The Jurisprudence of Constitutional Camaraderie Between the Great Institutions Judicature & Legislature

(By Justice V.R. Krishna Iyer)

The pageantry of Indian constitutional instrumentalities is textually impressive and exhaustive, but in pragmatic experience, as between the Legislature and the Judicature, embarrassing situations, ambiguous interpretations and antimony of operations confront the nation. The three major pillars which support the constitutional cathedral are the legislature, the judiciary and the executive. Constitutional comity expects institutional harmony, so that the great vision of the Founding Fathers about a creative social order may fulfill itself without contradiction, contretemps and conflicts marring the national march in governing the life of the people. However high the expectation, confrontations have arisen leading to extraordinary occasions of head-on collisions. One such unhappy instance which exploded as a constitutional crisis is the case of Keshav Singh (under Art.143 Constitution of India).

The legislature and the judiciary are paramount institutions enjoying sovereign powers to the extent assigned to them and enshrined under the Constitution. Specific provisions have been made in our Founding Deed vesting authority in each and so long as they function within their bounds a happy modus Vivendi prevails. But occasions may arise when operational friction and perception of jurisdiction may bring the Court and the House into a scenario of jurisprudential jujitsu, constitutional combat and interpretational imbroglio. The functional felicity of constitutionality alone makes the rule of law a process of good governance. Therefore, the boundaries of operation of the judiciary and to legislature must be clearly drawn so that the rights of the citizen may not be drowned in confusion and the pellucid stream of law may flow smooth and transparent, without hitting hard rocks of paralysing disputes leading to chaos in the cosmos.

The judiciary is charged with the solemn duty of upholding the fundamental rights and forbidding legal injury to citizens. In this sphere, the robed independence of the Court is a high guarantee under the Constitution. None whose rights are in jeopardy or violated is without remedy so long as Arts.32,142 and 226 reign supreme as inscribed in Part III and Chap.V Part VI. The power to declare the law is finally vested in the Supreme Court under Art.141. Of course, the High Courts, while granting relief under Art.226, do lay down the law subject to the overriding jurisdiction of the Supreme Court. In short, any aggrieved citizen can seek relief when his rights are infringed from the High Court or the Supreme Court. They are the haven of human rights under the Constitution. The independence of the judiciary is essential for the discharge of its plenary obligations to defend rights and to prevent wrongs. Indeed, judicial power is the central source of remedial armour to guard human rights such as are granted by the corpus juris of the country.

We have a Government of laws and/the legislatures make the law. They are also a grand inquest of the nation and have vast powers of discussion and debate and law making decisions. Inevitably, the autonomy needed for the proper exercise of parliamentary power makes it appropriate for these majestic institutions to enjoy the authority required to exercise their constitutional obligations. Inevitably, the Constitution vests in the legislature powers, privileges freedoms and immunities which are necessary functional attributes of the Houses and of the members and committees of such legislatures. The nidus of the privileges and what-not can be located in Art.194 read with the restrictions in 211. To preserve the dignity of the judiciary and the majesty of its power there is a specific provision that no discussion shall take place in the legislature of a State with respect to the conduct of any Judge of the higher court in the discharge of his duties. To protect the legislature from judicial interference, there is Art.212 which inhibits judicial investigation into proceedings of the legislature with a clear stipulation that no officer or member of the legislature in the conduct of his business in the house shall be subject to the jurisdiction of any court in respect of the exercise by him of those powers. Freedom of discussion inside the House is if the very essence of legislative raison d'etre. Therefore, under Art.194(2) no member shall be liable to any proceedings in any court in respect of anything said or any vote given by him in the house. Curiously enough, the powers, privileges and immunities of the House and the members have not yet been codified and are as a fact what prevailed in the House of Commons when the Indian Constitution was framed. Verbal attempts to get out of this colonial vestige have been made, but the fact remains that we have to look to Westminster even to-day for the rights of the Indian legislature and legislator.

Such in broad outline is the constitutional conspectus of the relationship between the House and the Court.

Constitutional camaraderie

There are occasions of institutional aberrations when one or other of the instrumentalities runs berserk. They are rare but still may occur. Therefore we must be clear about the fundamentals to eliminate absurdities. One such instance may be mentioned more by way of extreme illustration than by way of grave apprehensions. There was an Hon'ble Speaker in Tamil Nadu Assembly called Hector Pandiyan a few years ago. I speak from memory and newspaper reports and may not therefore be too accurate. A certain convict was sentenced to imprisonment by the High Court of Madras in the criminal jurisdiction. The next day Hector Pandiyan, in hectoring style, told the Tamil Nadu Assembly that he represented the house and the house represented the people and the people where supreme. Therefore, in exercise of this fabricated supremacy he released the accused who had been convicted and sentenced the previous day by the High Court and directed the D.G. of Police to release the arrestee. What power was vested in Pandiyan to travesty a sentence imposed by the High Court none that the Constitution knows of, except the arrogant usurpation by Hon'ble Pandiyan in exercise of some bedlam jurisprudence. This was a shock to the public and to the House. Luckily, sanity prevailed and, at the instance of the leader of the House M.G .R, the decision of the Speaker was reversed by a resolution of the House and the egregious error was not allowed to mar the law of the land.

