LAW FOR ALL

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.

-----------------------
51

the land is surrounded by housing societies, industrial zone, offices, college campus, roads, bus service, other transport facilities and marketing facilities. G.I.D.C. is hardly 500 meters away from the acquired land which forms part of Municipal area, hence, it was contended that the area is virtually a part of Patan Municipality for all purposes. The agricultural land possesses high potentiality to be used for residential and commerce purposes.= In our view, we have to consider the sale instances available for the third group of matters. In the peculiar facts and circumstances, it would have been appropriate to deduct approximately 30% of the amount for development etc. Further deduction for determining the valuation of the land was not called for. In our opinion, it would be appropriate and just to award compensation at the rate of Rs.100/- per sq.m. for entire land.

the land is surrounded by housing societies,
industrial zone, offices, college campus, roads, bus service, other
transport facilities and marketing facilities. G.I.D.C. is hardly 500
meters away from the acquired land which forms part of Municipal area,
hence, it was contended that the area is virtually a part of Patan
Municipality for all purposes. The agricultural land possesses high
potentiality to be used for residential and commerce purposes.
The High Court has found that comparable sale instances in the
third group of matters are in the shape of sale-deed Ex. 45, 46 and 47. The
price per square meter comes to Rs.118.34, Rs.119.47 and 104.93. The lands
which were sold were non-agricultural land. The High Court while
considering the aforesaid sale-deeds, after deducting 30% value for
determining the price of the agricultural land per sq.m. and thereafter
adding 10% from the date of sale-deed to the date of notification under
Section 4 of the Act, has arrived at a finding that the price per sq.m. for
land would come to Rs.108/-, Rs.101/- and Rs.89/- respectively, averaging
approximately Rs.100/- per sq.m. Further deduction of 10% from the value
so arrived at as land is large chunk, the price per sq.m. on strength of
said sale deeds had been arrived at Rs.97, Rs. 90 and Rs. 80 respectively.
However, considering the sale-deeds filed for the purpose of first and
fourth group of matters had averaged the price and thus it has arrived at
value of Rs.60/- for agricultural land and Rs.78/- for non-agricultural
land. In our view, we have to consider the sale instances available
for the third group of matters. In the peculiar facts and circumstances, it
would have been appropriate to deduct approximately 30% of the amount for
development etc. Further deduction for determining the valuation of the
land was not called for. In our opinion, it would be appropriate and just
to award compensation at the rate of Rs.100/- per sq.m. for entire land.

NON-REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.474 OF 2013

Patel Jathabhai Punajbhai ... Appellant(s)

Vs.

North Gujarat University & Anr. ... Respondents

WITH

C.A. No. 475/2013; C.A. No. 476/2013; C.A. No. 477/2013; C.A. No.
478/2013; C.A. No. 482/2013; C.A. No. 483/2013; C.A. No. 484/2013; C.A. No.
485/2013; C.A. No. 487/2013; C.A. No. 514/2013; C.A. No. 515/2013; C.A. No.
517/2013; C.A. No. 518/2013; C.A. No. 519/2013; C.A. No. 520/2013; C.A. No.
521/2013; C.A. No. 522/2013; C.A. No. 523/2013; C.A. No. 526/2013; C.A. No.
527/2013; C.A. No. 528/2013; C.A. No. 529/2013; C.A. No. 1339/2013; and
S.L.P. [C] Nos.16925-16936/2013.

J U D G M E N T

ARUN MISHRA, J.

1. The appeals arise out of the third group of matters wherein a common
judgment and order dated 7.8.2012 has been passed by the High Court of
Gujarat at Ahmedabad, determining the compensation for agricultural land at
the rate of Rs.60/- per sq.m. and for non-agricultural land at the rate of
Rs.78/- per sq.m. situated at village Samalpati and Matarwadi of Taluka
Patan acquired vide notification dated 23.5.1987 issued under Section 4 of
the Land Acquisition Act, 1894 (hereinafter referred to as 'the Act') for
the purpose of campus of North Gujarat University. The modified
notification under Section 4 had been issued on 13.8.1987. The award was
passed on 21.9.1990 determining the price from Re.1/- to Rs.5/- per sq.m.
On a reference being made under section 18 of the Act, the Reference Court
determined the compensation at Rs.109.30 per sq.m. for the agricultural
land and Rs.184/- per sq.m. for non-agricultural land. On appeal, the High
Court has reduced the compensation, as aforesaid. Aggrieved thereby, the
claimants have come up in appeals before us.
2. The main question for our consideration is : what would be the
compensation to be awarded on the date of notification under section 4 of
the Act.
3. It is not in dispute that around the land in question,
development has already been made. Nearby to the land in question are
colleges like Polytechnic, Arts, Science and Commerce. On the Eastern side
of the land is the State Highway Deesa-Patan-Chanasma-Viramgam and on
Southern side of the road is the road to enter Patan city. Railway station
is also nearby. On the Western side in the nearby area are bus stand, T.V.
relay centre, Telephone and telegraph head office.
4. In short, the land is surrounded by housing societies,
industrial zone, offices, college campus, roads, bus service, other
transport facilities and marketing facilities. G.I.D.C. is hardly 500
meters away from the acquired land which forms part of Municipal area,
hence, it was contended that the area is virtually a part of Patan
Municipality for all purposes. The agricultural land possesses high
potentiality to be used for residential and commerce purposes. The High
Court has found out that the area touches the extended limits of Patan
city. Reliance has been placed on Ex. D-87 and D-88, the sale-deeds of the
area at 500 metres of distance where the land was sold on 10.12.1985 at the
rate of Rs.239.20 per sq.m., after applying 10% increase on the date of
notification under Section 4, the market value of non-agricultural land
comes to Rs.275.08 per sq.m. and on the strength of sale-deed Ex. D-88, the
price would come to Rs.184.04 per sq.m. It was also submitted that the
highest consideration fetched in the exemplar sale-deed ought to have been
taken into consideration for determining the just compensation.
5. Per contra, adequate compensation has been worked out. The High
Court has rightly reduced the compensation as determined by the Reference
Court considering the fact that the land acquired was a large chunk of
land.
6. In the instant case, the Land Acquisition Officer, Reference
Court as well as the High Court, in the peculiar facts and circumstances of
the case, have determined the compensation on the basis of price of the
land at per sq.m. The area in question is not within the municipal limits
but adjacent to the extended limits of Patan municipality. The fact that
various educational institutions, houses, railway station, bus stands and
other offices are in close vicinity and the entire land has the
potentiality like that of non-agricultural land on the date of notification
under Section 4 of the Act, is not disputed.
7. In the appeals, we are concerned with the third group of
matters. The High Court has found that comparable sale instances in the
third group of matters are in the shape of sale-deed Ex. 45, 46 and 47. The
price per square meter comes to Rs.118.34, Rs.119.47 and 104.93. The lands
which were sold were non-agricultural land. The High Court while
considering the aforesaid sale-deeds, after deducting 30% value for
determining the price of the agricultural land per sq.m. and thereafter
adding 10% from the date of sale-deed to the date of notification under
Section 4 of the Act, has arrived at a finding that the price per sq.m. for
land would come to Rs.108/-, Rs.101/- and Rs.89/- respectively, averaging
approximately Rs.100/- per sq.m. Further deduction of 10% from the value
so arrived at as land is large chunk, the price per sq.m. on strength of
said sale deeds had been arrived at Rs.97, Rs. 90 and Rs. 80 respectively.
However, considering the sale-deeds filed for the purpose of first and
fourth group of matters had averaged the price and thus it has arrived at
value of Rs.60/- for agricultural land and Rs.78/- for non-agricultural
land.
8. In our view, we have to consider the sale instances available
for the third group of matters. In the peculiar facts and circumstances, it
would have been appropriate to deduct approximately 30% of the amount for
development etc. Further deduction for determining the valuation of the
land was not called for. In our opinion, it would be appropriate and just
to award compensation at the rate of Rs.100/- per sq.m. for entire land.

