UNION OF INDIA AND ANR . v. DELHI HIGH COURT BAR ASSOCIATION AND ORS

Citation: [2002] 2 S.C.R. 450

Court: Supreme Court of India

Bench: B.N. KIRPAL, Y.K. SABHARWAL, K.G. BALAKRISHNAN

Judgment text

UNION OF INDIA AND ANR. .. v. DELHI HIGH COURT BAR ASSOCIATION AND ORS.. MARCH 14, 2002 - [B. N. KIRPAL, Y. K. SABHARWAL AND K. G. BALAKRISHAN, JJ. ] Debt Laws: Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (as amended): Section 19-Applications to the Tribunal-Pecuniary jurisdiction-Act vested jurisdiction in Tribunals in respect of recovery suit exceeding Rs. JO lakhs-Jn respect ofrecovery ofsuits for less than Rs.

JO lakhs, jurisdiction vested in ordinary civil courts and High Courts-Validity of-Held: Such pecuniary jurisdiction is no ground for holding the Act as invalid Section 22-Tribunal and Appellate Tribunal-Procedure andpowers- ~- Effect-Held: Establishment of a Banking Tribunal does not erode the independence ofjudiciary andjustice would not be denied to the defendants- Such tribunals are effective parts ofthe justice delivery system like courts of law-However, decision ofthe Appellate Tribunal is not final as the same is subject to judicial review by the High Court. Section 25 and 28-Validity of-Held: Recovery Officer has to attach and sell the immovable property in order to recover the debts-He has the power to appoint a Receiverfor protection andpreservation ofsuch immovable property--Hence, Ss. 25 and 28 are not arbitrary, unreasonable or without any guidelines.

Section 31-Transfer ofpending cases-From civil court to Tribunal- Validity of-Held: Jurisdiction ofcivil courts is barred by S. 18-Therefore, it is logical that matters pending in civil court should stand transferred to the T Tribunal. Debt Recovery Tribunal (Procedure) Rule, 1993 (as amended): Rule 12(6)-Particularsfact or facts-Proving of-By Affidavit-Validity U. 0. l. v. DELHI HIGH COURT BAR ASSOCIATION 45 l of-Held: No transaction with the Bank would be oral and without proper documentation-Hence, the Tribunal should be able to decide cases on the basis of documents and affidavits. Constitution of India, 1950: lists II and Ill ofSeventh Schedule-Matters not covered by-Power of Parliament to enact law relating thereto-Held: is absolute.

Articles 323-A and 323-B-Setting up of tribunals-Scope and ambit of-Held: These Articles do not prohibit the legislature from establishing tribunals not covered by them as long as there is legislative competence under ' ~ an appropriate entry in the Seventh Schedule. Entry 45 List I Seventh Schedule-Banking-Tribunal -Competence of Parliament to legislate in relation thereto-Held: The term "Banking" would mean legislation regarding all aspects of Banking including ancillary or subsidiary matters relating to Banking-Setting up of an ac{judicatory body like the Banking Tribunal clearly falls under Entry 45 List I. Banking Tribunal~Po1i•er ofParlian1ent to enact a law relating thereto-- Held: Is not taken away though the matter is not covered by Arts. 323-A or 323-B-The power conferred by Art. 246 (/)can be exercised notwithstanding the existence ofArts. 323-A or 323-B.

Words and Phrases: ""Banking"-Meaning of-In the context ofEntry 45 list I ofthe Seventh Schedule to the Constitution of India, 1950. The respondents tiled a writ petition before the High Court challenging the constitutional validity of the Recovery ofDebts Due to Banks and Financial Institutions Act, 1993 (as amended) on the ground that the Act is unreasonable and is violative of Article 14 of the Constitution and that the same was beyond the legislative competence of the Parliament. The High Court held that the Act was unconstitutional as it eroded the independence of the judiciary and was irrational, discriminatory, unreasonable, arbitrary and was hit by Article 14 of the Constitution. The High Court also held that the Act lowered the status of the High Court inasmuch as the Tribunal, which was presided over by an officer who did not have the status of a High Court Judge would be deciding the suits for recovery of money exceeding Rs. 10 lakhs. Hence this appeal.