A more horrendous and, indeed, historic episode which gave a rise to a cause celebre must be referred to. That was a case where the Hon'ble Speaker of the U.P. Assembly issued arrest warrants against Judges of Allahabad. Let me quote the late great Palkhi vala who sums up tersely the introduction to the story:

What had never happened in England since 1689, occurred in India in 1964. One Keshav Singh was committed and imprisoned by the U.P. Legislative Assembly (we shall call it "the House ")for contempt. He moved a Habeas Corpus petition through an advocate before two Judges of the Allahabad High Court who admitted the Petition and granted him interim bail. The House could have filed a return showing how the detention of Keshav Singh was legal and within the powers of the House, and the petition would have been heard and disposed of on merits at a later date. However, immediately after the petition was presented, the House took the view that the citizen who moved the High Court, and the lawyer who presented his Habeas Corpus petition and the Judges who heard it were all guilty of contempt. The House resolved that the High Court Judges and the advocate should be brought in custody before the House. Thereupon the two Judges and the advocate presented petitions, which were admitted by the Full Bench of twenty-eight Judges of the Allahabad High Court, wherein they challenged the validity of the resolution of the House against them. Under a later clarificatory resolution the House withdrew the warrants for the arrest of the two Judges and the advocate but the Judges and the advocate were still required to appear before the House and offer their explanations as to why the House should not proceed against them for contempt.

Fortunately, the President made a timely Reference to the Supreme Court under Art.143(1) of the Constitution (Special Reference No.I of 1964) asking the Supreme Court's opinion on five questions. The essence of the five questions may be summed up in just one issue which constituted the jugular vein of the whole Reference:-

"If a citizen is committed for contempt by the Legislature, has the right to seek redress in a Court of Law, or do the Judges who hear his petition and the advocate who presents it commit contempt of the Legislature?" (Privilege of Legislatures - Supreme Court's Opinion in President's reference 1964 Page 2 & 3)

It may be noted that between the Commons and the Judges there had been a battle of warrants against each other bearing on the contempt of Parliament. This 'deplorable irresponsibility' displayed by the Commons in 1689 was never repeated and no Judge has ever been called upon to answer a change in England ever since, although the British Judges have heard and decided petitions by citizens committed for contempt by the Commons. What we need is statesmanship on the part of Judges and Parliamentarians where a larger vision of comity of institutions will obviate stultifying collisions. The Supreme Court, with that great statesman Judge Gajendragatkar presiding, cleared the law of possible confusion and ambivalence pettifogging obfuscation. We must remember that India has never suffered the stresses, tensions which were the result of historical causes and rival claims of the Crown, the Courts the Commons and the Lords. That has no relevance under our Constitution. Let me cite Palkhivala:

Art.194(3) must be construed to refer only to those privileges of the house of commons which were definite, certain and judicially recognised as existing in 1950; and, further, the line must be drawn at the point where the privilege would erode the Supreme Courts jurisdiction under Art.32 and the High Court jurisdiction under Art.226 to issue writs, directions or orders at the instance of the aggrieved citizen.

The Court has jurisdiction to entertain and deal with the petition of a citizen committed for contempt by a Legislature, and to quash the committal where the Legislature has exceeded its privilege, even if the warrant is unspeaking or general. An unspeaking warrant cannot silence the Constitution.

In any view of the matter, even assuming the House of Commons could at all claim the right to commit a Judge for contempt in a case which was the subject-matter of the Reference, Art.211 is an absolute bar against the State Legislature's claim to exercise such a privilege against a Judge of the Supreme Court or of a High Court (Privilege of Legislatures—Supreme Court's Opinion in President's reference 1964 Page-7).

The Supreme Court's view is thus summarised in the head note to the relevant AIR Report.

1. that it was competent for the Division Bench of the High Court to entertain and deal with the petition of K challenging the legality of the sentence of imprisonment imposed upon him by the Legislative Assembly for its contempt and for infringement of its privileges and to pass orders releasing K on bail pending the disposal of his said petition; (Paras.143, 197)

2. that K by causing the petition to be presented on his behalf to the High Court, the Advocate by presenting the said petition, and the two Judges of the Division Bench by entertaining and dealing with the said petition and ordering the release of K on bail pending disposal of the said petition, did not commit contempt of the Legislative Assembly; (Paras.143, 200)

3. that it was not competent for the Legislative Assembly to direct the production of the said two Judges and the Advocate before it in custody or to call for their explanation for its contempt; (Paras.143, 201)

