HIRE PURCHASE ACT, 1972 -- R.I.P.

(By V.K. Babu Prakash, Judicial Magistrate of I Class, Kollam)

In one of my articles published in 2003 (3) KLT page 17 (Journal) captioned ‘Hire Purchase Act, 1972 - An Act suffered death after birth’, in which I lamented that though Parliament had enacted Hire Purchase Act, 1972, a self contained and self sufficient enactment to meet the menace perpetrated by Hire Purchase Agreements and allied activities, it never has come into operation as the Ministry of Justice and Law from time to time extended its period of operation. Thus the Act was just like an Act put into suspended animation as to neither dead or alive. At last now, the victim Act is saved from the tentacles of its ill fate. Parliament passed the latest Hire Purchase Act (Repeal) 2005 (Act 31 of 2005) which got the assent of the Indian President on 23.6.2005 thereby the Hire Purchase Act, 1972 is repealed for ever. Thus the pristine Hire Purchase Act, 1972 shall R.I.P. with no more hopes for resurrection. 

Some Thoughts on Hindu Succession Act

(By K.G. Balasubramanian, Advocate, Ernakulam)

1. Everyone takes pride in being legitimate. But, does law confer legitimacy on all? The sad plight of a Hindu who was labelled "illegitimate" and hence not entitled to succeed to his father's estate attracted my attention.

2. Vide Section 3(1)(f) Hindu Succession Act (HSA), heir means any person, male or female. who is entitled to succeed to the property of an intestate under the Act. One has to look to other provisions of the Act to ascertain who is so entitled. We find such entitlement as per Sections 8, 15 and 17. Section 8 speaks of "— heirs, being the relatives - ", which takes us to Section 3(1)(j), where we find that related means related by legitimate kinship, provided that illegitimate children shall be deemed to be related to their mother... accordingly. Considering the definition of agnate, cognate, full blood etc., the definition of 'heir' appears clumsy, or, to say the least, slipshod.

3. Let us take the following case: A marries B and has, say children, C₁, C₂. During the subsistence of that marriage, A marries C in whom he sirs 2 children - C₃ & C₄. By virtue of Section 16 Hindu Marriage Act (HMA) read with Section 3(1)(e) HSA, the two become halfblooded relatives. Only because C was fortunate to be a wife and not a mistress. But for the void marriage between A and C, C₃ & C₄ would have been illegitimate. A void marriage is no marriage in the eye of law. Section 16 HMA confers a right on the illegitimate, but not on his unfortunate mother. The second wife's status is only that of a mistress or concubine. Is it not odd that children born in a void marriage can succeed to the property of their father, but not children born in an extramarital union? Legally, is there any difference between them? More piquant, when we consider the case of an unfortunate illegitimate whose father acknowledged his/her paternity during his lifetime.

4. We may gainfully refer to explanation to Section 2(1) Hindu Adoptions & Maintenance Act, Section 2(1) Hindu Minority & Guardianship Act, Section 2(1) HSA and Section 2(1) HMA. Hindu Adoption & Maintenance Act entitles illegitimates to maintenance from his/her parents and their estate. These provisions categorically establish that illegitimacy is accepted by the Parliament. Interpretation clauses in these enactments open with the words 'In this Act, unless the context otherwise requires'. Section 26 Special Marriages Act (SMA) is similar to Section 16 HMA. Curious, that one hand of law recognises illegitimacy, while the other does not. Does law create two classes of illegitimate Hindu children? One who can claim legitimacy because of Section 16 HMA or Section 26 SMA and the other who cannot?

5. Rule 2(k) Kerala Motor Vehicles Rules, 1989 defines legal representative to mean a person, who in law, is entitled to inherit the estate of the deceased if he had left any estate at the time of his death and also includes "any" legal heir of the deceased. The first part of the definition contemplates personal law of the deceased. Can that be said about the "any" legal heir? When HSA attempts to distinguish "legitimate” from "illegitimate” by incorporating Section 3(1)(j), the motor vehicle man does not accept that. Otherwise, why did he stray from personal, law and include "any"? Rule 2(k) cannot be said to be contrary to Section 4 HSA for various reasons.

