,
held as follows:
"28.  ...... The legislature must retain in  its  own  hands  the  essential
legislative functions and what can be delegated is the task  of  subordinate
legislation necessary for implementing the purposes and objects of the  Act.
Where the legislative policy is enunciated with sufficient  clearness  or  a
standard is laid down, the courts  should  not  interfere.   :What  guidance
should be given and to what extent and whether guidance has been given in  a
particular case at all depends on a consideration of the provisions  of  the
particular Act with which the Court has  to  deal  including  its  preamble.
Further it appears to us that the nature of the body to which delegation  is
made is also a factor to be taken into consideration in determining  whether
there is sufficient guidance in the matter of delegation."

The Court held that there was no  impermissible  delegation  of  legislative
power.



57.   Justice Hidayatullah, speaking for himself and for Justice  Ramaswami,
agreed with the conclusion reached  at  by  the  Chief  Justice,  though  on
slightly different reasons.

58.   In M.K. Papiah & Sons v. The Excise Commissioner & Another,  (1975)  1
SCC 492,  this  Court  once  again  considered  the  question  of  delegated
legislation in the context of a provision in the  Mysore  Excise  Act  which
provided for the levy  of  excise  duty  "at  such  rate  or  rates  as  the
Government  may  prescribe  on  excisable  goods".  Such  a  provision   was
challenged as  unconstitutional  on  the  ground  that  it  was  a  case  of
abdication of essential legislative function by the legislature.  The  Court
after reviewing the number of earlier decisions held the impugned  provision
to be valid.   Placing reliance on a judgment of the Privy  Council  in  the
case of Cobb & Co. v. Kropp [1967 1 AC 141], this Court held as follows:-
"23.   The point to be emphasized - and this is  rather  crucial  -  is  the
statement of their Lordships that the  Legislature  preserved  its  capacity
intact and retained perfect control  over  the  Commissioner  for  Transport
inasmuch as it could at any time repeal the  legislation  and  withdraw  the
authority  and  discretion  it  had  vested  in  him,  and,  therefore,  the
Legislature did not abdicate its functions.





In other words, the very fact that the legislature has the power  to  repeal
and withdraw the authority of the delegate and the discretion vested in  the
delegate, should lead  to  the  conclusion  that  the  legislature  did  not
abdicate its essential functions.

59.   According to Seervai, by its judgment in M.K. Papiah's  case  (supra),
this Court "after twenty five years of wandering in the legal  maze  of  its
own creation" ...... "come round to the view expressed by the Privy  Council
in 1878" i.e. Queen v. Burah [1878 (5) Ind App 178].

60.   This Court in the case of Registrar of  Cooperative  Societies  v.  K.
Kunjaboo, AIR 1980 SC 350 took note of the  uncertainty  prevailing  in  the
following words;
"2.   Lawyers and judges have never ceased to be interested in the  question
of delegated legislation and since the Delhi Laws Act  case,  we  have  been
blessed by an abundance of authority, the blessing not necessarily  unmixed.
 We do not wish, in this case, to search for the precise principles  decided
in the Re Delhi Laws Act case,  nor  to  consider  whether  M.K.  Papiah  v.
Excise Commissioner beats the  final  retreat  from  the  earlier  position.
For the purposes of this case we are content  to  accept  the  "policy"  and
"guidelines" theory and seek such assistance as we  may  derive  from  cases
where near identical provisions have been considered."


This Court declined "to consider whether M.K. Papiah & Sons  v.  The  Excise
Commissioner, (1975) 3 SCR 607, beat the  final  retreat  from  the  earlier
position" but proceeded to examine the case  before  it  on  the  theory  of
"policy" and "guidelines" propounded in some of the cases.

61.   We can safely state that none of the judgments of this  Court  so  far
has laid down any  principle  indicating  as  to  what  exactly  constitutes
"essential legislative function".

62.   While the Delhi Laws Act's case dealt with the delegation of power  to
the Executive by the Legislature of applying certain laws  with  or  without
modification to new territories, the other cases essentially dealt with  the
permissibility of the delegation of the power to the Executive  to  fix  the
rates of tax etc.

63.   An examination of the above authorities, in  our  view  leads  to  the
following inferences;
The proposition that essential legislative  functions  cannot  be  delegated
does not appear to be such a clearly  settled  proposition  and  requires  a
further  examination  which  exercise  is  not  undertaken  by  the  counsel
appearing in the matter.  We leave it open for debate in a more  appropriate
case on a future date.