9. Reliance placed by the appellants on sale-deeds Ex. 87 and 88 is of
no avail as they are with respect to the area inside the extended limits of
the municipality. We have comparable sale deeds Ex. P45 to 47 of the area
in question itself.

10. Consequently, appeals are partly allowed, the compensation determined
by the High Court with respect to the third group of matters is modified to
the aforesaid extent.

11. Coming to S.L.P. [C] Nos.16925-36/2013, in respect of other group of
matters, admittedly no appeal or cross-objection was preferred as against
the order passed by the Reference Court to the High Court. The High Court
has, thus, rightly declined to enhance the compensation. We agree with the
reasons given by the High Court and dismiss the SLPs.
No costs.

.................................CJI
(H.L. Dattu)

...................................J.
(A.K. Sikri)

New Delhi; ....................................J.
January 28, 2015. (Arun Mishra)

Whether an appeal is maintainable against ad-interim ex-parte injunction was granted by the Subordinate District Council Court

On 30th
September, 2009, an ad-interim ex-parte injunction was granted by the
Subordinate District Council Court
By an order dated 29th October, 2009, the District Council Court
admitted an appeal against the said order and stayed it. By a further
order dated 9th March, 2010, the ad-interim ex-parte injunction was set
aside as the District Council Court allowed the appeal
A Civil Revision
Petition was filed against the said order, and by the impugned order dated
27th April, 2012, the revision was allowed stating that since an appeal had
been filed within 30 days of the ad-interim ex-parte order, it would not be
maintainable under the Code of Civil Procedure and, therefore, the
appellate order was set aside.
The Division Bench has unfortunately failed to refer to Rule 28
of the 1953 Rules and has applied the letter of Order 39 Rule 3A read with
Order 43 of the Code of Civil Procedure. This is the basic error in the
judgment. On the facts of this case, the appeal becomes maintainable
because Rule 28 of the 1953 Rules provides for such appeal without any
requirement that ordinarily it should be filed only after 30 days. Even
otherwise, the judgments relied upon by the respondent state that such
appeal is maintainable under the Code of Civil Procedure, but the court may
relegate the appellant to the alternative remedy provided - an application
to vacate the stay within 30 days. This in turn does not go to the
maintainability of the appeal but only goes to whether discretion ought to
be exercised against the appellant if the provisions of Order 39 Rule 3A
have been followed. We, therefore, allow the appeal, set aside the
judgment dated 27th April, 2012 of the High Court and restore the judgment
dated 9th March, 2010 of the District Council Court.
REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1232 OF 2015
[Arising out of SLP (Civil) No.16099 of 2012]

Shri Westarly Dkhar & Ors. .......Appellants

Versus

Shri Sehekaya Lyngdoh
........Respondent

J U D G M E N T

R.F.Nariman, J.

Special leave granted.

2. The instant appeal by way of a Special Leave to Appeal has been filed
against the judgment and final order dated April 27, 2012 passed by the
High Court of Gauhati, Shillong Bench at Shillong in Civil Revision
Petition No. 18 (SH) of 2010 filed by the Respondent.

3. The appeal arises out of an ex-parte ad-interim injunction passed by
the Subordinate District Council Court in a suit instituted by the
Respondent, which is registered as Title Suit No. 16 of 2009. On 30th
September, 2009, an ad-interim ex-parte injunction was granted by the
Subordinate District Council Court, in the following terms:

"On careful perusal of the same, I am satisfied that there is an urgency in
the matter for restraining the opposite parties from entering into the suit
land.

I am also satisfied that the petitioner shall suffer irreparable loss
and injury if the ad-interim injunction is not granted as it can be
evaluated from the materials available on the record, without giving into
the merits of the case, hence the ad-interim injunction is granted as
prayed for.

Therefore, the ad-interim injunction is granted to the petitioner
whereby the opposite parties No.1-4 or their agents or any persons acting
on their behalf or instruction from the opposite parties No. 1-4 are hereby
restrained from entering or working in the suit land as per schedule
mentioned in the plaint."

4. By an order dated 29th October, 2009, the District Council Court
admitted an appeal against the said order and stayed it. By a further
order dated 9th March, 2010, the ad-interim ex-parte injunction was set
aside as the District Council Court allowed the appeal. A Civil Revision
Petition was filed against the said order, and by the impugned order dated
27th April, 2012, the revision was allowed stating that since an appeal had
been filed within 30 days of the ad-interim ex-parte order, it would not be
maintainable under the Code of Civil Procedure and, therefore, the
appellate order was set aside.

5. Learned counsel for the appellants argued that the Civil Procedure
Code does not apply in these areas but only the spirit thereof applies.
The appeal was very much maintainable as it was granted by Rule 28 of The
United Khasi-Jaintia Hills Autonomous District (Administration of Justice)
Rules, 1953.

6. Learned counsel for the respondent, on the other hand, supported the
judgment under appeal and stated that this Court's judgment in A.
Venkatasubbiah Naidu v. S. Chellappan & Ors., (2000) 7 SCC 695 fully
supported the case of the respondent inasmuch as an aggrieved party cannot
approach the Appellate Court during the pendency of the application for
vacation of a temporary injunction. An appeal can only be entertained
under an extraordinary circumstance - namely, the failure or omission of
the Subordinate Court to comply with the provisions of Order 39 Rule 3A.
Further, the learned counsel relied upon the judgment in Innovative Pharma
Surgicals v. Pigeon Medical Devices Pvt. Ltd. & Ors., AIR 2004 AP 310,
stating the same thing.