6. Sections 24 to 27 HSA deal with disqualification to inherit. Section 28 HSA provides that "No person shall be disqualified on the ground of any disease, defect or deformity or save as provided in this Act, on any other ground whatsoever. Illegitimacy does not bar succession to the estate of a Hindu female, because of the proviso to Section 3(1)(j) read with Section 15 HSA. HSA does not expressly exclude illegitimate children from succession to the estate of a Hindu male, except may be by Section 3(1)(j). Illegitimacy cannot be "any other ground" within the meaning of Section 28 HSA. Section 3(1)(j) cannot be used as an aid to include the word “illegitimacy” in Section 28. If Parliament had felt that illegitimacy should be a disqualification, that would have definitely found a specific place in HSA. The Parliament did not think it necessary to amend HSA while amending Section 16 HMA. The omission appears to be deliberate. Section 16 HMA (as amended) trespasses upon Sections 3(1)(e) & (j) HSA and nullifies its effect/intend.

7. So, why cannot an illegitimate Hindu child be entitled to the estate of his father? The lack of clarity in HSA in the matter will continue to hound many an illegitimate person. Section 3(1)(j) is contradictory to Section 28 HSA and Section 16 HMA. Right of succession to father's estate is indeed conferred on illegitimate children. But for the indiscreet union of a man and woman, illegitimacy will not arise. The illegitimate has no say in the matter. Illegitimacy should be frowned upon not because of illegitimacy, but because of the need for moral purity of society. Both parents should be liable for their indiscretion. Not the mother alone (Of course, after her death). Looking from another angle, does not the exception made in the case of a male have the effect of whetting his libido with wild abandon? If illegitimacy was to be a bar to succession to father's estate, the relevant provisions should have been more precise. To be tolerant, has not Section 3(1)(j) become obsolete and superseded? Does not modern medical science provides safeguards against false claims?

8. I understand that Sections 6 and 30 HSA are about to be amended and Section 23 is about to be omitted, vide Hindu Succession (Amendment) Bill, 2004 with the object of conferring equality on females. Hindu law recognised coparceners because they were obliged and entitled to offer pinda. This was the male's prerogative and not of the female. Will the Parliament make that obligatory to females? In Kerala, the position was drastically altered in 1976. Hence, the proposed amendment to HSA may not have any real impact.

9. Section 24 excludes certain widows who have remarried and their heirs from succession. A widower does not appear to be so deprived. Take this instance: W, a woman marries Man I. She marries Man II in violation of Section 5(i) HMA. On her death, Man I and Man II are alive. As between them, who can claim her estate u/S.15 HSA? Both? Can you rope in Section 3(1)(j) here and say that Man II is not entitled? Is not the situation incompatible with Section 10 Rule 1 HSA, which provides for 1 share to all widows together? When a man marries in contravention of Section 5(1) HMA, the second wife (?) cannot succeed to his estate on his death. Definitely this is discriminatory, as it violates equality of gender, though of a deceased. Do not Sections 3(1)(j) and 24 HSA violate Article 14? (Quaere). The proposed amendment to Sections 6 and 30 might be in the direction of Article 44, but not in its spirit.

10. Could the Parliament think of doing this to all of "WE, THE PEOPLE OF INDIA"?

I mean, like waking up Article 44, to make it vibrant, having been a Rip Wan Winkle all these decades! May be, it is a beginning. Or, is it a political charade?

Tailpiece:Overkill is by Section 29 HSA. Suppose a Hindu male dies without leaving behind any legal heir as per Section 8, but only illegitimate issues and a wife in a void marriage. Can they be deprived of his estate by applying Sections 3(1)(j) and 29?

Ideas Cannot be Chained

(By K. Ramakumar, Sr. Advocate, High Court of Kerala)

Close on the heels of Shreya Singhal (2015(2) KLT 1 (SC)) the High Court of Kerala has rendered a bold judgment (Shyam Balakrishnan v. State of Kerala - 2015 (2) KLT 927)  in sync with the psyche of lovers of liberty by declaring that merely subscribing to what is generally known as Maoist doctrine is not objectionable and cannot warrant curbing of freedom by the State executive. The State was also ordered to pay compensation to the victim who was harassed solely for entertaining what the police call Maoist ideas.

