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.

 

BANKERS' DILEMMA - A CREATION OF ITS REGULATOR

 

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

 

Reserve Bank of India announces One Time Settlements for speedy & effective recovery of bad debts of banks. This is vital in as much as the alternative mechanism for speedy recovery, the setting up of Debt Recovery Tribunal under the R. D.B. Act does not supply the desired fillip as contemplated. The situation is aggravated in Centres where Presiding Officers are not from the judiciary.

 

Many borrowers availed the opportunity and settled their dues under R.B.I. O.T.S. But a few recalcitrant borrowers under the guise of settlement had filed application before the DRTs where the suit against them is pending for a direction to the bank to accept the book outstanding and settle the matter.

 

Debt Recovery Tribunal overlooking its statutory obligation in arriving at the debt by proceeding with the trial takes cognizance of these applications and overlooking bank's contention that the R.B.I, guidelines stipulates only the "minimum amount" recoverable and it is open to the creditor to demand more over and above book outstanding depending upon various factors such as value of security and worth of the borrower/guarantors.

 

The operative portion of R.B.I, guidelines stipulates that the minimum amount that should be recovered under the revised guidelines in respect of compromise settlement of N.P.A. classified as doubtful or loss as on 31.03.2000 would be 100% of the outstanding balance in the account as on the date of transfer to the Protested Bills Account or the amount outstanding as on the date on which the account was categorized as doubtful N.P. As, whichever happened earlier, as the case may be.

 

The said guidelines also stipulate that the directions are non-discretionary and non­discriminatory. This leaves a little space for some to interpret that the guidelines are mandatory and as such is statutory in nature. The guidelines gives room for controversy by stating that the minimum account recoverable would be "the amount outstanding as on the date on which the account was categorized as doubtful NPA". This is why because in banking parlance balance outstanding is understood to be book outstanding and as such, the same remains static after seizing charging of interest to the account. An account when becomes NPA, first it is classified as sub-standard and after a period of 18 months as doubtful, thus by stating amount outstanding as on the date on which the account was categorized as doubtful gives an impression that the bank can add up the interest to the book outstanding and claim the interest as per contract for a further period of 18 months. This is disputed by the borrowers.

 

Next point of controversy is as to whether the R.B.I, guidelines are directory in nature or mandatory and statutory. Contradictory decisions are available at the bar. As the Hon'ble Supreme Court of India in some other context has already held that guidelines are mere guidelines and nothing more can be inferred and also since the impugned R.B.I, guidelines are directions for a negotiated settlement, it can safely concluded that present R.B.I, guidelines for One Time Settlement are only directory in nature. R.B .1. should intervene and clarify the position or the courts having writ jurisdiction may take cognizance of the issue and decide the same so that a lot of time and energy of lenders can be saved.

 

LEGITIMATE EXPECTATION: A CRITICAL ANALYSIS

 

(By Prasanth V.G., IV Year LL.B., W.B. National University of Judicial Sciences,

Kolkata)

 

The term natural justice has often been used interchangeably with natural law or jus naturale that means certain rules of conduct supposed to be so just that they are binding upon all mankind1 and fundamentally implicit in every decision making, whether judicial, quasi-judicial or Administrative2. They are fundamental so as to be implicit in the concept of ordered liberty3

 

The doctrine of 'Legitimate Expectation' takes its seat in the field of Administrative Law more or less as an extension of the established principles of natural justice and non-arbitrariness. The similarity between the principles of natural justice and the doctrine of Legitimate Expectations is that both demand fair play in action.

 

The evolution of 'Legitimate Expectation'

 

The doctrine has its genesis itself in the field of Administrative Law4. Legitimate Expectation is the latest recruit to a long list of concepts like natural justice, reasonableness, fiduciary duty of local authorities etc. fashioned by the Courts for the review of Administrative action5. Its evolution is due to the reason similar to that of the evolution of Promissory Estoppel. The Supreme Court says in Amrit Banaspati Co. Ltd. v. State of Punjab6 that the basic purpose of Promissory Estoppel is to promote justice founded on fairness and relieve a promisee of any injustice perpetrated due to promisor's going back on a promise. This can be construed even as the reason for the evolution of this concept in the field of law.