7. The United Khasi-Jaintia Hills Autonomous District (Administration of
Justice) Rules, 1953 (hereinafter referred to as "1953 Rules") have been
made under Paragraph 4 of the Sixth Schedule to the Constitution of India.
Rules 28, 29 and 47 are quoted hereinbelow, as they are applicable to the
facts of this case:

"28. Appeal to District Council Court - An appeal shall lie to the District
Council Court from the decisions of a Subordinate District Council Court in
any case, Civil or Criminal. The District Council Court may hear the
appeal itself or may endorse it for hearing to the Additional District
Council Court:

Provided that when the District Council Court is not sitting by
reason of its Presiding Officer being on leave or otherwise, the appeal
shall lie to the Additional District Court.

Provided further that such appeals are, accompanied by a copy of the order
appealed against and a clear statement of the ground of appeal, and are
filed within sixty days from the date of the order, excluding the time
required for obtaining a copy of the order appealed against.]

29. District Council Court to be a Court of Appeal - Subject to the
provision of rules 30 and 32, the District Council Court shall be a Court
of appeal in respect of all suits and cases triable by Additional
Subordinate District Council Court. The District Council Court may hear the
appeal itself or may endorse it for hearing to the Additional District
Council Court:

Provided that when the District Council Court is not sitting by reason of
its Presiding Officer being on leave or otherwise the appeal shall lie to
the Additional District Council Court.

Provided further that such appeal are accompanied 'by a certified copy of
the order appealed against and a clear statement of the ground of appeal
and are filed within sixty days from the date of the order excluding the
time required for entertaining a copy of the order appealed against.

47. Procedure in civil cases - In civil cases, the procedure of the
District Council Court, [the Additional District Council Court] the
Subordinate District Council Court [and the Additional Subordinate District
Council Courts] shall be guided by the spirit but not bound by the letter
of the [Code of Civil Procedure, 1908 as amended up to date] in all matters
not covered by recognized customary laws or usages of the District."

8. It is clear from the reading of these Rules that an appeal is
provided as a matter of right from all "decisions" of a Subordinate
District Council Court to the District Council Court. That an interim
order is a "decision" for the purpose of these Rules is not disputed before
us. Further, under Rule 47, in civil cases, these courts shall be guided
by the spirit but not bound by the letter of the Code of Civil Procedure in
all matters not covered by customary laws. In State of Nagaland v. Ratan
Singh Etc., (1966) 3 SCR 830, this Court, when confronted with a challenge
to these Rules, repelled the challenge in the following terms:

"In order to avoid this implication, the Rules are attacked as ultra
vires Arts. 21 and 14. Article 21 is used because it is contended that
these Rules do not amount to law as we understand it, particularly where
the Rules say that not the Criminal Procedure Code but its spirit is to
govern the administration of justice. It is urged that this is not a law
because it leaves each officer free to act arbitrarily. This is not a fair
reading of the Rule. How the spirit of the code is to be applied and not
its letter was considered by this Court in Gurumayum Sakhigopal Sarma v. K.
Ongbi Anisija Devi (Civil Appeal No. 659 of 1957 decided on 9th of
February, 1961) in connection with the Code of Civil Procedure. With
reference to a similar rule that the courts should be guided by the spirit
and should not be bound by the letter of the Code of Civil Procedure this
Court explained that the reason appeared to be that the technicalities of
the Code, should not trammel litigation embarked upon by a people unused to
them. In that case although a suit was ordered to be dismissed for default
of appearance, an order was passed on merits. The question arose whether it
was dismissed under O. 9, r. 8 or O. 17, r. 3 of the Code of Civil
Procedure. It was held by this Court that it did not matter under which
Order it was dismissed but that no second suit could be brought on the same
cause of action without getting rid of the order dismissing the suit. In
this way this Court applied the spirit of the Code and put aside the
technicalities by attempting to find out whether the dismissal was
referable to O. 9, r. 8 or O. 17, r. 3 of the Code. That case illustrates
how the spirit of the Code is used rather than the technical rule. In the
same way, under the criminal administration of justice the technical rules
are not to prevail over the substance of the matter. The Deputy
Commissioner in trying criminal cases would hold the trial according to the
exigency of the case. In a petty case he would follow the summons procedure
but in a heinous one he would follow the procedure in a warrant case. The
question of a Sessions trial cannot arise because there is no provision for
committal proceeding and there are no Sessions Judges in these areas.
Therefore, the Deputy Commissioner who was trying the case observed that he
was going to observe the warrant procedure and in the circumstances he was
observing the spirit of the Code.

Laws of this kind are made with an eye to simplicity. People in backward
tracts cannot be expected to make themselves aware of the technicalities of
a complex Code. What is important is that they should be able to present
their defence effectively unhampered by the technicalities of complex laws.
Throughout the past century the Criminal Procedure Code has been excluded
from this area because it would be too difficult for the local people to
understand it. Instead the spirit of the Criminal Procedure Code has been
asked to be applied so that justice may not fail because of some
technicality. The argument that this is no law is not correct. Written law
is nothing more than a control of discretion. The more there is of law the
less there is of discretion. In this area it is considered necessary that
discretion should have greater play than technical rules and the provision
that the spirit of the Code should apply is a law conceived in the best
interests of the people. The discretion of the Presiding Officer is not
subjected to rigid control because of the unsatisfactory state of defences
which would be offered and which might fail if they did not comply with
some technical rule. The removal of technicalities, in our opinion, leads
to the advancement of the cause of justice in these backward tracts. On the
other hand, the imposition of the Code of Criminal Procedure would retard
justice, as indeed the Governor-General, the Governor and the other heads
of local Government have always thought. We think, therefore, that
Art. 21 does not render the Rules of 1937 ineffective.

A similar attempt is made by comparing these Rules with the Criminal
Procedure Code applicable in the rest of India. It is contended that this
leads to discrimination. We think that the exigency of the situation
clearly demands that the Criminal Procedure Code should not apply in this
area. It is not discrimination to administer different laws in different
areas. The Presidency towns have got special procedures which do not obtain
in other areas. We have known of trial by jury in one part of India for an
offence which was not so triable in another. Similarly, what is an offence
in one part of India is not an offence in another. Regional differences do
not necessarily connote discrimination and laws may be designed for
effective justice in different ways in different parts of India if people
are not similarly circumstanced. These backward tracts are not found
suitable for the application of the Criminal Procedure Code in all its
rigour and technicality, and to say that they shall be governed, not by the
technical rules of the code but by the substance of such rules is not to
discriminate this area against the rest of India.