The Hon’ble Mr. Justice Muhamed Mustaque who made the judgment had indeed sent a signal that freedom of expression, freedom of thought, freedom of belief, freedom to have a conscience, etc are part of the natural and integral right of an Indian citizen and are not negotiable. Just as an Indian citizen can canvass for a capitalist society where the rich exploits the poor, other citizens are free to impress upon the people that there is exploitation all round by the rich and powerful of the less fortunate Indians, particularly the Adivasis of Andhra Pradesh, Bastar, Chhattisgarh, Jharkhand and Odyssa. What is the sin they have committed ?

To exhort the exploited Adivasis to voice their protest against multi-nationals like Vedanta, Posco etc robbing Adivasis of their land and rich mineral resources in that area ? Can you call it a sin even if it is often combative ? Is it a sacrilege to sound sceptical that the affluent and influential enjoy undue advantages in all institutions of power including those where they should not count ? It is not only not a sin but only amounts to raising the voice of the under privileged, the oppressed and the suppressed. Look at our own Adivasis in Attapadi and Wayanad. Monies earmarked for their welfare are drained out and siphoned off by unscrupulous officials, unmindful of the miseries of the people for whom those benevolent programmes are evolved. Though they have started raising their torpid voice, it is silenced and stifled. Any wonder why selfless people who are not interested even in contesting a Municipal election for self aggrandizement by corruption unlimited come forward to help them sacrificing their entire life throwing themselves in the cauldron of torment, torture and trauma. Remember they include highly qualified IT Personnel, brilliant Engineers, Doctors and technocrats. Noted journalists and writers like Ms Arundathi Roy also lend their voices which are listened to by the people of the country. Are they not preferable and far more patriotic than those who hanker after power by forming cliques, coteries, caucuses and the like around centers of power survive by shameless sycophancy even in noble professions and corner unethical and unmerited favours subverting systems from within.

Is it a sin in this country to side oneself with a hapless section of the society who even after the independence has not attained any opportunity to live as dignified Indians ? Doctors like Venketesh Rao who used to supply free medicines to them were shot down, their hands tied behind. Dr. Mehmood Nayyar Azam who chose to share his life with the unfortunate Adivasis in Chhattisgarh, was harassed and humiliated and had to approach the Apex Court, which allowed him a compensation of `5 lakhs from the Chhattisgarh Government(See Mehmood Nayyar Azam v. State of Chhattisgarh (2012 (3) KLT Suppl. 41 (SC) =(2012) 8 SCC 1)).

How then helping the poor, the downtrodden and the marginalized section of the society becomes objectionable, culpable or illegal ? Not in a country where an ordinary washer-man had the right to criticize the Rajapatni and it was the Rajapatni who had to subject herself to the Agnipariksha. Not in a country in which the Upanishads and the Geetha proclaim the right to freedom of expression, right to criticize and the right to be heard.

No doubt one cannot agree with the protagonists of violence or exterminating the “enemies” or what in their terminology is called ‘action’. Violence is no answer to injustice, particularly in the country of the Buddha, the Ashoka, the Mahaveer and the Gandhi.

The propagation of ideas of equal rights to the Adivasis, stopping the unscrupulous exploitation indulged in by those in power, the fight against multi nationals fleecing the rich resources of the forest with an eye on huge profits, the clamour for protecting the culture of those who live in the lap of nature cannot any longer be even imagined as objectionable as much as Prime Ministers proclaiming the identity of Naga culture and the need to preserve and protect it, do no wrong, which anti-nationals and traitorous elements fully exploit.

The High Court of Kerala therefore, deserves a hearty accolade and respectful commendation.

On Proposed Labour Reforms

(By Thampan Thomas, Vice President of SARTUC, Advisor of ILO,
Former Member of Parliament, Former President of HMS and a Practicing Lawyer)

In the background of ‘Make in India’ declaration by the Prime Minister a plethora of Labour Law Reforms is mooted out by the Ministry of Labour, Union of India. They are the Labour Code on Industrial Relations Bill 2015, Labour Code on Wages 2015, New Factories Act and Apprenticeship Act, Small Factories (Regulation of Employment of Service Bill) and for exemption from furnishing Returns. These are brought for the purpose of consolidation of laws relating to Labour and for expediency. The Industrial Relations Code consolidates Trade Union Act 1926; Standing Order Act 1946 and Industrial Dispute Act 1947; The Wage Code consolidate; Minimum Wages Act, Payment of Wages Act, Payment of Bonus Act and Equal Remuneration Act. A new Apprenticeship Act and Factories Act and a Bill regulating the employment and conditions of service bill and for exemption from filing returns for small establishment are now under the consideration of Standing Labour Committee.