Allowing the appeal, the Court _, ). HELD: 1. 1. The power of the Parliament to enact a law, which· is not covered by an Entry in List II and List III, is absolute. While Articles 323-A and 323-B specifically enable the legislature to enact laws for the establishment of tribunals, in relation to the matters specified therein, the power of the Parliament to enact a law constituting a Tribunal, like the Banking Tribunal, which is not covered by any of the matters specified in Article 323-A or 323- B, is not taken away. With regard to any of the entries specified in List I, the exclusive jurisdiction to make laws with respect to any of the matters enumerated in List I is with the Parliament. The power conferred by Article 246(1) can be exercised notwithstanding the existence ofArticle 323-A or 323- + ; "" of the Constitution. [460-C-D) Navinchandra Mafatla/ v. CIT. , [1955) 1 SCR 829 and Union ofIndia v. H. S. Dhillon, [1972) 2 SCR 33, relied on. Delhi High Court Bar Association v.

Union ofIndia, Am (1995) Del 323, reversed. United Province v. Atiqa Begum, (1940) FCR 110, cited. 4- 1. 2. Articles 323-A and 323-B are enabling provisions, which specifically enable the setting up of tribunals contemplated by the said Articles. These Articles, however, cannot be interpreted to mean that it prohibits the legislature from establishing tribunals not covered by these Articles, as long as there is legislative competence under an appropriate entry in the Seventh - Schedule. Articles 323-A and 323-B do not take away that legislati\'e ..... l.. __ competence. (460-E) D. K. Abdul Khader v. Union ofIndia, AIR: (2000) Kar 176, overruled. 2. Entry 45 of List I would cover the types of legislation now enacted. Entry 45 of List I relates to "Banking". Banking operations would, inter alia, include accepting ofloans and deposits, granting of loans and recovery of the debts due to the bank. There can be little doubt that under Entry 45 of List . ,.

I I, it is the Parliament, alone which . can enact a law with regard to the conduct ... of business by the banks. Recovery of dues is an essential function of any · banking institution. In exercise of its legislative power relating to banking, the Parliament can provide the mechanism by which monies due to the Banks and Financial Institutions can be recovered. The Tribunals have been set up U. O. l. v. DELHI HIGH COURT BAR ASSOCIATION 453 in regard to the debts due to the banks. The special machinery ofthe Tribuna~ . which has been constituted as per the preamble of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993" (as amended) would squarely fall within the amhit of Entry 45 of List I. As none of the items in the lists are to be read in a narrow or restricted sense, the term "Banking" in Entry 45 would mean legislation regarding all aspects of Banking including ancillary or subsidiary matters relating to Banking.

Setting up ofan adjudicatory body like the Banking Tribunal relating to transactions in which banks and financial institutions are concerned would clearly fall under Entry 45 of List I giving the Parliament specific power to legislate in relation thereto. , (460-H; 461-A-C) Delhi High Court Bar Association v. Union ofIndia, AIR (1995) Del 323, reversed. D. K Abdul Khader v. Union ofIndia. AIR (2001) Kar 176, overruled. 3. The very purpose of establishing the Tribunal being to expedite the disposal of the applications filed by the banks and financial institutions for . realisation of money, the Tribunal and the Appellate Tribunals are required to deal with the applications in an expeditious manner. It is precisely for this ·~- reason that Section 22(1) stipulates that the Tribunal and the Appellate Tribunal shall not be bound by the procedure laid down by the Code of Civil Procedure.

Therefore, even though the Tribunal can regulate its own procedure, the Act requires that any procedure laid down hy it must be guided by the principles of natural justice while, at the same time, it should not regard itself as being bound by the provisions of the Code of Civil Procedure. •' (466-Ff ~ I _,,• 4. When the High Court and the Supreme Court in exercise of their '-'~ jurisdiction under Article 226 and Article 32 can decide questions of fact as '• well as law merely on the basis of documents and affidavits filed before it ordinarily, there should be no reason as to why a Tribunal, likeWise, should not he able to decide the case merely on the basis ofdocuments and affidavits before it under Rule 12(6) of the Debt Recovery Tribunal (Procedure) Rules, 1993 (as amended). It is common knowledge that hardly any transaction with the Bank would be oral and without proper documentation, whether in the form of letters or formal agreements.

In such an event the bonafide need for the oral examination of a witness should rarely arise. There has to be a very good reason to hold that affidavits, in such a case, would not be sufficient. (471-A-Bf -:1 L 5. The manner in which a dispute is to be adjudicated upon is decided by the procedural law, which are enacted from time to time. It is because of "Q"- ~ )t_he enactment of the Code of Civil Procedure that normally all disputes between the parties of a civil nature would be adjudicated upon by the civil courts. There is no absolute right in anyone to demand that his dispute is to be adjudicated upon only by a civil court. The decision of the High Court proceeds on the assumption that there is such a right. It is by reason of the provisions of the Code of Civil Procedure that the civil court has the right, i prior to the enactment of the Debt Recovery Act, to decide the suits for :.. recovery filed by the banks and financial institutions.