It is contended that there is discrimination between the Tuensang District
and the other two districts of the State because in the other two districts
the Code of Criminal Procedure applies. This seems to be stated in the
judgment of Mr. Justice C. Sanjeeva Rao Nayudu who proceeded upon a
concession of Advocate-General of Nagaland. We have, however, no reason to
think that the Advocate-General could have conceded this point. It was made
clear to us that there was some mistake and the assumption made by Naidu J.
was based on a misapprehension. It is now admitted by Mr. A. K. Sen on
behalf of the respondents that the Criminal Procedure Code does not apply
to any of the three districts and therefore there is no question of any
discrimination between one district and another in Nagaland.

Lastly, it is contended that the Rules themselves allow for discrimination
because one officer may take something to be the spirit of the Criminal
Procedure Code and another may not. The requirements of the case must
determine what should be applied from the Criminal Procedure Code and what
should not. The Rules have been purposely made elastic so that different
kinds of cases and different situations may be handled not according to a
set pattern but according to the requirements of the situation and the
circumstances of the case. In a backward tract the accused is not in a
position to defend himself meticulously according to a complex Code. It is,
therefore, necessary to leave the Judge free so that he may mould his
proceedings to suit the situation and may be able to apply the essential
rules on which our administration of justice is based untrammelled by any
technical rule unless that rule is essential to further the cause of
justice. This would rather lead to less discrimination because each accused
would be afforded an opportunity which his case and circumstances require.
The Rules of 1937 were designed for an extremely simple and sophisticated
society and approximate to the rules of natural justice. It is impossible
in such circumstances to think, that because the Judge has more discretion
than if he acted under the Criminal Procedure Code or is able to bring
different considerations to the aid of administration of justice that there
must be discrimination. If a Judge does not apply the spirit of the Code
but goes against it or acts in a manner which may be considered to be
perverse the High Court will consider his action and set it right. As we
said earlier the law has not attempted to control discretion by Rules in
this area but has rather left discretion free so that the rule may not
hamper the administration of justice. As there is no vested right in
procedure the respondents cannot claim that they be tried under the
Criminal Procedure Code in this State where the Code is excluded. In such a
situation it is difficult to find discrimination." (at pages 851-853)

9. In Longsan Khongngain v. State of Meghalaya, (2007) 4 GLT 938, a
Division Bench of the Assam High Court stated:

"We have already noticed that the Code of Criminal Procedure has no
application to the tribal areas unless made applicable by the appropriate
State Government by a notification. A similar declaration is contained
under Section 1 of the Code of Civil Procedure also. Therefore, the courts
constituted under paragraph 4 of the 6th Schedule either by the District
Council or the Regional Council, as the case may be, are not bound by the
procedures prescribed under either of the Codes referred to above. Para
4(4):

"A regional Council or District Council, as the case may be, may with the
previous approval of the Governor make rules regulating--

(a).................................

(b) The procedure to be followed by village councils or courts in the trial
of suits and cases under sub-paragraph (1) of this paragraph."

Stipulates that those courts are to function in accordance with the
procedure evolved by the rules made by the District Council or Regional
Council as the case may be with the previous approval of the Governor. Such
procedures may or may not be available for adjudicating some of the
complicated questions arising out of the various laws in force in the
tribal areas. The purpose of creating special provisions under the 6th
Schedule of the Constitution for the administration of tribal areas is the
perception that the tribals are less "sophisticated" than the non-tribals
and, therefore, the normal gamut of laws would be too complicated for the
tribals to understand and obey. But the tribals are not wholly exempted
from the entire body of law made either by the Parliament or the
appropriate State Legislature. Some of those laws still operate either
wholly or part on the tribals, for example, the Indian Penal Code and the
Passports Act which do not recognize any exception in their operation in
favour of the tribals. Should an issue arise regarding the rights and
obligations created under the Passports Act between a tribal and an
authority created under the Passports Act or should a tribal is accused of
offence under the provisions of the Passports Act. The procedure evolved by
the Village Courts might become inadequate for an appropriate adjudication
of the issues involved in such litigation having regard to the complexity
of the matter. In order to meet such a situation, in our view, the Governor
is authorized under paragraph 5 of the 6th Schedule to invest such powers
as he deems fit, available either in Code of Civil Procedure or Code of
Criminal Procedure, either on the District Council or Regional Council or a
court constituted by the District Council (Village Court).

Paragraph 5 also authorises the Governor to invest an officer with such
powers available under the Cr.P.C. or CPC, as the Governor may deem fit,
having regard to the situation that is required to be dealt. Obviously such
a power is entrusted by the Governor to meet a situation where the Governor
comes to the conclusion that the Village Courts may not be able to meet the
requirement of a given situation." (at para 13)

10. Two things become clear. An appeal is provided as a matter of right
under Rule 28 of the 1953 Rules and only the spirit of the Code of Civil
Procedure applies. This being clear, the law laid down in A.
Venkatasubbiah Naidu v. S. Chellappan & Ors., (2000) 7 SCC 695 and M/s
Maria Plasto Pack (P) Ltd. v. Managing Director, U.P. Financial
Corporation, Kanpur & Ors., AIR 2004 ALL. 310, will not apply as both
judgments are based upon the letter and not the spirit of the Code of Civil
Procedure. What applies is Rule 28 of the 1953 Rules which provides a
right of appeal in all civil cases from all decisions of Subordinate
District Courts. The judgment under appeal states:

"7. As already noticed, both the parties were effectively and adequately
represented before the appellate court or the trial court by their
respective counsel, who cannot said to be unaware of the complexities of
the Code of Civil Procedure. Fortunately, no plea is made by the
respondents that they have been substantially prejudiced or hampered by the
technicalities of complex laws such as the Code of Civil Procedure, which
ordinarily bars an appeal from an ex-parte order of injunction. The
contention of the learned senior counsel is that as only the spirit of the
Code of Civil Procedure is followed in Courts constituted under the Sixth
Schedule, the respondents could not be barred from preferring an appeal
against the ex-parte order of injunction passed by the trial court. Though
the argument appears to be attractive at the first blush, it does not stand
closer scrutiny on deeper consideration. In the first place, when it is
nobody's case that the parties were unrepresented and were prosecuting the
case by themselves without the assistance of legal experts, there can be
no bar in applying the letter of the Code of Civil Procedure in a forensic
battle fought between parties well and adequately represented by their
respective counsel. On the contrary, the application of the letter of the
Code of Civil Procedure even in a District Council Courts and Courts
subordinate to them constituted under the Sixth Schedule will ensure
fairness, certainty, predictability and consistency in the procedure
adopted by them. However, if both the parties are not assisted by legal
experts, depending upon the facts and circumstances of the case as they
develop in the course of trial, such Courts, in order to ensure that
neither of the parties are hampered by the complexities and technicalities
of the Code of Civil Procedure may consider the question as to whether
there should be strict application of the Code or not. No doubt, such
discretion is expected to be exercised by the Court judiciously and not
arbitrarily or whimsically: judicial discretion like any discretionary
power is to be exercised in a reasonable manner. In the instant case, I
have a sneaking suspicion that both the parties were indulging in forum
hunting to obtain favourable order at the expense of the other. I say no
more in this behalf. The case must go back to the trial court for
consideration of the application for temporary application filed by the
petitioner."