The Labour Laws are in the concurrent list of the Constitution of India. Both State and Central can legislate the matter relating to Labour. But it shall not contradict the Central Act. There are about 44 central enactments and 150 State Laws concerning Labour. Recently Rajasthan Government brought out a retrograded Labour Law legislation taking away many of the Labour rights and giving facility for the employer to have a free hand. Prime Minister’s Office issued copies of these Laws to all other States so as to bring similar enactments.

The jurisprudence of Indian Labour Laws are ILO Conventions, International Covenants, Constitutional Guarantees, Supreme Court decisions, Recommendation of 1st and 2nd National Commission on Labour and Resolutions of Indian Labour Conferences. ILO Conventions 87 and 98 are Core Conventions which guarantees freedom of association and collective bargaining. India being a founder member of ILO is bound to implement these Conventions. Article 19 of the Constitution of India provides the freedom of association and Industrial Dispute Act read with Trade Union Act, provide collective bargaining including right to strike. Right to strike is a statutory right. The Supreme Court has upheld this right except in an exceptional case Rankarajan v. State of Tamil Nadu. Worker being an exploited class – all the Labour Laws are considered to be Welfare Laws. The workers in India were agitating in not implementing all the laws and are also complaining about the lack of enforcement machinery of Labour Law. Two National Commissions were formed. Justice Gajendra Gadkar, the 1st National Commission and Shri. G.Ravindra Varma, 2nd National Commission gave their recommendations to frame Labour Laws. Justice Gajendra Gadkar emphasized legislative process to protect the rights at work. Shri. G. Ravindra Varma recommended social security and safety measures and the right of unorganized sector workers. The Indian Labour Conferences, a tripartite since from 1942, which is known as Workers Parliament discussed the Labour issues and made their recommendations.

In India there are about 480 million work force. Out of which only 10% are organized in trade unions. Unemployment can only be addressed by Employment generation. The jobs which are created are to be decent job and the rights at work are to be respected. The millennium goal Decent Work Agenda and Global Job Pact was accepted by G-20 Countries including India. The declared policy of United Nations as a millennium goal is decent work agenda. While in this background the workers demanding a frame work of Industrial Relations Law. But the Government of India proposes an Industrial Relations Law which is akin to development and ‘Make in India’. A mere GDP growth will not improve the conditions of workers and common man – unbridled exploitation will further deteriorate and will further distance the society and worker will be subjected to exploitation. On account of advancement of Science & Technology a structural change has taken place in production methods. Workers having legal rights were thrown out to informal sector. Machines and tools, Robot and Technology replaced workers. Capital became predominant and practically capital captured the world of production marginalizing the workers. Profit and concentration of wealth in few hands and impoverishment of worker, distancing the society as 1% the richest and 99% becoming poor is the order of the day.

The proposed Industrial Relation Code is not providing a mandatory clause for recognition of trade union by the employer. Collective Bargaining is the essence of Industrial Relation. Absence of a trade union enables employer to enter into individual agreement with the worker. This is against public policy. Formation of trade union also has become difficult. 10% or 100 persons have to apply for registration of a trade union. Outside leadership is prohibited in organized sector. Even retired employees of the same concern cannot become Office bearers. Only in unorganized sector two persons from outside are permitted to become office bearers under new Law. The Government is given arbitrary powers including penal actions against the official of the trade union and cancellation of registration. The strike is the last resort of workers to get their grievances settled. If the workers are not in a position to adopt the course of strike the management will have no obligation to settle any dispute. There can never be a legal strike according to the proposed code. Ordinary establishment also are brought in the purview of essential services. Demonstration, ‘Gherao’, Go Slow are made punishable. Infact right of strike is a fundamental right and it is accepted internationally by the International Court of Justice, International Labour Organisation etc. No employer will part with his gain unless there is a threat to his profit. Strike and notice of strike have been ever since the real tool for arriving at a proper settlement. For adjudication and arbitration workers being a weaker section, outsider's help is required. The legal practitioners are prohibited in various proceedings. The trade union capacity building is minimal. Hence adjudication and arbitration will become ineffective and will be one sided in favour of employer. The draconian provisions contained in the Law relating to confidentiality and punishment, right of dismissal etc are hindrance for collective bargaining. The employer is given powers to close down the factory without permission of Government in respect of establishment having less than 300 employees. The powers given to enter into agreement with individual worker in the matter of compensation and other rights are an encroachment in the right of collective bargaining. The denial of issue of documents and giving details of proceedings is a violation of right to information under the R.T.I. Act and as well as against the principles of transparency. The exorbitant amount of fine which can be imposed on the worker and trade union is intended to deny the legal rights of the workers. This will create imbalance between stake holders. The definition given to various terms in the proposed Industrial Relation Code are obnoxious. The worker should include everybody other than a person having power to appoint and dismiss as laid down in Bangalore Water Supply case. The proposed law exempts Executives or Administrators or Supervisors out of category of worker. In the present mode of computerization and invisible employer and corporate capitalism there can be no distinction between a worker and an Executive. The definition given to strike that it includes casual leave of 50 % absence is nothing but a mockery. The role of trade union is completely nullified and the employer is given the right to hire and fire. It also brings the master and servant relationship and Government is becoming a facilitator for the employer. This is nothing but the introduction of a new bonded labour system in the new era of corporatism which is the product of globalization and 3rd Industrial Revolution.