This forum, namely, that of a civil court, now stands replaced by a banking tribunal in respect of • the debts due to the bank. When in the Constitution Articles 323-A and 323- ~ B contemplates establishment of a tribunal and that does not erode the independence ofthe judiciary, there is no reason to presume that the banking tribunals and the appellate tribunals so constituted would not be independent, ,... , or that justice would be denied to the defendants or that the independence of '---. , the judiciary would be eroded. [471-C-E] Delhi High Court Bar Association v. Union ofIndia, AIR (1995) Del 323, reversed. --\. 6. The tribunals, whether they pertain to ~ncome tax or Sales tax or ~ Excise and Customs or Administration, have now become an essential part of the judicial system in this country.

Such specialised institution may not strictly come within the concept of the judiciary, as envisaged by Article 50, but it cannot be presumed that such tribunals are not an effective part of the justice delivery system, like courts oflaw. Persons who are appointed Presidi_ng •. Officers of the Tribunal or of the Appellate Tribunal would be well versed in law to be able to decide cases independently and judiciously. The decision of -! - ·the Appellate Tribunal is not final, in the sense that the same can be subjected to judicial review by the High Court under Articles 226 and 227 of the Constitution. (472-C] f I 7. Section 31 of the Act is not in any way bad in law. Once Debt I Recovery Tribunal has been established, and the jurisdiction of civil court I barred by Section 18 of the Act, it would be only logical that any matter r pending in the civil court should stand transferred to the Tribunal. This is ,r,---... '.

~ what happened when the Central Administrative Tribunal was established. All cases pending in the High Courts stood transferred. Now that exclusive jurisdiction is vested in the Banking Tribunal, it is only in that forum that bank cases can be tried and, therefore, a provision like Section 31 was enacted. r-- U. 0. 1. v. DELHI HIGH COURT BAR ASSOCIATION 455 8. The Act has been enacted for the whole of India. In most of the States, the High Courts do not have original jurisdiction. In order to see that the Tribunal is not flooded with cases where the amounts involved are not very large, the Act provides that it is only where the recovery of the money is more than Rs. I0 lakbs that the Tribunal will have the jurisdiction to entertain the application under Section 19. With respect to suits for recovery of money less than Rs. 10 lakbs, it is the subordinate courts, which wouid continue to try them. In other words, for a claim ofRs.

10 lakhs or more, exclusive jurisdiction has been conferred on the tribunal but for any amount less than Rs. 10 lakhs, it is the ordinary civil courts, which will have jurisdiction. The bifurcation of ... original jurisdiction between the Delhi High Court and the subordinate Courts is a matter, which cannot have any bearing on the validity ofthe establishment of the Tribunal. It is only in those IDgh Courts which have original jurisdiction that an anomalous situation arises where suits for recovery of money less than Rs. 10 lakhs have to be decided by the High Courts while the tribunals have jurisdiction to decide suits for recovery of more than Rs. 10 lakhs. This incongruous situation, which can be remedied by the High Court divesting itself of the original jurisdiction in regard to such claims and vesting the said jurisdiction with the subordinate courts or vice versa, cannot be a ground for holding that the Act is invalid. [472-D-G) Delhi High Court Bar Association v.

Union ofIndia, AIR (1995) Del 323, reversed. 9. A perusal of Sections 25 and 28 of the Act cannot lead one to the conclusion that the same are arbitrary, unreasonable or without any guidelines. It is quite clear that in order to recover the debts, the recovery officer has to attach and sell the immovable property and that for protection and preservation of the same, he has the power to appoint a Receiver for the management thereof. [476-B) I0. In view of Section 29 of the Act it cannot be said that the recovery officer would act in an arbitrary manner. Furthermore, Section 30, after amendment by Amendment Act, 2000, gives a right to any person aggrieved by an order of the Recovery Officer to prefer an appeal to the Tribunal. Thus now an appellate forum has been provided against any orders of the Recovery Officer which may not be in accordance with law.