11. We fail to understand how the letter of the Civil Procedure Code
would apply depending upon whether parties are or are not assisted by legal
experts. The Division Bench has unfortunately failed to refer to Rule 28
of the 1953 Rules and has applied the letter of Order 39 Rule 3A read with
Order 43 of the Code of Civil Procedure. This is the basic error in the
judgment. On the facts of this case, the appeal becomes maintainable
because Rule 28 of the 1953 Rules provides for such appeal without any
requirement that ordinarily it should be filed only after 30 days. Even
otherwise, the judgments relied upon by the respondent state that such
appeal is maintainable under the Code of Civil Procedure, but the court may
relegate the appellant to the alternative remedy provided - an application
to vacate the stay within 30 days. This in turn does not go to the
maintainability of the appeal but only goes to whether discretion ought to
be exercised against the appellant if the provisions of Order 39 Rule 3A
have been followed. We, therefore, allow the appeal, set aside the
judgment dated 27th April, 2012 of the High Court and restore the judgment
dated 9th March, 2010 of the District Council Court.

......................................J.
(J. Chelameswar)

......................................J.
(R.F. Nariman)
New Delhi,
January 28, 2015

Friday, January 23, 2015

When the vehicle was taken on road before paying the full insurance and committed accident - the financier holds no liability as the borrower took the vehicle from the Dealer before payment of full insurance - 2015 S.C.(2014) msklawreports

M.V.Act - sec.146 - Owner definition - Hypothecation agreement - Hire purchase agreement -the Motor Cycle belonging to 2nd respondent and driven by the respondent No.3 herein, in a rash and negligent manner dashed against the scooter as a consequence of which she sustained a fracture in
the right hand superacondylar fracture and humerus bone fracture and certain other injuries. -she filed claim petition - Tribunal awarded compensation directing to pay compensation jointly and severally - the stand and stance put forth by the predecessor-in-interest the appellant bank that it had only advanced a loan and the hypothecation agreement was executed on 1.11.2002 by it. As per the terms of the agreement, the owner of the vehicle was responsible to insure the vehicle at his own costs. Reliance was placed on Clause 16 and 17 of the loan agreement which stipulated that the bank was required to get the vehicle insured if the borrower failed to or neglected to get the vehicle insured. The accident as stated earlier had taken place on 20.12.2002 and the vehicle was insured by the owner on 16.1.2003. It was further put forth by the bank that the owner deposited Rs.6,444/- with the dealer of the motor cycle i.e. Patwa Abhikaran Pvt. Ltd., whereas
it was required to pay Rs.9,444/-. Despite the same, he obtained the possession of the vehicle on the same day itself which was not permissible. - High court dismissed the appeal of the Bank on this point - Apex court held that Section 146 of the Act that no person shall use or cause or allow any other person to use a motor vehicle in a public place without insurance as that is the mandatory statutory requirement under the 1988 Act.- "owner" means a person in whose name a motor vehicle stands registered, and where such person is a minor, the guardian of such minor, and in relation to a motor vehicle which is the subject of a hire-purchase agreement, or an agreement of lease or an agreement of hypothecation, the person in possession of the vehicle under that agreement." - He had taken the vehicle from the dealer without paying the full premium to the insurance company and thereby getting the vehicle insured.-The person who is in possession of the vehicle, and not the financer being the owner would be liable to pay damages for the
motor accident. -there is evidence on record that the respondent no.2, without the insurance plied
the vehicle in violation of the statutory provision contained in Section 146 of the 1988 Act, the High Court could not have mulcted the liability on the financier. The appreciation by the learned Single Judge in appeal, both in fact and law, is wholly unsustainable. In view of the aforesaid premises, we allow the appeals and hold that the liability to satisfy the award is that of the owner, the respondent no. 2 herein and not that of the financier and accordingly that part of the
direction in the award is set aside. However, as has been conceded to by the learned senior counsel for the appellant, no steps shall be taken for realisation of the amount. There shall be no order as to costs. -2015 S.C.(2014) msklawreports

No doubt normally the right of private defence is not available to either of the parties in incidents of group fighting, but that is not a rule without exception. In the case at hand, we have a special circumstance where the injured person (appellant no. 1) who was given 2cm x 2cm x 1.5cm deep knife blow on his back (scapular region) has retorted by using licensed firearm, and killed one of his rivals in the same incident. Accused/appellant Pathubha Govindji has taken plea of private defence right from beginning of the trial. From the judgment of the trial court also, it is clear that the plea of private defence was taken by the appellant no.1. Considering the facts and circumstances of the present case and evidence on record, it is evident that accused/appellant no.1 Pathubha Govindji Rathod who suffered knife injury in the incident has caused death of one of the deceased by firing several shots thereby exceeding right of private defence. Injuries suffered by both the sides are on record. In the above circumstances, from the evidence, as discussed above, we are inclined to accept the argument that it is a case of culpable homicide not amounting to murder covered under Exception 2 of Section 300 of IPC.-CRIMINAL APPEAL NO. 2282 OF 2014 Pathubha Govindji Rathod & Anr ... Appellants Versus State of Gujarat ... Respondent

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO. 2282 OF 2014

Pathubha Govindji Rathod & Anr ... Appellants

Versus

State of Gujarat ... Respondent

J U D G M E N T

PRAFULLA C. PANT, J.

This appeal is directed against judgment and order dated 30.6.2014
passed by High Court of Gujarat whereby the said Court has partly allowed
the criminal appeals arisen out of Sessions Case No. 85 of 2003 and the
cross Sessions Case No. 53 of 2004, which were decided by two separate
orders of the same date, i.e., 5.10.2007 by Additional Sessions Judge/Fast
Track Court, Junagarh.
We have heard learned counsel for the parties and perused the record.