The proposed Codification of Laws relating to wages is intended to give free hand to the employer to decide wages for a worker. There is no minimum wages decided by Central Government. Employer is not liable to pay any minimum wage and minimum hours of work. The wages are not in any way co-related to production cost. Less than 10% of production cost is the labour cost at present. The person may be compelled to work 131/2 hours a day and his wages will be fixed hourly. Overtime is increased from 75 hours to 125 hours in a quarter. This will reduce employment opportunities. Women are compelled to work in night shifts. This is infact a violation of ILO Convention from Minimum Wages, Minimum Hours of Work etc. Article 39 and 43 of the Constitution of India in the Directive Principles for a Living Wage and not to permit concentration of wealth and give better facility to the workers are given a go-by. The repeal of Equal Remuneration Act in Wage Code without any provision to pay equal wages for equal work violates Article 14 of Constitution of India which prohibits discrimination. Bonus is a deferred wage. Taking away the concept of bonus as deferred wage and putting it out of collective bargaining and giving unquestionable acceptance of balance sheet will lead to manipulation of accounts and accumulation of wealth. Wages are right of the workers and if an employer can escape without paying the wages after getting the work done and if there is no machinery to check such practices, the Labour Law will become nothing but a license for the employer for abject exploitation. The Government themselves take the position of facilitator rather than an umpire machinery to protect the legitimate interest of the workers.

The Amendments now effected in the Factories Act endanger security and safety. The machinery provided for lapses of security are now restricted. The safety of not only the worker but also the people around has to be a concern for the Government in the new methods of production. This was the lesson from Bhopal Tragedy. Any material which may affect human life or destroy environment has to be restricted. Occupational safety and health is a human right. The present Factories Act is having sufficient safe guards to protect the interest of workers and public at large. The machinery provided for inspection and implementation of legal provisions is capable to see that Industrial accidents and colossal disaster for the mankind is not taking place at the hands of profit motivated employer. But now the Government is giving a free hand to any employer to come forward and exploit human being, nature and employment. This is a disaster to the humanity. Enhancing the number from 10 to 20 and 20 to 40 from the obligation of implementation of Factories Act and the restricted inspections to be carried out by the Inspectors is giving full freedom for exploitation without any checking.

The proposed amendment to Apprenticeship Act gives opportunity to an entrepreneur to appoint student or anybody for years together and get production done using them. The present law prohibits appointment of apprentices beyond a limit and not to use them as workers. Now by the amendment the employer can use apprentices as a worker and continues to use them. This will generate vulnerable and precarious jobs. In an economy where large number of people are jobless and look for a job will accept the apprenticeship and continue to work under the employer for meagre wages. No doubt training is necessary. But in the name of training poor persons shall not be used as apprentices in the place of workers.