 

According to the Supreme Court unfairness in the form of unreasonableness is akin to violation of Natural Justice and it was in this context that the doctrine of legitimate expectation was evolved7. This was to ensure regularity, predictability and certainty in the Government's dealing with the public8.

 

However it is not possible to comprehend at a glance the innumerable situations where the authority in power would deal with the public in official capacities thereby evoking legitimate expectation. Therefore the Supreme Court has rightly stated: "Legitimate Expectations owe their existence to different kind of circumstances and it is not possible to give an exhaustive listin the context of vast and fast expansion of the governmental activities. By and large they arise in cases of promotions which are in the normal course expected though not guaranteed by way of statutory right, in cases of contracts, distribution of largess by the Government and in somewhat similar situations9". This being the case it can also be said that the principle is not yet fully evolved10. With the various new kinds of interactions of the concerned authorities with the public the shaping of the concept of Legitimate Expectation is also bound to take new styles and versions.

 

How to define 'Legitimate Expectation' ?

 

Legitimate has been clearly defined by the Supreme Court of India in quite a few cases. First of all expectation has to be reasonable11. But it is not a mere anticipation and is distinguished even from an otherwise genuine expectation12. Expectation of a legally justifiable and protactable nature alone comes for discussion here. It is therefore not a mere desire or hope13. In the words of the Supreme Court: "However earnest and sincere we wish, a desire or a hope may be and however confidently one may look to them to be fulfilled they by themselves cannot amount to an assertable expectation and a mere disappointment does not attract legal consequences. A pious hope leading to a moral obligation cannot amount to a legitimate expectation14".

 

- It is noticeable that in one of the cases while negating the claim of legitimate expectation the Supreme Court used the term "False Hope15" suggesting that a mere hope or desire might even turn out to be a 'false hope' in front of law, if it cannot qualify the ingredients of Legitimate Expectation.

 

Legitimate Expectation clearly distinguishes itself from a mere expectation. Apart from 'reasonability' that is stated earlier, Legitimate Expectation shall be founded on the sanction of Law or custom or an established procedure followed in regular practice16. If the authority in power later alters this law, custom or procedure thereby affecting the benefits legitimately expected by a person or a body who relied on the earlier representation17 then the court would intervene through a judicial review18 of the exercise of such administrative power by the authority. This expectation cherished by the claimant would alone be the criterion to decide in his favour.

 

In 1993 the Supreme Court observed that the doctrine applies in Public Law and not in Private Law19. But the Supreme Court exhibited a clear variation of this attitude when it attempted to define Legitimate Expectation in 199820. It was in the latter case defined to operate even in the field of Private Law. Resultantly the earlier view21 that legitimate expectation cannot amount to claim or demand on the ground of right also has undergone reversal22.

 

Therefore according to the highest court of Law in India the present ambit of Legitimate Expectation is as follows:

 

"The doctrine of Legitimate Expectation can be invoked if the decision which is challenged in the court has some person aggrieved either-

 

(a) by altering rights or obligations of that person which are enforceable by or against him in private law, or

 

(b) by depriving him of some benefit or advantage which either

 

(1) he had in the past been permitted by the decision maker to enjoy and which he can legitimately expect to be permitted to continue to do until there has been communicated to him some rational grounds for withdrawing it on which he has been given opportunity to communicate, or

 

(2) he has received assurance from the decision maker that it will not be withdrawn without giving him first an opportunity of advancing reasons for contending that it should not be withdrawn23".

 

'Legitimate Expectation' and 'Promissory Estoppel'.

 

There are seemingly lots of similarities between the two. Also in a given case the application of both the principles would be possible giving ultimately identical results. But the differences are also mentionable. They are:

 

1. Promissory Estoppel is primarily estopping a person or an authority from a given promise24. This is therefore negative in nature whereas Legitimate Expectation is essentially positive in nature.