Prosecution story, in brief, is that complainant Satish Jotva (PW-42) used
to live with his family in Village Arena. On 2.9.2003 his uncle Bhurabhai
Jivabhai (PW-46) was going to his field on a bicycle. At about 10.30 a.m.,
he was intercepted by Pathubha Govindji Rathod (appellant no. 1) near bus
stand. Accused/appellant no.1 picked up a quarrel with Bhurabha Jivabhai
as to why he supported Natha Nagabhai (one of the deceased) in Gram
Panchayat Election with whom the accused/appellant no.1 was not having
cordial relations. Meanwhile Natha Nagabhai came there and joined Bhurabhai
Jivabhai in the quarrel. This led heated exchange of words between both
the sides, and crowd gathered there. Accused/Appellant no.1 was joined by
his other supporters (co-accused), who were armed with deadly weapons like
swords, knives and sticks. Out of the accused persons, accused Pathubha
Govindji was armed with revolver, and accused Bhavubhai Gagubhai, Bhuraji
Gaguji, Kirit Jesing and Punjaji Muluji were armed with swords. Accused
Mala Gaguji was armed with knife. Rest of the accused Gaguji Manji,
Gomubha Halarwadi, Navalsinh Motisinh, Kanubha Jesangji, Dhiru Jesing,
Kiritsinh Punjajai, Veraji Punjaji, Jayubha, Samatsinh, Sidharajsinh Manji,
Bharat Manji, Kanu Bhai Devu bhai and accused/appellant no.2 Hemubha
Govindji were armed with sticks. On hearing the noise, complainant Satish
Jiva Jotva (PW-42) and his another uncle Bhimshi Jiva (PW-47), father of
the complainant Hamir Nagabhai (another deceased), Malde Nagabhai (PW-43),
Bhurabhai Jivabhai (PW-46), Punjabhai Bhimshibhai (PW-44), Jagmal Jivabhai
(PW-45) and some other villagers also gathered there. When the quarrel
further aggravated between the two sides, accused/appellant no.1 Pathubha
Govindji exhorted his supporters to kill Natha Nagabhai and teach lesson to
other supporters. Thereafter, accused/appellant no.1 Pathubha Govindji
himself took out revolver from his pocket and fired at him. Natha Nagabhai
suffered bullet injuries on the stomach and fell down. In the incident,
Bhimshibhai who was attacked with sword suffered injury on his head.
Bhavubhai Gagubhai assaulted Punja Bhimshi with sword in his hand, and he
also suffered injury on his head. Punjaji gave blow to Bharat Jiva on his
head, Gomubha Halarwala gave blow on the head of Jagmal Jiva.
Accused/appellant no.2 Hemubha Govindji inflicted injury with sword on the
head of Hamir Nagabhai. Accused Malde Nagabhai Jotva assaulted with stick
to some other persons. Several persons suffered injuries in the incident
on both sides. According to prosecution, after the incident complainant
took his uncle Natha Nagabhai on his motor cycle to Mangrol Government
Hospital, and other injured persons were also taken on rickshaw to said
Hospital for medical treatment. Out of the injured Natha Nagabhai, Bhimshi
Jivabhai, Hamir Nagabhai, Bhura Jivabhai, Malde Nagabhai, Punjabhai
Bhimshibhai, Jagmal Jivabhai were shifted to Junagarh Hospital for further
treatment. In the incident Natha Nagabhai and Hamir Nagabhai succumbed to
the injuries and died.

A complaint was given by Satish Jiva Jotva regarding the incident on the
basis of which ICR No. 70 of 2003 was registered at Mangrol Police Station.
A cross version of incident (ICR No. 71 of 2003) was also registered by
the police. After investigation, charge sheets were filed by the police
against both set of accused. Sessions Trial No. 85 of 2003 relates to the
charge sheet filed against accused/appellants Pathubha Govindji Rathod and
Hemubha Govindji Rathod and eighteen others. After hearing the parties in
the aforesaid sessions case, a charge was framed by the trial court against
all the twenty accused in respect of offences punishable under Sections
147, 148, 302 r/w 149, 307 r/w 149, 326 r/w 149, 325 r/w 149, 324 r/w 149
and 506 (2) r/w 149 of Indian Penal Code and under Section 135 of the
Bombay Police Act. Accused/appellant no.1 Pathubha Govindji was further
charged in respect of offence punishable under Section 25(1)(a) and Section
27 of Arms Act. All the accused pleaded not guilty and claimed to be
tried.

On this, prosecution got examined PW-1 Dr. M.G. Satrodiya, PW-2 Dr. Linesh
Makwana, PW-3 Dr. Anil Sakhiyani, PW-4 Naran Punja, PW-5 Desha Devshi, PW-6
Nasinghbhai Nensibhai, PW-7 Parsottambhai Savjibhai, PW-8 Ratibhai
Khimjibhai, PW-9 Nagabhai Hirabhai, PW-10 Virambhai Kanabhai, PW-11 Hardas
Desa, PW-12 Arjan Govindbhai, PW-13 Vikram Arjanbhai, PW-14 Bhikhabhai
Virabhai, PW-15 Mansukh Amarsinh, PW-16 Lakhabhai Pethabhai, PW-17
Laxmanbhai Makwana, PW-18 Rasulkhan Gulamkhan, PW-19 Razak Ismail, PW-20
Hanif Ibrahim, PW-21 Ali Giga, PW-22 Ismail Hussain, PW-23 Gova Parbat, PW-
24 Kanjibhai Karsanbhai, PW-25 Hasmukh Raja, PW-26 Karmanbhai Jethabhai, PW-
27 Arjan Parbat, PW-28 Musabhai Allarakha, PW-29 Amadbhai Musabhai, PW-30
Dhirubhai Naranbhai, PW-31 Mohanlal Khimjibhai, PW-32 Mamadbhai Ismail, PW-
33 Ibrahim Kasam, PW-34 Atul Prabhudas, PW-35 Dr. Jigna Dave, PW-36 Dr.
Kartik Modha, PW-37 Bhanji Vashram, PW-38 Ranchhodbhai Rathod, PW-39 Dr.
Bhalchandra Joshi, PW-40 Dr. Jitendra Gajera, PW-41 Dr. P.B. Nariyani, PW-
42 Satishbhai Bhimsinh Jothwa (complainant), PW-43 Malde Naga (injured), PW-
44 Punjabhai Bjhimsinhbhai (injured), PW-45 Jagmal Jivabhai, PW-46
Bhurabhai Jivabhai (injured), PW-47 Bhimsinhbhai Jivabhai (injured), PW-48
Chandrakant Natwarlal, PW-49 Mahipatbhai Bhikhubha, PW-50 Ravjibhai
Valjibhai, PW-51 Jayeshbhai Tapubhai, PW-52 Karsanbhai Gangabhai, PW-53
Subhashbhai Vadhera, PW-54 Hasmukhlal Aahir, PW-55 Arjanbhai Meraman, PW-56
Harishchandra Trivedi, PW-57 Bharatbhai Mistri, PW-58 Vishnukumar Vyas, PW-
59 Manharlal Mehta (Investigating Officer), and PW-60 Kalekhan Kureshi
(Investigating Officer).