For the present, we confine to the examination of the question:
(a)    Whether  defining  every  expression  used  in  an  enactment  is  an
essential legislative function or not?

All the judgments examined above recognize that there is  a  need  for  some
amount of delegated legislation in the modern world.

If the parent enactment enunciates the legislative  policy  with  sufficient
clarity, delegation of the power to make subordinate  legislation  to  carry
out the purpose of the parent enactment is permissible.

Whether the policy of the legislature is sufficiently  clear  to  guide  the
delegate depends upon the scheme and the provisions of the parent Act.

The nature of the body to whom the power is delegated  is  also  a  relevant
factor in determining "whether there is sufficient guidance  in  the  matter
of delegation."

64.   Whether defining every word employed in a statute is really  necessary
and whether it is a part of the essential  legislative  function  was  never
the subject matter of debate in any of these cases.

65.   We are of the firm opinion that it is not necessary  that  legislature
should define every expression it employs in a statute.   If such a  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  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  established  rules  of  statutory
interpretation.

66.   Therefore, in our opinion, 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  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.    All  that  activity  involves  too  much  of
detail and promptitude of action.  The crux  of  the  impugned  Act  is  the
prescription that a SECURED CREDITOR could  take  steps  contemplated  under
Section  13(4)  on  the  "default"[23]  of  the  borrower.   The  expression
"default" is clearly defined under the Act.  Even if the Act were not to  be
on the statute book, under the existing law a CREDITOR could initiate  legal
action for the recovery of the amounts due from  the  borrower,  the  moment
there is a breach of the terms of the  contract  under  which  the  loan  or
advance is granted.  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.  In our opinion, the borrower cannot be  heard  to  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 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  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
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,  in  our
opinion, the same does not amount  to  any  delegation  of  the  legislative
powers.  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.   Therefore,  the
submission that the amendment of the  definition  of  the  expression  'non-
performing asset' under Section 2(1)(o)  is  bad  on  account  of  excessive
delegation of essential legislative function, in our view, is untenable  and
is required to be rejected.

67.   Coming to the submission that by authorizing different  REGULATORS  to
prescribe different norms for the identification of a NPA with reference  to
different CREDITORS amount to unreasonable classification is  also  required
to be rejected for  the  reason  that  all  the  CREDITORS  do  not  form  a
uniform/homogenous class.

68.   There are innumerable differences among  the  CREDITORS.   Differences
based on the legal structure of  the  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.  For example, the Exim Bank loans  are
generally in  foreign  currencies.   Similarly,  loans  granted  by  Housing
Finance CREDITORS which are in turn regulated by the National  Housing  Bank
are loans which are term loans for  relatively  longer  periods  than  other
loans. There is nothing uniform about these CREDITORS or  their  activities.


69.   It is submitted by learned counsel for the RBI -
"Prior to the amendment in 2004, NPA was defined as  sub-standard,  doubtful
or loss  asset  in  accordance  with  the  directions  or  under  guidelines
relating to assets classification issued by the Reserve Bank.   Irrespective
of whether the financial entity  was  regulated  by  RBI  or  not,  for  the
purposes of SARFAESI Act, the asset classification  stipulated  by  RBI  was
applicable.  Though the regulator concerned  of  the  financial  entity  had
stipulated different standards for regulatory purposes, the entities had  to
apply the criteria stipulated by RBI for  asset  classification  so  far  as
SARFAESI  Act  was  concerned.     The  amendment  brought  about  in   2004
addresses this issue and brings  in  uniformity  in  the  classification  of
assets by financial entities, both for the purposes of  complying  with  the
directions issues by their own regulations and for the purposes of  SARFAESI
Act.   As such, a situation where  an  asset  is  not  an  NPA  as  per  the
specifications of the regulator but  the  same  asset  is  an  NPA  for  the
purposes of SARFAESI Act or vice versa does not arise  after  the  amendment
made in 2004."