4. that it was competent for the Full Bench of the High Court to entertain and deal with the petitions of the said two Judges and the Advocate, and to pass interim orders restraining the Speaker of the Legislative Assembly and others from implementing the aforesaid direction of the said Legislative Assembly; and (Paras.143, 203)

5. that in a case arising out of a contempt alleged to have been committed by a citizen who is not a member of the House of Legislature outside the four-walls of the legislative chamber, a Judge of a High Court who entertains ordeals with a petition challenging any order or decision of a Legislature imposing any penalty on the petitioner or issuing any process against the petitioner for its contempt, or for infringement of its privileges and immunities, or who passes any order on the said Legislature; and the said legislature is not competent to take proceedings against such a Judge in the exercise and enforcement of its powers, privileges and immunities. (AIR 1965 SC 745-746)

A certain lofty courtesy, innocent of measly rivalry, must inform and illumine the mutuality between the two high institutions. It must be remembered that Judge power is central to the constitutional order and so the legislature must deal with reverence towards the judiciary. Judicial independence and immunity are an unassailable value. This is fundamental. At the same time, the House in large measure has a representative character of a high order and the court can never act as a third chamber of the house, even though it has power to strike down unconstitutional legislation and pronounce upon excesses outside the legislative chamber. Having said this, our law lords must know their limitations. The high power to interpret law and adjudicate upon disputes is vested in the court. This ultimate authority of hermeneutics and decision-making must be unreservedly accepted by the legislators and the Hon'ble Speaker. There is no competitive spirit but fair accommodation by each of that portion of sovereignty which is assigned under the Constitution to each institution. Once this is grasped in the right temper, the resentment by the Speaker towards the court when request, by way summons, to comply with natural justice is issued is a misunderstanding. Of course, when the court addresses the Hon'ble Speaker great respect must be shown, not a command to appear in the court. The purpose of the Judge issuing the summons (which must be dressed as a request) is not to exercise authority but to give opportunity. Once this aspect is understood, the Speaker's point of view, if any, may be brought to the notice of the court through the Advocate General who is himself a constitutional entity. The Secretary of the Assembly can give the necessary instruction and bring to the notice of the house that the proceedings in the House are altogether beyond the court purview. It must be remembered by the court that there is an absolute bar to enquiry by the court into proceedings inside the House. This is an oasis, as it were, and is out of bounds for the court to enquire or adjudicate. Likewise, the freedom of speech of the members inside the House is a great guarantee of democracy. The debate in basic and what is said cannot be censured by any curial process. Judges are protected in their conduct even inside the House since they are beyond the pale of intra-mural criticism. Unfortunately, this ban or taboo is violated out of ignorance and arrogance by some members. When the conduct of a Judge comes under censure in the course of hot debate the Chair must pull up the member and expunge the violative portion of the member's expression. Unfortunately, when the Chair fails in this duty there is no specific provision in the Constitution to set right the deviant. Can the court intervene when its conduct is debated in violation of the constitutional provision? This is a grey area. Again, it must be noted that what is absolutely protected inside the house is freedom of speech and to vote - nothing beyond. Supposing a member attempts to murder and there is bleeding violence in violation of proper conduct, what happens to the offences so committed? I should assume that when the House becomes a babel or bedlam or runs berserk and violent mischief breaks out, the Speaker is the supremo and may summon police help but beyond, that the court does not lose its jurisdiction to try a murder merely because the venue is the House. It is not unusual these days for personal injury being caused inside the House. The penal law is not eclipsed inside the Chamber. Where lawlessness, departing from the rules of conduct, takes over the law of the land and the authority entrusted with the administration of justice do not blink at the scene. These are matters which Speakers', Conferences must discuss and take decisions, where Judges and Jurists must ponder and consider solutions. What our Founding Fathers did not dream of are becoming raw and vulgar realities. The law of contempt enjoyed by the House and by the Court may be pressed into service upto a point, but there is still need to examine these contra constitutional developments, so that orderly 'administration of the legislative business and judicial business may be ensured as part of our civilised democratic order.

A source of functional confusion relating to the Hon'ble Speaker vis a vis the higher judiciary needs specific mention. The Tenth Schedule to the Constitution vests in the Speaker the power to decide on questions of legislators' defection. When he rules under Schedule Ten he acts as a tribunal and his finding, if arbitrary, is vulnerable to judicial review. The provisions in Arts.6 and 7 notwithstanding, the court can examine the validity of the Speaker's holding. A Division Bench of the Kerala High Court, speaking through Narayana Kurap, J. has eruditely expounded the law:

By applying these well known and accepted tests of what constitutes a Tribunal, the Speaker or the Chairman, acting under paragraph 6(1) of the Tenth Schedule of the Constitution has been held to be a Tribunal. In Kihota Hollohon v. Zachilhu (AIR 1993 SC 412) the Supreme Court held that the Speaker while exercising powers and discharging functions under the Tenth Schedule acts as Tribunal adjudicating rights and obligations under the Tenth Schedule and his decisions in that capacity are amenable to judicial review. It was also held that the concept of statutory finality embodied in paragraph 6(1) does not detract form or abrogate judicial review under Arts. 136,226 and 227 of the Constitution in so far as infirmities based on violations of constitutional mandates, mala-fides, non-compliance with Rules of Natural Justice and perversity are concerned. Therefore, the question relating to the jurisdiction of the High Court to entertain writ petitions challenging the orders of the Speaker now stands concluded by the aforesaid judgment of the Supreme Court in Hihota Hollohon v. Zachilhu (AIR 1993 SC412 supra) wherein the provisions of Paragraph 7 of the Tenth Schedule which bars jurisdiction of courts in respect of any matter connected with the disqualification of a member of a House under the Schedule have been held to be unconstitutional and it has been held that the Speaker while passing an order in exercise of his powers under sub-paragraph (1) of paragraph 6 of the Tenth Schedule functions as a "Tribunal" and the order passed by him is subject to judicial review under Arts.32,136, 226 and 227 of the Constitution. (2000 (3) KLT P-54)

Another Full Bench rating on reinforcement of judicial review.

The parliamentary jurisprudence bearing on House-Bench comity is of daily relevance to the ordinary citizen. The privileges of the House are sometimes an invisible violence and the media is vulnerable to Assembly authoritarianism. I have already referred to the great case arising from Uttar Pradesh and the Supreme Court's binding advice. I have also referred to the constitutional clarity brought into the juridical scenario where Justice Kurup exploded the myth of unquestionability of Speaker's rulings even when it affected adversely by arbitrary action against a citizen's fundamental rights. In the same strain runs the Ananda Vikatan case (1994-Writ L. A. 638) where a Full Bench of the Madras High Court set aside a resolution of the Tamil Nadu Legislative Assembly sentencing the editor of a Tamil weekly, Ananda Vikatan, to rigorous imprisonment for breach of privilege of the House. The basis of the breach of privilege was not anything that happened inside the house. The resolution for breach of privilege was adopted in respect of the publication of a cartoon which was alleged to be a pickpocket depiction of an MLA and a masked dacoit picture of a minister. The apology demanded was not forthcoming and so the House resolved to punish the editor. A Full Bench considered whether the collective will of the Assembly, albeit it deprived a citizen of his fundamental right under Art.21 would be amenable to judicial review. The court held:

It is by now well settled and there could be no serious controversy over the position reiterated by more than one decision of the Supreme. Court that the Constitution reigns supreme and the rights, powers and privileges of the various limbs of the State are subject to the provisions contained in the Constitution, the basic and fundamental law which provides for the governance of the State. It is equally well settled that the final authority to state the meaning of the Constitution and to settle constitutional controversies exclusively belongs to the Supreme Court and the High Courts which are constituted as the sentinels of both the Constitution and democracy as well as the fundamental rights of the citizen - inclusive of their life, liberty and freedom. That apart, the Legislatures in India have to function within the limits prescribed by the material and relevant provisions of the Constitution of India and adjudication of any dispute as to whether legislative authority has been exceeded or fundamental rights have been contravened is solely and exclusively left to the Judicature of his country and, therefore, inevitably the decision about the construction of Art.194(3) of the Constitution, the privileges, powers and immunities claimed or action taken in vindication thereof cannot be said to be in the exclusive domain or of the sole arbitral or absolute discretion of the House of Legislature. Of course, the Courts having regard to their own self imposed limits would honour the sentiments, particularly keeping in view the plenary powers of the Legislature within the constitutionally permitted limits, so long as such action of the Legislature does not result in the negation of the fundamental rights secured under the Constitution or the life, liberty, freedom and dignity of the citizen. The all powerful postures or claims of sky-high powers or suzerain claims of sovereignly or over-Lordism are to be brushed aside as nothing but fossils of the tyrannical and anarchical past and not in keeping tune with the basic and fundamental principle of rule of law, the bed rock of the Constitution or the democratic ideals which are the avowed object of the Republic ushered in by the Constitution of India. The contentions to the contrary have no basis or recognition of law and do not have the merit of acceptance by courts in this country.

The court gave monetary redress too by way of compensation under the Public Law for the wrong done to the citizen by way of detention. The expanding universe of human rights prevails over privileges of elite groups clad in protem power. It is right to conclude this dissension with the wisdom of the Madras Bench articulating the peril to freedoms if confusion creeps into make Public Law murky.

There is, if we may say so, considerable confusion still in the minds of some people as to the scope of the undefined "powers, privileges and immunities" of a House of a State Legislature so much so that it has sometimes been imagined that a House of a State Legislature has some judicial or quasi judicial powers also, quite apart from its recognised powers of punishment for its contempts or the power of investigations it may carry out by the appointment of its own committees. Arguments of the kind which have been sometimes advanced in this country could not have been advanced if it was clearly understood that, even in England, where the Constitution is largely conventional, the exercise of judicial powers directly by Houses of the legislature, including powers such as those of impeachment, are practically obsolete. Whatever remained of the power enjoyed once by the High Court of Parliament, when the King could himself sit, as a part of Parliament with the Houses of Parliament, to administer justice is now concentrated in the House of Lords, exercised through a Committee of Law Lords.