The trial court put oral evidence of above witnesses and documentary
evidence including medical reports, inquest reports, post mortem reports of
Natha Nagabhai and that of Hamirbhai Nagabhai, complaint, serologist report
and chemical analyst report to the accused under Section 313 of Cr.P.C.
In reply to the prosecution evidence accused stated that evidence adduced
against them is incorrect. It is also pleaded that it were the accused,
who were attacked by the complainant and his supporters. In defence, it
was brought on record that serious injury was caused by Hamir Naga
(deceased) to accused/appellant no.1 Pathubha Govindji, with a knife. It
is also brought on record that from the side of accused/appellants,
Gumansinh Motibha, Juvan Singh Gogubha, Punjaji Muluji, Navalsinh, Pathubha
(present appellant no. 1), and Punja Bhimshi suffered injuries. It is also
established that in cross Sessions Case No. 53 of 2004, witnesses of
present case, namely, Malde Nagabhai Jotva, Bhimshi Jivabhai Jotva, Jagmal
Jivabhai Jotva, Bhurabhai Jivabhai Jotva, Punjabhai Bhimshibhai Jotva are
accused, who assaulted the accused of the present case. Due to death of
Hamir Naga, his name did not figure in charge-sheet as an accused in the
said sessions case.

After hearing the parties, learned Sessions Judge decided both the sessions
trials by two separate orders of the same date and recorded conviction
against the accused in both the cross cases. In Sessions Case No. 53 of
2004 the five accused, namely, Malde Nagabhai Jotva, Bhimshi Jivabhai
Jotva, Jagmal Jivabhai Jotva, Bhurabhai Jivabhai Jotva, Punjabhai
Bhimshibhai Jotva were convicted by the trial court under Sections 323,
324, 325, 147,148 all read with Section149 of Indian Penal Code and under
Section 135 of the Bombay Police Act. Each one of accused in said
Sessions Case No. 53 of 2004 was sentenced to undergo five years' simple
imprisonment and to pay a fine of Rs.2500/- under Section 326 r/w Section
149 IPC, simple imprisonment for a period of one month and to pay a fine of
Rs.1000/- under Section 324 r/w Section 149 IPC, simple imprisonment for a
period of three months and to pay a fine of Rs.500/- under Section 147 r/w
Section 149 IPC, simple imprisonment for a period of one year and to pay a
fine of Rs.1000/- under Section 325 r/w Section 149 IPC, simple
imprisonment for a period of one year and to pay a fine of Rs.1000/- under
Section 148 r/w Section 149 IPC.

On the other hand, in Sessions Case No. 85 of 2005 in which the present
appellants were accused, the trial court convicted and sentenced each of
the twenty accused under Sections 302, 307, 326, 325, and 324 all r/w
Section 149 IPC, to undergo imprisonment for life and to pay a fine of
Rs.5000/- under Section 302 r/w Section 149 IPC, imprisonment for seven
years and directed to pay a fine of Rs.2500/- under Section 307 r/w Section
149 IPC, imprisonment for a period of five years and directed to pay a fine
of Rs.2500/- under Section 326 r/w Section 149 IPC. Similar sentence was
passed against each of them under section 325 r/w Section 149 IPC. As to
the offence under Section 324 r/w Section 149 IPC each one was sentenced to
imprisonment for one year and directed to pay a fine of Rs.1000/-.
Similar sentence was passed under Section 147 r/w Section 149 IPC. On the
count of charge of offence punishable under Section 148 r/w Section 149 IPC
each one of twenty accused was sentenced to imprisonment for a period of
one year and directed to pay fine of Rs.1000/-. Under Section 506 r/w
Section 149 IPC, the trial court sentenced each convict to imprisonment for
a period of seven years and directed to pay a fine of Rs.1000/-. The trial
Court further convicted accused/appellant no.1 Pathubha Govindji under
Section 27 of Arms Act, and sentenced him to imprisonment for a period of
three years and directed to pay a fine of Rs.2500/-.

Criminal Appeal No. 1391 of 2007 and Criminal Appeal No.1394 of 2007 were
filed by the convicts of Sessions Case No. 85 of 2003, and Criminal Appeal
No. 1244 of 2007 was filed by the convicts of Sessions Case No. 53 of 2004,
before the High Court. All the three appeals were decided by the High
Court by common judgment challenged before us. The High Court decided
three appeals with following directions:
"26. For the foregoing reasons, the following order is passed;

All the three appeals are partly allowed.

(II) Insofar as Criminal Appeal No.1391/2007 and1394/2007 are concerned,
the judgment and order passed by the Court of learned Addl. Sessions Judge,
Junagadh in Sessions Case No.85/2003 dated 05.10.2007 is modified to the
extent that original accused no.1Pathubha is convicted for the offence
punishable u/s.302 IPC and is sentenced to undergo imprisonment for life.
The order regarding fine and default sentence is not disturbed qua original
accused no.1. It is also clarified that punishment of imprisonment for life
imposed upon original accused no.1 shall not mean imprisonment till last
breath and that the State may grant the accused benefit of remission at the
appropriate time. His conviction and sentence u/s.27 of the Arms Act is
also confirmed.

Insofar as original accused no.2 Hemubha is concerned, his conviction is
altered to one punishable u/s.304 Part1 IPC instead of Section 307 r/w.
Section 149 IPC. For conviction u/s.304 Part1 IPC, original accused no.2 is
sentenced to undergo imprisonment for Ten years. The order regarding fine
and default sentence is not disturbed qua original accused no.2. The jail
report shows that original accused no.2 is on bail. His bail bonds stand
cancelled and he is ordered to surrender to custody within a period of Ten
Weeks from today.

Out of original accused no.3 to 20, original accused no.5, original accused
no.13 and original accused no.16 have expired. Therefore, the appeals stand
abated qua the said three accused persons.

Insofar as the remaining accused persons are concerned, viz. original
accused no.3, 4, 6 to 9, 11 to 12 and 14, 15 and 17 to 20, their conviction
is altered to one punishable u/s.323 IPC without the aid of Section 149
IPC. For conviction u/s.323 IPC, the sentence already undergone by each of
the accused persons is ordered to be treated as sufficient sentence and
each of the accused is ordered to pay fine of Rs.2500/. None of the accused
person is required to undergo any further sentence in respect of the
offence in question. The above accused persons are on bail and hence, their
bail bonds stand cancelled and surety, if any, stands discharged.

Rest of the impugned judgment and order remains unaltered.