70.   The Union of  India  filed  a  counter  affidavit  (through  Director,
Department of Financial Services,  Ministry  of  Finance)  before  the  High
Court of Gujarat in Special Civil Application No.2910 of 2013 regarding  the
purpose for which the impugned amendment was brought in.  It  is  stated  in
the counter affidavit as follows:
"9.   I state and submit that the amendment in Section 2(1)(o)  of  SARFAESI
Act, 2002 was made in 2004  to  extend  the  classification  norms  of  non-
performing assets stipulated buy (sic by) the  concerned  regulator  who  is
administering or regulating such entity or the Reserve Bank  of  India  when
the said institution is not regulated by any regulator in India.  There  are
financial institutions such as  Housing  Finance  corporations  notified  by
Central Government under SARFAESI  Act,  which  are  regulated  by  National
Housing  Bank.   The  non-performing  assets  of  these   institutions   are
classified as per guidelines prescribed by National Housing Bank.   The  Act
covers certain other institutions such as Asian Development Bank and  assets
are classified as per the guidelines prescribed by Reserve  Bank  of  India.
The above amendments in the Act were made so that the guidelines  issued  by
concerned regulator as applicable to them are covered  for  the  purpose  of
recovery under the Act.

10.   I further state and submit that the  amendment  covered  the  entities
under the Act regulated by different regulators  such  as  Reserve  Bank  of
India, National Housing Bank etc. who had stipulated  their  own  guidelines
for the purpose.  At the same time, the amendment also covered the  entities
like Asian Development Bank, which did not fall within the  purview  of  any
regulator in India.  Therefore, the amendment was made in the  Act  to  take
care of these situations and these amendments were necessary  to  cover  the
deficiencies noticed in the Act."


71.   Therefore, to say that enabling them to follow different  norms  would
be violative of Article 14, in our view, would be wholly untenable.

72.   Coming to the third submission of the borrower, we would not  like  to
deal with this submission in the instant batch of cases  as  there  are  few
cases where factually the  SECURED  ASSETS  have  been  transferred  by  the
ORIGINAL CREDITORS.  Those cases have been de-tagged from this batch  to  be
heard separately.


73.   Coming to the fourth submission of the borrower, it must fail  on  the
basis of express language of Section 13(3A)[24] which obligates the  SECURED
CREDITORS to examine the  representation/objection,  if  any,  made  by  the
borrower on the receipt of  notice  contemplated  under  Section  13(2)  and
communicate the reasons to the borrower if  such  a  representation  is  not
accepted by the  SECURED  CREDITORS.   We  have  already  indicated  in  our
judgment, in para no. 48,  that  the  representation/objection  contemplated
under Section 13(3A) is required to be  examined  objectively.   Section  13
obligates  the  SECURED  CREDITOR  to  communicate  the  reasons  for   non-
acceptance of the representation or objections to the borrowers.

74.   Before closing these matters, we may also deal with one aspect of  the
judgment of the Gujarat High Court.   The Gujarat High Court  recorded  that
the impugned amendment is ultra vires the object of the Act.     We  presume
for the sake of this judgment that the impugned amendment  is  not  strictly
in consonance with the objects enunciated when the Act was  initially  made.
We fail to understand as to how  such  inconsistency  will  render  the  Act
unconstitutional.  The objects  and  reasons  are  not  voted  upon  by  the
legislature.  If the enactment  is  otherwise  within  the  constitutionally
permissible limits,   the fact  that  there  is  a  divergence  between  the
objects appended to the Bill and the tenor  of  the  Act,  in  our  opinion,
cannot be a ground for declaring the law unconstitutional.

75.   In view of our  abovementioned  conclusions,  we  do  not  propose  to
examine other submissions regarding the  correctness  of  the  Gujarat  High
Court's declaration that the unamended definition of  the  expression  "NPA"
would continue to govern the situation in view of the Gujarat  High  Court's
conclusion that the amended definition of NPA is unconstitutional.

76.   All the writ petitions and the appeals are disposed of declaring  that
the amended definition of the expression "NPA" under Section 2(1)(o) of  the
Act is constitutionally valid.

77.   In the result, all the writ petitions either filed before  this  Court
or filed before the Madras and Gujarat High Courts and the  appeals  of  the
borrowers stand dismissed. The appeals of the CREDITORS  are  allowed.  Each
of  the  writ  petitioners/borrowers  shall  pay  costs  to  the  respective
CREDITORS calculated at 1% of the amount outstanding  on  the  date  of  the
notice under Section 13(2) of the Act in each of the cases.