Sum-Up

The constellation of propositions which crystallizes from this long exposition may be presented as pervasive principles which possess constitutional paramountcy. The first fundamental is that judicial independence never bends or bows before the Executive or the Legislature, as laid down authoritatively by the nine Judges Bench in the Judges Case. This indefeasible doctrine puts the Judges in their forensic performance beyond the contempt power of the Legislature. Be you ever so high, the Judges, in their curial capacity, are not answerable to the House or its officers.

Secondly, judicial supremacy derived from the Constitution and specified in Arts.32,142, 136,226 and 227 empower the court under public law to decide any case brought by any aggrieved citizen against any order, fiat or ukase emanating from any authority in the House. The legality of such a directive, if it operates from any conduct of a citizen outside the House, is amenable to judicial jurisdiction. However, if the action is taken by the Speaker inside the legislative chamber the court cannot sit in review the plenary authority being vested in the House. Even here, if what is alleged as the basis of action is a privilege of the House or member, it is open to the court to examine whether such a privilege exists provided that the Assembly's action infringes prima facie, a fundamental right of the citizen.

Thirdly, whatever is spoken (or voted upon inside the House) is beyond the power of the court to investigate or adjudicate. The member's conduct inside the chamber is immune to judicial scrutiny.

Fourthly, even if a member, contrary to the express provision of S.211, does indulge in improper speech the corrective mechanism is the Speaker, not the Court. This position requires constitutional reconsideration so that the comity of the House and the court may be preserved in dignified camaraderie.

Fifthly, when the court, in connection with any matter pending before it, requests the Hon'ble Speaker for information (or for the purpose of affording an opportunity for explanation makes a request) it behoves the Speaker, in courtesy to the court, to respond in a spirit of cooperation and not reject in a spirit of confrontation.

Sixthly, the court shall hold the Hon'ble Speaker and the proceedings of the House in all solemnity. Seventhly, when the Speaker decides a matter bearing on the defection law, judicial review is integral to constitutional law.

A Pertinent Divagation

In a petition under Art.226 of the Constitution an alleged gross impropriety of a Speaker setting himself up as a party candidate in a parliamentary election was challenged. Justice Sivaraman Nair wrote what is luminous wisdom vis a vis the modus vivendi between the Court and the House:

In the Parliamentary system of Government, which we have adopted, the office of the Speaker is a high and exalted office. He represents the entire house of elected representatives of the people and holds a place next only to the Head of the State in protocol. To that office are attached privileges which are inalienable. Under Art.179 of the Constitution of India, he holds office till he ceases to be a member of the Assembly until immediately before the first meeting of the Assembly after dissolution. Though the Advocate General-submits that the British Parliamentary Practices shall not be applicable to India, I have to rely on the celebrated treatise of Erskine May on the mother of Parliaments due to lack of any other alternative source suggested by him. Dealing with the Speaker of the House of Commons, it is stated in "Parliamentary Practice", 20^th Edition, at pages 234-235:

The chief characteristics attaching to the office of Speaker in the House of Commons are authority and impartiality. As a symbol of his authority he is accompanied by the Royal Mace which is borne before him when entering and leaving the chamber and upon state occasions by the Serjeant at Arms attending the House of Commons, and is placed upon the table when he is in the chair. In debate all speeches are addressed to him and he calls upon Members to speak - a choice which is not open to dispute. When he rises to preserve order to give a ruling on a doubtful point he must always be heard in silence and no Member may stand when the Speaker is on his feet. Reflections upon the character or actions of the Speaker may be punished as breaches of privilege. His action cannot be criticised incidentally in debate or upon any form of proceeding except a substantive motion. His authority in the chair is fortified by many special powers which are referred to below. Confidence in the impartiality of the Speaker is an indispensable condition of the successful working of procedure, and many conventions exist which have as their object not only to ensure the impartiality of the Speaker but also to ensure that his impartiality is generally recognised. He takes no pat in debate either in the House or in committee. He votes only when the voices are equal, and then only in accordance with rules which preclude an expression of opinion upon the merits of a question. Until recently his seat was often uncontested at a general election. (1985 KLT P-40 at 41)

When the Indian Parliamentary system comes of age, and excels Westminster emerged from its antics, Bharat will become the paradigm of

The glory of our Constitution desiderates mutual reverence between the legislature and the judicature in such manner that comity and camaraderie become the majestic modus vivendi.

The Goal

      A land of settled Government,

      A land of just and old renown,

      Where Freedom slowly broadens down

      From precedent to precedent.