(III) Insofar as Criminal Appeal No.1244/2007 is concerned, the judgment
and order passed by the Court of learned Addl. Sessions Judge and Fast
Track Court, Junagadh in Sessions Case No.53/2004 dated 05.10.2007 is
modified whereby, each of the five accused persons, viz. original accused
no.1 to 5, is convicted u/s. 323 IPC without the aid of Section 149 IPC.
Their conviction, accordingly, stands altered to one punishable u/s.323
IPC. For conviction u/s.323 IPC, the sentence already undergone by each of
the five accused persons is ordered to be treated as sufficient sentence
and each of the accused is ordered to pay fine of Rs.2500/. None of the
accused person is required to undergo further sentence in respect of the
offence in question. The above accused persons are on bail and hence, their
bail bonds stand cancelled and surety, if any, stands discharged.

Rest of the impugned judgment and order remains unaltered."

The present appeal has been filed before us by way of Special Leave
Petition, by two of the above convicts, namely, Pathubha Govindji Rathod
and Hemubha Govindji Rathod.

The only point pressed and argued before us in this appeal is that the
courts below have erred in law in not accepting the plea of private defence
taken by appellant no.1. It is argued that the accused/appellant no.1 was
assaulted with a knife and suffered the injury on the vital part, as such
he has a right of private defence to save his person. It is further
contended that charge relating to causing death of Natha Bhai with a fire
arm, even if proved, is covered by Exception 2 of Section 300 IPC.

We have considered the submissions of the learned counsel for the
appellants. Exception 2 to Section 300 IPC reads as under: -
"Exception 2.-Culpable homicide is not murder if the offender, in the
exercise in good faith of the right of private defence of person or
property, exceeds the power given to him by law and causes the death of the
person against whom he is exercising such right of defence without
premeditation, and without any intention of doing more harm than is
necessary for the purpose of such defence."

It is not disputed in the present case that there are cross versions of the
incident, and cross complaints were lodged with the police. It is also not
disputed that in both the cases police submitted charge sheets against both
set of accused. It is also evident from the record that both Sessions Case
No 85 of 2003 and Sessions Case No. 53 of 2004 resulted in conviction on
conclusion of trial by Additional Sessions Judge, Junagarh. Considering
the number of persons involved in the incident it can be safely said that
it is a case of free fight between two groups of people. It is settled
principle of law that in the cases of free fights accused are to be
fastened with individual liability taking into consideration the specific
role assigned to each one of them, and normally right of private defence is
not available in such cases unless circumstances in a given case warrant
so.

A person faced with injury with a deadly weapon to his life cannot be
expected to weigh in balance the precise force needed to avoid danger.
Referring to case of Bhanwar Singh v. State of M.P.[1], this Court, in
State of Rajasthan v. Manoj Kumar[2], has observed as under: -
"15.3. In Bhanwar Singh v. State of M.P., it has been ruled to the
effect that for a plea of right of private defence to succeed in totality,
it must be proved that there existed a right to private defence in favour
of the accused, and that this right extended to causing death; and if the
court were to reject the said plea, there are two possible ways in which
this may be done i.e. on one hand, it may be held that there existed a
right to private defence of the body, however, more harm than necessary was
caused or, alternatively, this right did not extend to causing death and in
such a situation it would result in the application of Section 300
Exception 2 IPC."

In Mohd. Khalil Chisti v. State of Rajasthan[3], this court has observed
in para 42 as follows: -
"42. The analysis of the materials clearly shows that two versions of the
incident adduced by the prosecution are discrepant with each other. In such
a situation where the prosecution leads two sets of evidence each one which
contradicts and strikes at the other and shows it to be unreliable, the
result would necessarily be that the court would be left with no reliable
and [pic]trustworthy evidence upon which the conviction of the accused
might be based. Though the accused would have the benefit of such situation
and the counsel appearing for the appellants prayed for acquittal of the
appellants of all the charges, in view of the principles which we have
already discussed, we are of the view that each accused can be fastened
with individual liability taking into consideration the specific role or
part attributed to each of the accused. In other words, both sides can be
convicted for their individual acts and normally no right of private
defence is available to either party and they will be guilty of their
respective acts".

No doubt normally the right of private defence is not available to either
of the parties in incidents of group fighting, but that is not a rule
without exception. In the case at hand, we have a special circumstance
where the injured person (appellant no. 1) who was given 2cm x 2cm x 1.5cm
deep knife blow on his back (scapular region) has retorted by using
licensed firearm, and killed one of his rivals in the same incident.
Accused/appellant Pathubha Govindji has taken plea of private defence right
from beginning of the trial. From the judgment of the trial court also, it
is clear that the plea of private defence was taken by the appellant no.1.
Considering the facts and circumstances of the present case and evidence on
record, it is evident that accused/appellant no.1 Pathubha Govindji Rathod
who suffered knife injury in the incident has caused death of one of the
deceased by firing several shots thereby exceeding right of private
defence. Injuries suffered by both the sides are on record.
In the above circumstances, from the evidence, as discussed above, we are
inclined to accept the argument that it is a case of culpable homicide not
amounting to murder covered under Exception 2 of Section 300 of IPC.
Therefore, after weighing the submissions of learned counsel for the
parties and going through the papers on record, we are of the opinion that
appeal of the accused/appellant no. 1 deserves to be allowed partly.
Accordingly, the appeal is partly allowed and the conviction and sentence
recorded against accused/appellant no.1 under Section 302 IPC read with
Section 149 IPC is set aside. Instead he (accused/appellant no.1 Pathubha
Govindji Rathod) is convicted under Section 304 Part-I IPC and sentenced to
imprisonment for a period of ten years and directed to pay fine of Rs.5000/-
, in default of payment of fine he shall undergo simple imprisonment for a
further period of six months. He is reported to have undergone nine years
and six months of imprisonment. He shall serve out unserved part of
the sentence. The conviction and sentence recorded against
accused/appellant no. 2 Hemubha Govindji Rathod under Section 304 Part I
read with Section 149 IPC, does not require any interference.
The appeal stands disposed of.

....................................J.
[Dipak Misra]

....................................J.
[Prafulla C. Pant]
New Delhi,
January 21 , 2015.
-----------------------
[1] (2008) 16 SCC 657
[2] (2014) 5 SCC 744
[3] (2013) 2 SCC 541

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Just for legal information but not form as legal opinion

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.

Whether an appeal is maintainable against ad-interim ex-parte injunction was granted by the Subordinate District Council Court

Friday, January 23, 2015

When the vehicle was taken on road before paying the full insurance and committed accident - the financier holds no liability as the borrower took the vehicle from the Dealer before payment of full insurance - 2015 S.C.(2014) msklawreports