 

2. In the case of Promissory Estoppel there has to be a clear and unequivocal promise or representation made by one party to the other by word or conduct25. In the case of Legitimate Expectation even though reliance on a representation by word or conduct is a requirement26 it is most often not based on unequivocal promise.

 

3. The representation or promise in Promissory Estoppel is with the knowledge or intention to create a legal relationship27 whereas there is nothing like that in Legitimate Expectation.

 

4. Another main difference is the resulting suffering being a non-necessity in invoking Promissory Estoppel. It is surprising to note that the Apex Court of India has spoken in different voices in this matter. In 1987 the Supreme Court stated that it is not necessary that there should be a resultant detriment so as to invoke Promissory Estoppel28. However in 1998 the Court said that there has to be resultant detriment to the claimant in the case of Legitimate Expectation "in the same way as claims based on Promissory Estoppel29". Therefore it can be said that in the matter of Promissory Estoppel it is not settled that whether there has to be a detriment whereas in the matter of Legitimate Expectation it is clear that the claimant should have suffered a detriment due to the authority acting contrary to the expectation legitimately evoked in the mind of the claimant.

 

Is 'Legitimate Expectation' a distinct right in itself?

 

The Supreme Court has stated that the Natural justice is not an end in itself; rather it is a means to an end30. The case was the same with Legitimate Expectation also. Earlier it did not give a right in the absolute sense. Rather it assured the claimant of certain fairness in the administrative action. To explain this further, the Expectation that is Legitimate could not be guaranteed or fulfilled; rather it could only be protected31. That is to say that this was not equal to a conventional "right" in the legal sense of the term. It was less than a right32. The word "protection" only meant that when the decision-making authority violated a person's legitimate expectation, the judiciary could intervene to ensure that the decision maker shows sufficient justifications on his part.

 

Therefore the protection of Legitimate Expectation amounted only to ensuring the circumstances in which that expectation may be denied or restricted. This is the reason why the Legitimate Expectation could only be protected and not be guaranteed or fulfilled. The protection under the doctrine of 'Legitimate Expectation' therefore amounted only to the following three-layer procedural protection:

 

1. The procedural part of it related first to representation that a hearing or other appropriate procedure will be afforded before decision is made33.

 

2. Secondly the procedural part of Legitimate Expectation was also to be scrutinized whether any malafide or any abuse of power has taken seat34.

 

3. Thirdly procedural fairness through non-arbitrariness had to be ensured35. The Supreme Court has stated the exact link between Legitimate Expectation and procedural non-arbitrariness in the following words: "Failure to consider and give due weight to it (Legitimate Expectation) may render the decision arbitrary, and this is how the requirement of due consideration of a Legitimate Expectation forms the part of the principle of non arbitrariness, a necessary concomitant of the rule of law36. Accordingly it was ruled that the application of Legitimate Expectation in the selection of appointees to the Supreme Court would make the appointments non arbitrary37.

 

However it is now accepted that the doctrine isn't merely a procedural right alone and that it has an independent existence as a distinct substantive right. Therefore the earlier view that 'Legitimate Expectation' is not a right in itself no more holds good.

 

Though the doctrine of Legitimate Expectation is essentially procedural in character and assures fair play in administrative action, it may, in a given situation be enforced as a substantive right38. To quote the Supreme Court: "The substantive part of the principle is that if the representation is made that a benefit of a substantive nature will be granted or if the person is already in receipt of the benefit that it will be continued and not be substantially varied, then the same would be enforced39".

 

This is essentially to review the very content and substance of the administrative action and no? merely the procedural fairness in its implementation. "The legitimate substantive expectation... permits' the court to find out if the change in policy which is the cause fordefeating the Legitimate Expectation is irrational or perverse or one which no reasonable person could have made40".

 

Therefore the doctrine of 'Legitimate Expectation' has undergone a total change from that of a mere procedural safeguard to that of a distinctly identifiable substantive right in itself.