                                  ........................................J.
                                                   (J. CHELAMESWAR)


                                  ........................................J.
                                               (S.A. BOBDE)
New Delhi;
January 28, 2015
-----------------------
[1]     Ex. Governor, Reserve Bank of India
[2]     Senior Advocate, Supreme Court of India
[3]    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 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 credit systems. [See: Introduction : The  Issues,
Report of the Committee on Banking Sector Reforms (April  1998),  Ch.I  page
6]

[4]    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;

[5]     Section  2(zd)  "secured  creditor"  means  any  bank  or  financial
institution or 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 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 in  accordance  with
the provisions of this Act.
[7]       Section 2(f) "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
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;

[8]     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;
[9]    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 enforced by the secured creditor in the event of  non-payment
of secured debts by the borrower.

[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:--
      (a) take possession of the secured assets of  the  borrower  including
the right 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 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 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.
[11]    2(1)(l) "financial asset" means debt or receivables and includes-
      a claim to any debt or receivables or part thereof, whether secured
or unsecured; or
      any debt or receivables secured by, mortgage of, or charge on,
immovable property; or
      a mortgage, charge, hypothecation or pledge of movable property; or
      any right or interest in the security, whether full or part
underlying such debt or receivables; or
      any beneficial interest in property, whether movable or immovable, or
in such debt, receivables, whether such interest is existing, future,
accruing, conditional or contingent; or
      any financial assistance;

[12]    5(2)     If the  bank  or  financial  institution  is  a  lender  in
relation to any financial assets  acquired  under  sub-section  (1)  by  the
securitisation company or the  reconstruction  company  such  securitisation
company or reconstruction company shall, on such acquisition, be  deemed  to
be the lender and all the rights  of  such  bank  or  financial  institution
shall vest in such company in relation to such financial assets.
[13]    29.  However, the question for consideration  before  us  is  as  to
whether there is indeed any delegated legislation or not.   We  are  of  the
view that there is no delegated legislation involved in the  case  on  hand.
As discussed above, the power exercised by the Reserve Bank of  India  in  a
separate enactment has  been  taken  note  of  by  the  Legislature  in  the
subsequent one.  It is only a definition clause, which has been  adopted  by
the Legislature.  This has been done to put its machinery into  use  towards
its avowed object of activity - appropriate recovery.  Therefore, we do  not
find any delegated legislation involved and therefore contentions raised  on
the power of delegation and thereafter it is excessive, has  no  force.   We
only observe for the sake of completion, that even assuming that there is  a
delegated legislation involved, the same  is  not  excessive  as  there  are
sufficient guidelines available in the  earlier  enactment  and  based  upon
which the Circular has been issued by the Reserve Bank  of  India,  being  a
specialized body.
[14]    23. Thus, borrowers are divided into two different  classes;  First,
the borrowers in respect of the Banks and Financial Institutions  which  are
administered or regulated by an authority or body  established,  constituted
or appointed by any law for the time being in force, and in those cases,  it
will be for that authority  or  body  to  frame  the  guidelines  for  asset
classification and, secondly, the borrowers in respect of  all  other  cases
not covered by clause (a), and in respect of those  cases,  it  will  be  in
accordance with the directions or guidelines issued by the Reserve Bank  for
asset classification.
[15]    Section 2. Definitions- (1) In this Act, unless the context
otherwise requires,-- (l) "financial asset" means debt or receivables and
includes--
      (i) a claim to any  debt  or  receivables  or  part  thereof,  whether
secured or unsecured; or
      (ii) any debt or receivables secured by, mortgage of,  or  charge  on,
immovable property; or
       (iii)  a  mortgage,  charge,  hypothecation  or  pledge  of   movable
property; or
      (iv) any right or interest in  the  security,  whether  full  or  part
underlying such debt or receivables; or
       (v)  any  beneficial  interest  in  property,  whether   movable   or
immovable, or in such debt, receivables, whether such interest is  existing,
future, accruing, conditional or contingent; or
      (vi) any financial assistance;

[16]   Section 2(za) "securitisation company" means any company  formed  and
registered under the Companies Act, 1956 (1 of  1956)  for  the  purpose  of
securitisation;