There is, therefore, sufficient safeguard which has been provided in the event of the Recovery,Officer acting in arbitrary or an unreasonable manner. The provisions of Sections 25 and 28 are, therefore, not bad in law. [476-C-E] I ~ I 11. The Act or any other provisions thereof is not in any way arbitrary or bad in law and is a valid piece of legislation. J. CIVIL APPELLATE JURISDICTION : Civil Appeal No. 4679 of 1995. I' I,- From the Judgment and Order dated 10. 3. 1995 of the Delhi High Court in C. W. P. No. 3050/94 and C. M. No. 5739/94 with C. W. P. No. 3277/94 & C. M. No. 6112 of 1994. r-· I WITH . ,__ I T. P. (C) Nos. 400, 406-409, 302-304, 321, 329, 335, 355, 356, 357, • 358, 813, 778/96, 659-667/95, C. A. Nos. 3951, 15334/96, 5394/97, 6227- 6243, 6245-6246/2000, W. P. (C) No. 37/2001, T. C. (C) No. 4/98 and C. A. Nos. 2098, 2094-20. 97, 2099-2145 of 2002. Harish N. Salve, Solicitor General, Mukul Rohtagi, Additional Solicitor General, and P. K. Goswami, Ms. Indra Sawhney, S.

Wasim A. Quadri, Hemant Sharma, Ms. Sushma Suri, S. N. Terdol, B. V. Balaram Das, Ms. Anil Katiyar, Dhruv Mehta, Ms. Shobha, Ms. Anu Mehta, S. K. Mehta, '~--- Ranjan Mukherjee, Ms. Radha Rangaswami (NP), Udya Gupta, Ms. Nina . ;· Gupta, Ms. Arpita Mahajan, Vineet Kumar, Ghanshyam Joshi, Krishnanand Pandeya (NP), Sanjay Kapur, Ms. Shubhra Kapur, Rakesh K. Sharma (NP), Arvind Kumar, Ms. Laxmi Arvind, Ms. Jaya Sinha, Sushi! Kumar Jain (NP), Harish J. Jhaveri (NP), K. M. K. Nair (NP), Ms. Shipra Ghose, Suresh C. Gupta, A. Guneswar Sharma, Sanjay Pal, Kamal Mohan Gupta, Janendra Lal (NP), M. K. Michael (NP), A. P. Medh (NP), Ms. Bharathi . f _. _ Reddy (NP), H. K. Puri, S. K. Puri, Ujjwal Banerjee, Ms. Anindita Gupta, ! - Ms. Sarla Chandra (NP), E. C. Agrawala (NP), Rathin Das (NP), Joseph Pookkatt, Prasenjit Keswani, Prashant Kumar, P. Venugopal, P. S. Sudheer, K. J. John, Ms. Bina Gupta (NP), A. V. Rangam, P. P. Singh (NP), G. S. Chaterjee, Raja Chatterjee, Dalip Kumar Malhotra (NP), Ms.

Mridula Ray L Bharadwaj (NP), Shrish Kumar Misra (NP), Chander Shekhar Ashri (NP), r- K. V. Sreekumar (NP), Vijay Hansaria, Sunil Jain, Prabirananda Chowdhary ~ A. Bhattacharya, Rajiv Mehta, Avijit Bhattacharjee, (NP) and S. K. Verma, . ,; ..... (NP) for the appearing parties. The Judgment of the Court was delivered by KIRPAL, J. Leave granted. The transfer petitions are allowed. f- The challenge to the constitutional validity of The Recovery of Debts -* Due to iynks and Financial Institutions Act, 1993 (hereinafter referred to as ' 'the Act') on the ground that the Act is unreasonable and is violative of Article 14 of the Constitution, and that the' same is beyond the legislative competence of the Parliament, arises for consideration in these cases. The banks and financial institutions had been experiencing considerable difficulties in recovering loans and enforcement of securities charged with them.

The procedure for recovery of debts due to the banks and financial institutions which was being followed had resulted in a significant portion of the funds being blocked. In order to remedy the locking up of huge funds, the Parliament enacted the said Act, which was preceded by an ordinance. .. The Act, inter alia, provides for the establishment of Tribunals and Appellate Tribunals. The Tribunals have been given the jurisdiction, powers and authority to entertain and decide applications from the banks and financial institutions for recovery of debts due to such banks and fmancial institutions, while the Appellate Tribunals have the jurisdiction, powers and authority to entertain appeals. The procedure which is required to be followed is provided and the Act also has provisions relating to the modes of recovery of debts for which Recovery Officers are to be appointed. ... ' The jurisdiction of the Tribunals is in respect of debts which are in excess of Rs. I0 lacs.