 

Conclusion

 

In the words of the Supreme Court: "The protection of such Legitimate Expectation does not require the fulfillment of the expectation where an overriding public interest requires otherwise. In other words where a person's Legitimate Expectation is not fulfilled by taking a particular decision then decision maker should justify the denial of such expectation by showing some overriding public interest. Therefore even if substantive protection is contemplated that does not grant an absolute right to a particular person. It simply ensures the circumstances in which that expectation may be denied or restricted41". It is also be remembered that the judicial presumption is always in favour of the constitutionality of administrative actions. Additionally there have been several occasions where the judiciary has shown restraint in interfering with 'policy matters'. Therefore it may be stated that the judicial support to 'Legitimate Expectation' is similar to the judicial reasoning that the rules of natural justice can operate only in the areas not covered by any law validly made as they can only supplement the law and not supplant it42.

 

However even the public policy "must confirm, grow and tailored to serve the public interest and respond to the demands of an evolving society43". Therefore if a substantial challenge can be offered against the policy matter (into which judiciary would not normally intervene) by way of raising a strong doubt against the existence of any overriding public interest, then the process of judicial review can ensure the executive compliance with the doctrine of Legitimate Expectation.

___________________________________________________________________

Foot Note:

1. Union of India v. Tulasiram Patel AIR 1985 SC 1416.

 

2. Swadeshi Cotton Mills v. Union of India AIR 1981 SC 818.

 

3. Ibid.

 

4. National Buildings Construction Corporation v. S. Raghunathan (1998)7 SCC 66; 1998 SCC (L&S) 1770: AIR 1998 SC 2771.

 

5. Union of India v. Hindustan Development Corporation (1993) 3 SCC 499.

 

6. AIR 1992 SC 1075.

 

7. Supra 4.

 

8. Punjab Communications Ltd. v. Union of India, (AIR 1999 SC 1801).

 

9. Union of India v. Hindustan Development Corporation, (1993) 3 SCC 499.

 

10. Punjab Communications Ltd. Union of India, AIR (l999) SC 1801.

 

11. Madras City Wine Merchants Association v. State of Tamil Nadu, (1994) 5 SCC 509.

 

12. Union of India v. Hindustan Development Corporation, (1993) 3 SCC 499.

 

13. Ibid.

 

14. Ibid.

 

15. National Buildings Corporation v. Raghunathan, (1998) 7 SCC 66:1998 SCC (L & S) 1770: AIR 1998 SC 2771.

 

16. Supra 14.

 

17. Supra 15.

 

18. Supra 16.

 

19. Ibid.

 

20. Supra 11.

 

21. Supra 18.

 

22. Supra 20.

 

23. Ibid.

 

24. D.C.M. Ltd. v. Union of India, (1996)5 SCC 468; Union of India v. Godfrey Philips India Ltd., (1985) 4 SCC 369; AIR 1995 SC; Kasinka Trading v. Union of India, (1995) 1 SCC 274: AIR 1995 SC 874; Union of India, (1987) 1 SCC 551; Mohd. Fida Karim v. State of Bihar, AIR 1992 SC 1191; Shrijee Sales Corporation v. Union of India, (1997) 3 SCC 398; Amrit Banaspati &Co. Ltd. v. State of Punjab, AIR 1992 SC 1075; I.T.C. Bhadrachalam Paperboards v. MundalRevenue Officer, (1996) 6 SCC 634.

 

25. Union of India v. Godfrey Philips India Ltd., (1985) 4 SCC 360; AIR 1996 SC 806.

 

26. Supra 23.

 

27. Supra 25.

 

28. The Supreme Court says in D.C.M. v. Union of India AIR 1987 SC 2414: "The altering of the position by the party is the only indispensable requirement of the doctrine. It is not necessary to prove further any damage, detriment or prejudice to the party asserting the estoppel."