[17]    Section 2(v) "reconstruction company" means  a  company  formed  and
registered under the Companies Act, 1956 (1 of  1956)  for  the  purpose  of
asset reconstruction;
[18]   Footnote 11 supra
[19]    The expression "SECURED CREDITOR" by definition under the Act  takes
within its sweep - (i) a bank, (ii) a financial institution,  consortium  or
group of banks or financial institutions, (4) debentures trustees  appointed
by any bank or financial institution,  (5)  a  securitisation  company,  (6)
reconstruction company etc.  Once again the expression 'bank' by  definition
takes within its sweep six categories of entities  specified  under  Section
2(1)(c).  The expression 'financial institution', by  definition  under  the
Act, takes within its  sweep  four  categories  of  bodies  specified  under
Section 2(1)(m).  The activities of all the above  mentioned  categories  of
entities are primarily governed by some in-house managerial body  which,  in
turn, are subject to the control and regulation either by the  Reserve  Bank
of India or some other statutory body or authority, which are  also  subject
to the overall supervisory control  of  the  Reserve  Bank  of  India.   For
example, the National Housing Bank, a bank established under the  Act  No.53
of 1987 of the Parliament, though is an autonomous body  "to  operate  as  a
financial agency to promote housing finance institutions" with  vast  powers
to regulate the housing  finance  activity  in  the  country,  it  is  still
obliged under Section 5(5) of the Act  53  of  1987  to  be  guided  by  the
directions given by the Reserve Bank of India.

      The National Housing Bank Act, 1987 (No.53 of 1987)  -  Section  5(5).
In the discharge of its functions under this Act, the National Housing  Bank
shall be guided by such directions in matters  of  policy  involving  public
interest as the Central government, in consultation with the  Reserve  Bank,
or the Reserve Bank, may give in writing.

      We are informed at the bar by the learned counsel  appearing  for  the
Reserve Bank of India  that  there  are  some  49  entities  (we  doubt  the
accuracy of the statement but it does  not  make  any  difference  for  this
decision on hand), such as, 18  State  Financial  Corporations,  Exim  Bank,
National Housing Bank, NABARD etc., which fall within the definition of  the
expression "bank" or "financial institution" as defined under  the  SARFAESI
Act which fall within the sweep of Section 2(1)(o)(a) of the said Act.
[20]   The Basle Committee on Banking Regulations and Supervisory  Practices
appointed by the Bank of  International  Settlements  (BIS)  has  prescribed
certain capital adequacy standards to be followed by  commercial  banks  and
these standards have been accepted for implementation by several  countries.
 The BIS standard, as it  is  popularly  known,  seeks  to  measure  capital
adequacy  as  the  ratio  of  capital  to  risk  weighted  assets.   It  has
prescribed weightages for  different  categories  of  assets  which  include
certain off-balance sheet items as well.  The Committee believes that it  is
necessary that banks in India also conform to these standards  in  a  phased
manner. [See:  Capital  Adequacy,  Accounting  Policies  and  Other  Related
Matters, Report of the Committee on the Financial  System  (November  1991),
Ch.V page 51]
[21]    Section 45-I(f) ''non-banking financial company'' means-
      (i)   a financial institution which is a company;
      (ii)  a non-banking institution which is a company and  which  has  as
its principal business the  receiving  of  deposits,  under  any  scheme  or
arrangement or in any other manner, or lending in any manner;
      (iii)       such  other  non-banking  institution  or  class  of  such
institutions, as the Bank may, with the previous  approval  of  the  Central
Government and by notification in the Official Gazette, specify.

[22]   "39. The Guidelines issued by RBI dated 13.7.2005  itself  authorizes
the banks to deal inter se in NPAs.  These guidelines have  been  issued  by
the regulator in exercise of the powers conferred by Sections  21  and  35-A
of the Act.   ......................  All this comes  within  the  ambit  of
Section 21 which enables RBI to frame the policy in relation to advances  to
be followed by the banking companies under Section 21(2).  These  guidelines
and directions following them have a statutory force."

[23]   Section 2(1) (j) "default" means non-payment of  any  principal  debt
or interest thereon 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 ;

[24]   Section 13(3A). If, on receipt of the notice under  sub-section  (2),
the borrower makes any representation or raises any objection,  the  secured
creditor shall consider such representation or objection and if the  secured
creditor comes to the conclusion that such representation  or  objection  is
not acceptable or tenable, he  shall  communicate  within  fifteen  days  of
receipt of such representation or objection the reasons  for  non-acceptance
of the representation or objection to the borrower.

      Provided that the reasons so communicated or the likely action of  the
secured creditor at the stage of communication of reasons shall  not  confer
any right upon the borrower to prefer an application to the  Debts  Recovery
Tribunal under section 17 or the Court of District Judge under section 17A.

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