The Exemption of Small Factories Establishment from filing returns and giving opportunity for self certification can also be misused widely. The provision enabling Small Factories employing less than 40 employees from the purview of 14 labour legislation will enable them to carry on their business without any obligation under law. Now on account of the development of science with small number of people big factories taking much higher production can operate. 70% of the factories in India will be out of any statutory obligations on enacting a law of this nature. There is no consideration by any means, the quantum of produce, use of machinery while the Government is exempting all the establishment having below 40 persons employed. It is possible at present even in a larger factory to divide to separate units to employees less than 40 persons. The major duty of a production centre will be of assembling whereas production will take place in different factories with less than 40 employees. These establishments are also exempted from all inspections which mean there will be no need of accountability of such establishment. Naturally contractual employment, driving of formal to informal sector, concentration of wealth and impoverishment of common man will be the result of proposed Labour Law Reforms. 

Banking Law:  Classification of Accounts of Borrowers as Non

Performing Assets — Relevance of the Judgment of Supreme Court in
Keshavlal  Khemchand  and  Sons  Pvt. Ltd v.  Union  of  India & Others
(2015 (2) KLT 577 (SC)

(By Syamjith P., Ph.d Scholar (Part-time) Dr. Ambedkar Law University, Chennai)

Recently, the classification of the account of the borrowers as ‘NPA’ by Banks under the SARFAESI Act has been taken up as an issue of dispute between the Bank and the borrowers in various Courts/Judicial Forums. Several rounds of litigation has happened on this issue at various courts across the country. Ultimately, now the Hon’ble Supreme Court of India settled this issue in its latest judgment delivered on 28th January, 2015 in Keshavlal Khemchand and Sons Pvt. Ltd v. Union of India & Ors. (2015 (2) KLT 577 (SC), by upholding the constitutional validity of the amended definition of the expression ‘NPA’ under Section 2(1)(o) of the SARFAESI Act.

The original definition of N.P.A. as given under the provisions of the SARFAESI Act, 2002 and the amended definition of N.P.A. after the amendment Act passed in 2004, which is now under challenge are given below for better understanding of the issue:-

Definition of N.P.A. as under SARFAESI Act, 2002                    

Section 2(1)(o) -“non-performing asset” means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset in accordance with the directions or under guidelines relating to assets classifications issued by the Reserve Bank.

Definition of NPA after SARFAESI Amendment Act, 2004

Section 2(1)(o) -“non-performing asset” means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard, doubtful or loss asset -

(a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body;

(b) in any other case, in accordance with the (directions or guidelines relating to assets classifications issued by the Reserve Bank.

While challenging the constitutionality of the amended definition of the expression ‘NPA’ under Section 2(1)(o) of the SARFAESI Act, the borrowers raised inter alia the following contentions before the Hon’ble Supreme Court of India:-

1. The Parliament abdicated its essential legislative function by authorising the various bodies to frame guidelines in accordance with which the account of the borrower could be classified as NPA.

2. The amended definition of NPA enables different Creditors to adopt different guidelines which prescribe different standards for arriving at a conclusion that the account of a borrower is NPA.

3. The SARFAESI Act does not provide for a reasonable opportunity to demonstrate that the classification of the borrower’s account as NPA is untenable, the power to make such a classification itself becomes arbitrary and violative of Article 14 of the Constitution.

In responding to these contentions, the Union of India, R.B.I. and Bankers have taken the following stand before the Hon’ble Supreme Court of India:-

1. Since the assessment of an account of borrower as N.P.A. depends upon innumerable factors which constantly keep changing, Parliament thought it fit to stipulate that the assessment be made in the light of the guidelines made by either the R.B.I. or various other Regulators regulating the activities of various creditors. Hence, there is no delegation of any essential legislative functions.

2. The classification of N.P.A. on the basis of the guidelines framed by different bodies regulating the different creditors is a constitutionally permissible classification having regard to the nature of the different credit facilities extended by various creditors to different categories of borrowers and on different terms and conditions.

In this connection, the Gujarat High Court held that the amended definition of the expression “N.P.A.” creates two classes of borrowers. While, one class of borrowers are governed by the guidelines issued by the Reserve Bank of India, the other class of borrowers are governed by the guidelines issued by different authorities. Based on these findings, the Hon’ble High Court concluded that the Parliament deviated from the original aims and objectives propounded by it and it would be considered as violative of Article 14 of the Constitution of India.

On the other hand the High Court of Madras rejected the submission of the petitioners that the impugned provision suffers from the vires of excessive delegation. The Hon’ble High Court took note of the fact that the R.B.I. in exercise of the statutory authority under Section 21 and Section 35A of the Banking Regulation Act, 1949 prescribes norms for the various aspect of banking specified under the Act. The Hon’ble High Court held that the Parliament, while defining a non-performing asset under Section 2(1)(o) of the Act, only adopted the norms prescribed from time to time by the Reserve Bank of India for the purpose of identifying the Non-Performing Asset.