 

29. Supra 26.

 

30. Swadeshi Cotton Mills v. Union of India AIR 1981 SC 818.

 

31. Ibid.

 

32. Ibid.

 

33. Supra 35.

 

34. P.T.R. Export (Madras) (P) Ltd. v. Union of India, (1996) 5 SCC 268.

 

35. Ghazidahad Development Authority v, Delhi Auto & General Finance (P) Ltd., (1994) 4 SCC 42:AIR1994 SC 2263.

 

36. Food Corporation of India v. Kamadhenu Cattle Feed Industries, (1963) 1 SCC 71; AIR 1993 SC 1601.

 

37. Supreme Court Advocates on Record Association v. Union of India, (1973) 4 SCC 441: AIR 1994SC268.

 

38. Supra 36. See also MP. Oil Extraction v. State of M.P., (1997) 7 SCC 592,

 

39. Supra 37,

 

40. Ibid.

 

41. Supra5. See also Navjyothi Co-op. Group Housing Society v. Union ofIndia, (1992)3 SCC 477; Madras City Wine Merchants Association v. State of Tamil Nadu, (1994) 5 SCC 509; Jamant-E-Islamiv. Union of India, (1995) 1 SCC 428.

 

42. Swadeshi Cotton Mills v. Union of India, AIR 1981 SC 818.

 

43. Ibid.

 

GRATUITY AXED

 

(By M. Rajasekharan Nayar, Advocate, Ernakulam)

 

A 3 Judge Bench of Supreme Court as early as 1960 ruled, the functions of the State can be classified as 'sovereign or inalienable functions of the State' and Commercial. Those sovereign functions are confined to legislative power, administration of law and judicial power, it is also held that "If a service rendered by an industrial or private person could be an industry, it would equally be an industry in the hands of the corporation".

 

In such circumstances the decision of Supreme Court in Ahemdabad Primary School Teachers Association case (2004 (1) KLT 470 (SC)) is not good law, in view of the said decision being rendered by the Division Bench of two judges and is contrary to the decision rendered by 3 Judges headed by Chief Justice Gajendragadkar, which decision was approved by a bench of 7 judges in Bangalore Water Supply and Sewerage Board case. Nagpur case was on similar facts, it is with regard to a school run by the Nagpur Municipal Corporation, in Nagpur Municipal Corporation Is case, the Supreme Court held that, certain activities of the Corporation will come within the definition of industry but there may be other activities, ruling it out of the definition of industry and the working formulae adopted, is whether it is primarily and predominantly concerned with industrial activity or incidentally connected therewith.

 

Taking into account the various features, the court separately considered the various departments run by the Corporation and it was held that the Education department look after primary education, that is compulsory primary education within the limits of the Corporation. "This service of the Corporation, can equally be done by private persons". Hence the employees of this Department come under the "definitions of employees under the Act, is certainly entitled to benefits of the Act". The Act referred therein, is the Industrial Disputes Act.

 

The word employee is defined in various labour legislations. The Supreme Court in the Ahemdabad Primary School Teachers Association case referred to the definition of employees in minimum wages Act, Provident Fund Act, Bonus Act along with Gratuity Act. and said that the definition in the Gratuity Act is narrower, does not take in teachers for payment of gratuity. The court lightly brushed aside, the amendments made to the definition of employee, in the Gratuity Act, by Amendment Acts 25 of 1984 and 34 of 1994.

 

The Act, as originally passed, specifically excluded persons employed in the managerial and administrative capacity or a person who holds post under the State Government and Central Government and also those covered by Air Force Act, Army Act and Navy Act. The explanation which was originally in the Act, was deleted. The explanation originally incorporated, covered only persons drawing a salary upto Rs.1000/- per month and once that limit is exceeded, the maximum wage that is to be calculated for payment of gratuity, thereafter is only Rs.1000-. Thus it could be seen that even if a person, who comes within the main definition of employee, will be excluded by virtue of die explanation, that he is drawing a salary of more than Rs.1000/-, per month. Similarly in the Employees State Insurance Act, also contain a provision which excludes the employee drawing more than a particular limit prescribed by Central Government, by notification in the Gazette.