The Securitization Act 2002 - A Boon to Banks and Financial Institutions - Certain Legal Aspects Thereof

(By R. Ravikumar, Manager (Law), Central Bank of India, Coimbatore)

As part of reforms Debt Recovery Tribunals were established under the Debt Due to Banks and Financial Institutions Act, 1993, for speedy recovery. But on analysis, the performance of these Tribunals which are there for nearly a decade, Banks and Financial Institutions find themselves still amidst mounting non-performing assets and the recovery bleak. Now the Parliament has promulgated the Securitisation Act, 2002, inter alia, empowering the secured creditors to enforce the securities without going to the court. Certain salient aspects of the Act are analysed hereunder:-

A notice u/s.13(2) calling upon the borrower whose account is classified as an NPA to discharge in full his liabilities to the secured creditor within 60 days from the date of notice inter alia giving the details of securities as well as the amount due, will have the effect of an injunction when read with S.13(13) of the Act.

S.29 provides for criminal prosecution punishable with imprisonment upto 1 year or with fine or with both for any contravention or attempted contravention or abetted contravention of any of the provisions of the Act.

A notice u/s.13(4)(d) will have the effect of a garnishee order making any person who has acquired an interest in any of the secured assets from the borrower and from whom money is due and payable to pay to the secured creditor and on making such payment he gets valid discharge thereof.

As per S.13(4), after 60 days, a secured creditor may take one or more of the steps as contemplated therein, i.e. taking possession of the secured asset, take over the management of the secured asset, appoint a Manager to manage the secured assets and while proceeding so assistance of the Chief Metropolitan Magistrate or District Magistrate can be requisitioned. Considering the nature of assistance required, such as police protection, etc., it would be advisable to approach the District Magistrate as the issue involved is administrative rather than legal in nature. In similar circumstances SFC's are also approaching District Magistrates.

Thus to effect sale, secured creditor has to start with taking possession of the secured assets which normally be Industrial Units with or without stocks, residential houses/shopping complexes occupied by the borrower/guarantor or by a tenant. In case of movables, the authorised officer shall take possession of such movables in the presence of two witnesses after drawing up a Panchnama as per Appendix 1 of the rules. Thereafter the authorised officer has to inventorise the movables and to keep the same in his own custody or in the custody of any person authorised by him. After getting it valued and after fixing reserve price, authorised officer can proceed to dispose of the same by public auction or private treaty.

In case of immovables, the authorised officer shall take possession by delivering possession notice (prepared as per Appendix 4 of the rules) and by affixation and publication of the possession notice in two dailies one in English and other in Vernacular. Where possession is actually taken by the authorised officer, R.8(3) provides that the custody of such property shall be kept by the authorised officer or by any other person authorised by him. The corollary of actual possession is constructive possession i.e., physical possession still continues with the occupier. Thus vis-a-vis residential house/shopping complexes already occupied can be taken possession constructively by adopting the above course of action. However, where possession is actually taken, as abundant caution secured creditor has to provide for insurance cover against theft, fire etc. and to provide security arrangements depending upon the nature of security. Then, after valuation by an approved valuer and after fixing reserve price, secured assets to be sold by public auction or by private treaty.

A point to ponder upon a secured creditor taking possession of an Industrial Unit is with regard to its liability vis-a-vis statutory and other dues of the Unit. Statutory dues to the State will have priority as crown debt and other workers dues are having paripassu charge and as such the same has to be liquidated accordingly from the sale proceeds.

S.13(6) provides that any transfer of secured asset after taking possession thereof as above shall rest in the transferee all rights in, or in relation to, the secured asset transferred as if the transfer had been made by the owner. Thus subsequent to 13(2) notice and before the actual sale, the mortgagor's title vests with the secured creditor and as such, it can be concluded that the title passes to the secured creditor once possession of the secured asset is taken through the Authorised Officer.

In all cases where constructive possession is adhered to, secured creditor should try to get vacant possession before proceeding for sale as otherwise the marketability of the security will be affected as any intending buyer will be interested in getting vacant possession along with sale certificate. Here one advantage to a secured creditor who is a Nationalized Bank/F.I. is that, upon taking possession of a secured asset, title thereof passes to the secured creditor, a tenant in possession losses, a normal protection available under the rent control enactments and Estate Officer of the secured creditor can proceed to evict the tenant summarily under Public Premises Eviction of (Unauthorised Occupants) Act.

Now, as sale of the secured asset is stayed by Hon'ble Supreme Court, M/s. Maradia Chemicals case, secured creditors have to wait for the final decision wherein the constitutional validity of the Securitisation Act is challenged. However, as the powers conferred upon the secured creditors under the Act is akin to that of State Financial Corporations under the SFC Act, the constitutional validity of which is already upheld by the Supreme Court, there is not much to worry. Another silver lining to reckon with is that Supreme Court has permitted the secured creditors to go ahead with by exercising powers under S.13(4) of the Act except transferring the security by way of sale or assignment.