During the course of arguments, the Reserve Bank of India submitted that prior to the amendments in 2004, N.P.A. was defined as sub-standard, doubtful or loss asset in accordance with the directions or under guidelines relating to assets classification issued by the Reserve Bank. Irrespective of whether the financial entity was regulated by R.B.I. or not, for the purposes of SARFAESI Act, the asset classification stipulated by R.B.I. was applicable. Though the regulator concerned of the financial entity had stipulated different standards for regulatory purposes, the entities had to apply the criteria stipulated by R.B.I. for asset classification so far as SARFAESI Act was concerned. The amendment brought in 2004, addresses this issue and brings in uniformity in the classification of assets by financial entities, both for the purposes of complying with the directions issued by their own regulations and for the purposes of SARFAESI Act. Thus, the amendment in 2004, ruled out a situation where an asset is not an N.P.A. as per the specifications of the regulator but the same asset is an N.P.A. for the purposes of SARFAESI Act or vice versa.

The Department of Financial Services, Ministry of Finance also submitted before the Hon’ble Court that the amendments were made in 2004 to ensure that the guidelines issued by the concerned regulator are covered for the purpose of recovery under the SARFAESI Act. It is further submitted that there are financial institutions such as Housing Finance Corporations, which are regulated by National Housing Bank. The non-performing assets of these institutions are classified as per the guidelines prescribed by National Housing Bank. The amendment covered the entities regulated by different regulators such as R.B.I., National Housing Bank, Asian Development Bank. Therefore, the amendments were necessary to cover the deficiencies noticed in the SARFAESI Act.

Taking into account of the arguments extended on behalf of R.B.I., Ministry of Finance and the Bankers, the Hon’ble Supreme Court of India held that the allegations of the borrowers that the SARFAESI Act does not provide for a reasonable opportunity to demonstrate that the classification of the borrower’s account as N.P.A. fail on the express language of Section 13(3A), which obligates the Secured Creditors (Banks) to examine the representation/objection made by the borrower and communicate the reasons for non-acceptance of the representation or objections to the borrowers. In view of the aforesaid observations, the Hon’ble Supreme Court upheld that the amended definition of the expression “N.P.A.” under Section 2(1)(o) of the Act as constitutionally valid. Accordingly, the Hon’ble Supreme Court allowed the appeals filed by the Creditors/Banks and also directed each petitioner/borrower to pay costs to the respective Creditors/Banks calculated at 1% of the amount outstanding on the date of notice under Section 13(2) of the Act in each of the cases.

This judgment is relevant in the context of growing Non-Performing Assets (NPA) of the Bank’s/FI’s vis-a-vis delay in disposal of cases due to the non-adjudication of various legal issues including the classification of Non-Performing Assets. This will definitely facilitate in early disposal of many cases pertaining to the recovery of dues of the Banks. This will ease the pressure faced by Banks in tackling the declining quality of assets. However, this will not deprive the genuine borrowers as the redressal mechanism as envisaged under Section 3(3A) of the SARFAESI Act will act as a protective mechanism to prevent any misuse in classification of account as N.P.A. This poses larger responsibility on the Bankers to be fair & transparent in following the correct process & procedures for classifying the account and also giving due credits to all payments made by the borrower and guarantors. The Banks/FI’s must doubly ensure that they are following the guidelines of the R.B.I. in true spirit and sense.

This judgment also calls for more careful and cautious approach on the part of the Bank’s/FI’s in following the correct procedures in classification of account of the borrower’s and guarantor’s. This will not only avoid litigation but also give relief to the borrowers who are genuine in their repayment. This judgment will pave way for more resolution of N.P.A. accounts of Bank’s/FI’s and will improve the prospect of recovery of Non Performing Assets by Bank’s/FI’s. This will also create an environment conducive for the borrowers/guarantors to submit their objections/representations against the misuse of the provisions of the SARFAESI Act. The Authorised Officers who are discharging the quasi-judicial duties under the provisions of the SARFAESI Act shall also have responsibility to follow the principles of natural justice, while disposing the objections/representations under Section 13(3A) of the SARFAESI Act.