 

Thus the decision in, Ahmedabad Primary School Teachers Association case not only does not lay down good law but acted on the basis of irrelevant and extraneous consideration. The amendment to definition of employee in the Gratuity Act, by Act 25 of 1984 and Act 34 of 1994 really enlarges the definition, Originally those holding managerial and administrative capacity were excluded, so also those holding civil post under the State Government and Central Government. But by the amendments they will be excluded, only if they are in receipt of gratuity under any Act or by Rules. The Judges who decided this case has stated, that the teachers under the Corporation, are governed by statutory regulation known as gratuity regulation of the Municipal Corporation of the city of Ahemdabad, framed by the Corporation under S.465(i)(h) of the Bombay Municipal Corporation Act, 1949. In such circumstances, the other points need not have been gone into. The decision mentioned therein is not applicable to the facts.

 

Thus it could be seen that the decision in the Ahemdabad Primary School Teachers Association case is wrongly decided for the following reasons:

 

a) Even as per the definition of employees, as it stands now, the teachers are excluded in view of the fact that they come within the later part of definition ie., receipt of gratuity statutorily fixed by the Corporation.

 

b) The decision is contrary to the decision rendered by a larger bench in AIR 1960 SC 675 which was approved by a Constitution Bench of 7 Judges in Bangalore Water Supply and Sewerage Board case.

 

With the emergence of self financing colleges, which became a reality after Supreme Court judgment in Unnikrishnan's case, education from day school to professional and super speciality courses had become an industry. This fact has also been not taken note of by Judges in Ahemdabad Primary School Teachers Association case.

 

A word about Justice Gajendragadkar. He was one of very few Judges of Supreme Court who understood the heart and soul of Labour Law and to a large extent helped in the development of Labour Law, in the right direction. The Judges who followed him, in an attempt to steal a march over him, either prevaricated or strangulated the law, which resulted in utter confusion.

 

LAW OF MAINTENANCE - HINDU MINOR

 

(By Raghu Pradeep Nair, Advocate, High Court of Kerala)

 

Introduction

 

It is most unfortunate and disturbing to note that the Family Courts constituted under the Family Courts Act, 1984, are delaying payment of maintenance to minor children. Children are the future productive human resource of our country and their proper growth in a healthy family atmosphere is of critical importance to our nation's progress in every field. Today's child is tomorrow's valuable human asset in the form of a leader, businessman, doctor, engineer, scientist, jurist, etc. Therefore, a child's social, psychological, nutritional, educational, and economic needs and healthy growth is a primary responsibility of the State. A good childhood for a child is a great investment, which any nation makes for itself and the world at large and has no parallels.

 

Constitution

 

The Constitution of India. Part IV, lays down the Directive Principles of State Policy. Thereunder, Art. 39 provides that "The State shall, in particular, direct its policy towards securing - (f) that children are given opportunities and facilities to develop in a healthy manner and conditions of freedom and dignity and that childhood and youth are protected against exploitation and against moral and material abandonment". It is a social and constitutional obligation of every parent to give a good and quarrel free family atmosphere to their children for their wholesome growth. If they fail in doing so a duty is naturally cast upon the State and the Family Courts to step in and protect the interest of the minor citizens by appropriate legal measures and make the parents (natural guardian) accountable towards the welfare of the children. The actions of the parents should be measured on the scale of the impact it has on the childhood of the child and its future growth. The right to live of minor children under Art.21 of the Constitution of India includes a right to a reasonable maintenance for their physical and mental growth from their parents. A right to a reasonable maintenance is a child's fundamental right under the Constitution. When a natural guardian withdraws himself from maintaining his minor child, a great blow is inflicted to the child's dignity and its future is rendered uncertain. After bringing forth an offspring into the world a guardian is naturally expected by the society to maintain it with whatever means he has. If he fails to do so then the Welfare State should have the will and the machinery to compel him to do so promptly. One of the main reasons noticed for an increase in family disputes between married couples who have children is the absence of any law in the country to make the disputing parents, particularly the husband (who is the natural guardian of the Hindu minor under S. 6 of The Hindu Minority and Guardianship Act. 1956). strictly accountable for the maintenance of minor children from day one when a family dispute is set in motion in the Family Court. Hence, to realize the goal of Art. 39(f) of the Constitution the Legislature needs to provide more teeth to the existing Matrimonial Laws.