Another point arises for consideration is as to whether the remedy under this Act and the remedy under the DRT Act are mutually exclusive or complementary to one another. S.13(10) of the Act provides for recovery of any balance after enforcing the securities under the Act through DRT.

" Karnataka High Court following a Supreme Court decision reported in AIR 1991SC 2151 (Andhra Pradesh SFC v. M/s. GAR Re-rolling Mills) held in Mysore Chest Care and Pain Therapy Centre v. State of Karnataka reported in 2002 I BC 302 that an SFC's remedy under Ss.29 & 31 are not mutually exclusive and it has to abandon one proceedings before opting for the other.

However, considering the fact that the twin remedy available to a secured creditor are under different enactments and as such can be distinguished with the above ruling which is with regard to remedies available under the same Act, namely Ss.29 and 31 of SFC Act. Moreover, S.35 of the Act provides an overriding clause over any other law for the time being in force. However, a secured creditor initiating parallel proceedings be informed to the court concerned in pending cases. Moreover the Act only provides for enforcement of securities charged and for other reliefs such as attachment of other assets not charged to the secured creditor and for personal reliefs, recourse is only through a court of law. Thus the secured creditors twin remedy can only be complementary to one another.

Now as regards limitation, though S.36 provides for a secured creditor to make claim in respect of the financial assets within the period of limitation, as there is no saving provision, secured creditor to ensure filing of suit within the limitation period even if parallel proceedings are initiated under Securitisation Act.

Thus apart from helping secured creditors to recover their dues, the summary mechanism will certainly improve the quality of security as henceforth secured creditors will definitely look into saleability/marketability of their securities.

To  My Beloved Brother Justice M.R. Hariharan Nair - t\cs«! ktlmZcm!

Justice A. Lekshmikutty

t\cs«! ktlmZcm!

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Can a Partnership Consisting of more than 10 Persons do the Business of Banking - A Comment on the Decision of Kerala High Court in Commissioner of Income Tax v. Chakkiath Bankers Reported in 2003 (1) KLT 765

(By Xavier Cherian, Chief Manager (Law) S.B.T., Emakulam)

The Kerala High Court in Commissioner of Income Tax v. Chakkiath Bankers reported in 2003 (1) KLT 765 while interpreting S.11(1) of the Companies Act has held that in respect of partnership with more than 10 persons for carrying on the business of banking it can be formed under the Partnership Act and consequently a partnership so formed will not be liable for the consequences of contravention of the provisions of S.11(4) and (5). The decision unsettles the legal proposition that unless a firm is registered under the Companies Act there can be no partnership carrying on the business of banking (S.11(1)) and no such partnership can be formed for the purpose of carrying on any other business, which has its object of acquisition or gain, with more than 20 persons as partners (S. 11 (2)).

S.11(1) reads as follows:

"No company, association or partnership consisting of more than ten persons shall be formed for the purpose of carrying on the business of banking, unless it is registered as a company under this Act, or is formed in pursuance of some other Indian Law."

The court interpreted the words "formed in pursuance of some other Indian Law" as meaning that if the association of persons consisting of more than ten persons wants to carry on the business of banking it need not necessarily be registered under the Companies Act, it would be sufficient if it is registered under the Money Lenders Act, Partnership Act or under any other Indian Law such as the Travancore Literary Scientific and Charitable Societies Registration Act or under the Societies Registration Act.

In Badari Prasad v. Nagarmal (AIR 1959 SC 559) the plaintiffs numbering 15 filed a suit against the President of an Association dealing in the business of selling clothes consisting of 28 members. A preliminary objection was taken before the Supreme Court that the association was an illegal association in view of the provisions of S.4(2) of the Rewa State Companies Act, 1935 which is similar to S.11(2) of the Companies Act, 1956. The relevant portion in that Section read as "unless it is registered as a company under this Act, or is formed in pursuance of a Charter from Durbar". The Supreme Court accepted the contention and dismissed the appeal.

We feel that the words "formed in pursuance of some other Indian Law" can only mean that the association should not only be formed but its existence should be recognized by another Act of Parliament. To cite an example, it can be said that the State Bank of India was formed in pursuance of the State Bank of India Act, 1955. When a partnership is registered under the Partnership Act the purpose of registration is for getting certain benefits of Chapter VII of the Partnership Act. Further it is not mandatory for a firm to be registered for the purpose of carrying on its business. Likewise the registration of an association under the Travancore Cochin Act or the Societies Registration Act serves a distinct purpose. To say that the registration under these Acts would be treated as formed in pursuance of some other Indian Law would be stretching the meaning of the words beyond what is contemplated by the Parliament.