 

Amendments

 

Recently, under The Marriage Laws (Amendment) Act, 2001 (Act 49 of 2001), S. 26 of the Hindu Marriage Act, 1955, was amended. The amendment to S. 26 provides that the application with respect to maintenance and education of the minor children, pending the proceeding for obtaining such decree, shall, as far as possible, be disposed of within sixty days from the date of service of notice on the respondent. On the criminal side The Code of Criminal Procedure (Amendment) Act, 2001 (No.50 of 2001) amended S.125 to provide that the court can order interim maintenance (monthly allowance) within 60 days. Although these are good legislative initiatives far over due, yet, a lot more has to be done to protect the interest of minor children who find themselves involuntarily trapped between the clash of their parents.

 

Guardian

 

According to S.4 of The Hindu Minority and Guardianship Act, 1956, sub-clause (b) "guardian" means a person having the care of the person of a minor or his property or of both his person and property, and includes - (i) a natural guardian, (ii)...etc. The words "person of a ' minor" has not been defined or explained in Section 4 of the Act. However, the care of the person of a minor embraces and includes not only physical care but also monetary care necessary for a minor's physical, mental, material and educational growth. Under the Hindu Law this responsibility to maintain the minor children is cast upon the father who is the natural guardian of the person and property of a minor Hindu child under S.6 of the Hindu Minority and Guardianship Act, 1956.

 

Children Laws

 

Although there are Children Laws in the country, they have nothing to offer to Children who may be found in a situation of need, social mal-adjustment, psychological trauma and neglect during Family Court disputes between their parents. The Family Courts have sidelined the Children Welfare Boards under the Children Laws, but at the same time are not able to protect the interest of minor children of disputing parents and provide timely relief in their claim for maintenance. A child who is not maintained by the natural guardian is a "neglected child" under the Children Laws and the Children Law Authorities ought to have some role to play in Matrimonial Cases in the Family Courts to see to it that Children are provided with immediate maintenance from the natural guardian through the intervention of the Court.

 

Family Court Procedures

 

The Family Courts seem to be preoccupied hearing the contentions of the disputing parents and counseling them. This is primarily because our present day Matrimonial Laws are parent oriented. When a Petition is made for maintenance to wife and children under the Hindu Adoption and Maintenance Act of 1956, the Family Courts are usually seen measuring Ss. 18 and 20 with the same yardstick, mixing up the two Sections and arriving at a messy delay in giving maintenance to the minor children. The Family Courts seem to miss out the point that a Hindu minor child under S. 20 of The Hindu Adoption and Maintenance Act, 1956, never forfeits his claim to maintenance under any circumstances, unlike a Hindu wife who could forfeit her claim to maintenance if the conditions laid down under S. 18(2) of the said Act are not fulfilled. Therefore, any delay in providing maintenance to the minor children under S.20 by the Family Court is unjustified because in the case of minor children the Court has only to ascertain the financial status of the natural guardian and pass an appropriate Order of maintenance immediately. The Family Courts need not needlessly wait to ascertain the eligibility for maintenance of the wife under S.18(2) of The Hindu Adoption and Maintenance Act, 1956 or experiment with the chance for settlement between the parents under S.9 of the Family Courts Act, 1984, before passing an Order for maintenance in favour of minor children. But, unfortunately the Family Courts are not doing this and concentrating on the dispute between the parents, thereby sidelining the maintenance claim of the child. In this context I would like to invite attention to Family Courts Act, 1984, Chapter IV, Procedure, Section 9, which provides for the duty of Family Court to make efforts for settlement of suit or proceedings. S.9 has contributed much towards the delay in payment of maintenance to the minor children. Under S. 9 it is provided that endeavor shall be made by the Family Court in the first instance to assist and persuade the parties in arriving at a settlement in respect of the subject matter of the suit or proceedings. Moreover, if there is any chance for settlement between the parties the proceedings may be adjourned for such period as the Family Court may think fit to enable attempts to be made to effect such settlement. In the light of Section 9 adjournments have become a rule in Family Courts and minor children are left back home without any maintenance Order being pronounced by the Court for years. Maintenance to minor children should always precede any effort towards settlement by the Family Court under S. 9 because a Family dispute is not a product of the child's making or fault. The delay caused by the Family Courts in providing timely maintenance to minor children for meeting their genuine day-to-day needs is a punishment to them on top of the psychological trauma that they are experiencing due to the irresponsible attitude of their disputing parents.

 

The procedure under S. 9 holds good for the issueless couples and not for couples who have minor children. As these two situations are totally different, their treatment under the procedural law should also be naturally different for all practical purposes. Therefore, in the case of parents in dispute who have minor children, the Family Court should in the first instance bother and concern itself about the welfare and management of the needs of the children and only after having made provisions for their maintenance, education, etc., from the natural guardian should the Family Court proceed further with its efforts to settle the matter under Section 9 of the Family Courts Act, 1984. The present practice being adopted by the Family courts is to club together and drag along the maintenance claims for minor children with that of the parent petitioner (in majority of cases the Mother) for years in the light of its discretionary powers conferred under Section 9 of the Family Courts Act, 1984, without making any Orders regarding maintenance to the minor child. This practice is totally against the welfare of the children and must be stopped immediately.

 

Further, since there is no mandatory provision in the Family Courts Act & Rules to monitor the welfare of the children during lis pendence, hardly any effort is made by the Family Courts to ascertain periodically or even once in a year the living conditions of the children back home, their maintenance, health, psychological status, education, etc., when actually this should be a rule in all cases where minor children are involved in Family disputes. In a case, personally known to this Author, where no maintenance has been ordered for nearly two years now to two minor children, a Family Court has not even once bothered to enquire as to how these children are living back home without any maintenance all these months. The very same Family Court has kept attached the property and frozen the bank accounts of the defendant father (natural guardian) for the said period, but still has failed to give any maintenance to the children. The Family Court could have easily obtained a bank statement and released the maintenance amount to the children from the bank deposits frozen by it. Such cases are against the very spirit of Child Welfare and the Constitutional objectives.

 

Remedial Measures:

 

The Family Courts Act, 1984, needs to be amended to take care of the following:

 

a) The claims for maintenance of the parent petitioner and the minor child should not be clubbed together and must be split-up and dealt with separately by the Family Courts with the assistance of the State Child Welfare Board. This will ensure that a minor child starts getting its legally entitled maintenance quickly from the natural guardian irrespective of the procedural status of the case between the parents.

 

b) The Family Courts should be empowered to entrust the maintenance case of the child to the State Child Welfare Board. The maintenance amount to the child should be channelised through the Board. For this purpose every Family Court should have a pleader from the State Child Welfare Board to represent the child in its maintenance claim.

 

c) The Counselling procedure laid down under the Family Courts (Kerala) Rules, 1989 needs to be made more children friendly and family neutral instead of being parent focused. There should be periodical visits by the Counsellor to the children at their home and counseling sessions should be conducted for children by a Counsellor who has specialized in child psychology and child welfare to ascertain and understand their social, economic and mental needs and recommend reliefs to the Family Courts on their behalf. These facilities should be extended to the children right from the first instance of the suit or proceedings. Where the children are school going the Counsellor should visit the school and ascertain from the teachers about the academic performance of the child and its fee and other requirements and report to the Court for any appropriate Orders. These provisions should be made compulsory.

 

d) The assistance of the State Child Welfare Board under the Children Laws should be made available to the Family Courts wherever required because the authorities under the Children Laws are better equipped to understand the needs of children.

 

e) Maintenance from the natural guardian to minor children should be ordered within 60 days from the date of the first hearing of the suit or proceedings in the Family court after making inquiries into the circumstances of the natural guardian with the assistance of the State Child Welfare Board. Section 9 of the Family Courts Act, 1984, should be amended in such a way that it does not stand as a hindrance to maintenance to minor children.

 

Conclusion

 

The State has a responsibility for the welfare of these neglected minor children and the Family Courts should exercise their parent patriae jurisdiction judiciously, sharing in the sovereign power of the State.