A Comment on State of Kerala v. Krishna Plastics

(By K.P. Pradeep (Payyannur) & Shanmugam D. Jayan Advocates, High Court of Kerala)

Different statutory mandates are compelling the modern business community to maintain1 various categories of accounts. Even though judicial wisdom is usually keen to check the arbitrary invoking of statutory requirements, courts seldom enquired into the aims and objects for making these types illogical mandates. However, in State of Kerala v. Krishna Plastics, 2002 (2) KLT (SN) 85 p. 70 the Honourable High Court of Kerala deviated from the usual track and enquired into the logic behind adhering with such a statutory provision. The provision in question was R.32(15) of the Kerala General Sales Tax Rules, 1963 that made it mandatory to keep a manufacturing account by every manufacturer. The provision says,

"Every manufacturer of goods shall maintain daily production accounts, showing quantitative of the various raw materials used for the manufacture and the quantitative details of the goods so manufactured."

An analysis of the rule shows that it has two elements.

1. There is an obligation on every manufacture of goods to maintain daily production accounts.

2. The purpose of maintaining of such accounts is to show quantitative details of raw materials used for manufacture and of manufactured goods.

In the case in discussion the respondents were engaged in the making of fiberglass boats. It is undisputed that the respondent will come under the connotation of manufacturer as mentioned in R.32(15). The term manufacture is defined in the R.3(f) that any persons who manufactures, produces, prepares or makes goods for the purpose of trade.

The R.32(15) is applicable for all manufactures trading with the goods so manufactured, produced, prepared or made. But all the manufacturing or production activities are not in similar nature. The Supreme Court in Deputy Commissioner of Sales Tax v. Pio Fodds Packers, 46 STC 63, had evolved a reasonable test for determining the nature of manufacture process. The Court held whether the commodity which is subjected to the process of manufacture can no longer be regarded as the original commodity but is recognised in the trade as a new and distinct commodity then there is no doubt to say that a manufacture can be said to take place. Furthermore the Supreme Court in Star Paper Mills Ltd. v. Collector of Central Excise, Meerut, 76 STC 312 held that manufacture includes any process incidental or ancillary ,to the completion of a manufactured product.

The Supreme Court gave wider connotation to the term 'production' also. In Commissioner of I.T. v. N.C. Budhraja & Co., 91 STC 450 the Court held that the word 'production* or 'produce', when used in juxtaposition with the word 'manufacture* takes in bringing in to existence new goods by a process, which may or may amount to manufacture.

Then also a strict application of the said rule was impossible since they were not manufacturing something whose process of production could be completed in a single day. In some case the manufacturing or production process is day to day activities and in other case, though it is very rare, such process are subject to the order placed by the customer and as per their specification. In such case as in the case of fiberglass boat making, manufacture or production will take many weeks for completion of a single unit. Hence it is not possible to keep the daily production accounts as required by the Rule.

However the authorities were bend upon penalising them for not complying with the rule. The authorities alleged that the manufacturing accounts were not maintained in order to evade tax liability. Under the freedom given to the authorities to make assessment on the basis of best of judgment they made and addition of fifty percent in the turnover of the respondent by alleging that the absence of manufacturing account is a circumstance justifying the assessing authority to infer suppression.

The Court considered these facts in the above tax revision case and found

"...........though the assessee did not maintain manufacturing account it had correctly

maintained the opening and closing account. There is no dispute about the fact that verification of the books maintained by the assessee does not lead to the inference that there is suppression of the turnover. The assessee has put forward an explanation for not maintaining the manufacturing account. The assessee contends that fibber glass boats are manufactured against specific orders from customers and that evaluation of the consumption of the materials in each case is not feasible. It is also pointed out that materials left over in the course of production in one case are often capable of use in other cases and, in fact, are so used. Having regard to the nature of the work thus done by the assessee, the Tribunal found the assessee's explanation plausible. It is therefore clear that the assessing authority went wrong in estimating the turnover by addition on the hypothesis of suppression solely based on the absence of the manufacturing account."

In the above aspects the court is deviated from its earlier view in Thamparappally Bros. v. Slate of Kerala, 103 STC 504. By following an earlier judgment in TRC 1 of 1970 the Division Bench of the Kerala High Court in Thamparappally's case rejected the contention that the nature of R. 32(15) is only directory and held that under the rule every manufacturer of goods shall maintain daily production accounts, showing quantitative details of the various raw materials used for the manufacture and the quantitative details of the goods so manufactured. The inability of maintaining manufacture account in the case of furniture business is not given sufficient attention in this case. In the furniture business also the left over of materials, that is the cutting waste of timber, may not be used for the making of another one, as the specification usually will be different. In this angle, now, the Thamparappally's case is not a good law. However the facts of the Thamparappally's case reveals that the variations in books of accounts and conceded turnover by the assessee was proved beyond doubt and the rejection of accounts is not merely on not maintaining the manufacturing account but also on other grounds.

The out come of the present judgment is that though the rule requires maintaining the manufacturing account but if the assessee has a proper explanation for not maintaining the manufacturing account then there is no justification for imposing the additional turn over on that basis. The case is the best paradigm for the application of judicial mind in the realistic sense, which will facilitate the business world from the stringent statutory requirements.