In other words, for disputes between the banks and the other parties it was the Civil Courts which have the jurisdiction to entertain the same if the claim was less than Rs. I0 lacs. According to Section 18 of the Act, no Court or other authority is entitled to exercise any jurisdiction, powers or authority in relation to matters in respect ofwhich such jurisdiction, powers and authority are vested with the Tribunal. Section 18, however, provides that the bar of other Courts and authorities to entertain such disputes shall not in any way oust the jurisdiction of this Court or of the High Courts in exercise oftheir jurisdiction under Articles 226 and 227 of the Constitution. The validity of the said Act was successfully challenged before the Delhi High Court. By it's decision reported in Delhi High Court Bar Association and Another vs. Union of India and Others, AIR 1995 Delhi 323, against which appeal No.

4679 of 1995 is filed, the High Court held that ~"" though Tribunal could be constituted by Parliament even though it was not within the purview of Articles 323A and 323B of the Constitution, and that the expression "administration of justice" as appearing in Entry I IA of List III of the Seventh Schedule to the Constitution would include Tribunals as well administering justice; the impugned Act was unconstitutional as it erodes the independence of the judiciary and was irrational, discriminatory, unreasonable, arbitrary and was hit by Article 14 of the Constitutio~ In this ;'"'judgment, it also quashed the appointment of a Presiding Officer of the Tribunal but that question no longer arises for consideration in these appeals.

In arriving at the aforesaid conclusion the Delhi High Court, inter alia, held as follows: (a) The act, in parti -- (ii) A notice under this sub-section may be issued to any person who holds or may subsequently hold any money for or on account of the defendant jointly with any other person and for the purposes of this ""' sub-se6tion, the shares of the joint holders in such amount shall be presumed, until the contrary is proved, to be equal. (iii) A copy of the notice shall be forwarded to the defendant at his last address known to the Recovery Officer and in the case of a joint account to all the joint holders at their last addresses known to the Recovery Officer. .. (iv) Save as otherwise provided in this sub-section, every person to .

(' whom a notice is issued under this sub-section shall be bound to comply with such notice, and, in particular, where any such notice is issued to a post office, bank, financial institution, or an insurer, it shall not be necessary for any pass book, deposit receipt, policy or any other document to be produced for the purpose of any entry, endorsement or the like to be made before the payment is made notwithstanding any rule, practice or requirement to the contrary. -~ (v) Any claim respecting any property in relation to which a notice under this sub-section has been issued arising after the date of the notice shall be void as against any demand contained in the notice.

(vi) Where a person to whom a notice under this sub-section is sent objects to it by a statement on oath that the sum demanded or the part thereof is not due to the defendant or that he does not hold any )l money for or on account of the defendant, then, nothing contained in this sub-section shall be deemed to require such person to pay any such sum or part thereof, as the case may be, but if it is discovered that such statement was false in any material particular, such person shall be personally liable to the Recovery Officer to the extent of his ) own liability to the defendant on the date of the notice, or to the extent of the defendant's liability for any sum due under this Act, whichever is less. (vii) The Recovery Officer may, at any time or from time to time, amend or revoke any notice under this sub-section or extend the time for making any payment in pursuance of such notice.

(viii) The Recovery Officer shall grant a receipt for any amount paid in compliance with a notice issued under this sub-section, and the person so paying shall be fully discharged from his liability to the defendant to the extent of the amount so paid. (ix) Any person discharging any liability to the defendant after the receipt of a notice under this sub-section shall be personally liable to the Recovery Officer to the extent ofhis own liability to the defendant so discharged or to the extent of the defendant's liability for any debt due under this Act, whichever is less.

(x) If the person to whom a notice under this sub-section is sent fails to make payment in pursuance thereof to the Recovery Officer, he shall be deemed to be a defendant in default in respect of the amount specified in the notice and further proceedings may be taken against him for the realisation of the amount as if it were a debt due from him, in the manner provided in sections 25, 26 and 27 and the notice shall have the same effect as an attachment of a debt by the Recovery Officer in exercise of his powers under section 25. (4) The Recovery Officer may apply to the court in whose custody there is money belonging to the defendant for payment to him of the entire amount of such money, or if it is more than the amount of debt due, an amount sufficient to discharge the amount of debt so due.

(4A) The Recovery Officer may, by order, at any stage ofthe execution of the certificate of recovery, require any person, and in case of company, any of its officers against whom or which the certificate of recovery is issued, to declare on affidavit the particulars of his or its assets. (5) The Recovery Officer may recover any amount of debt due from the defendant by distraint and sale of his movable property in the manner laid down in the Third Schedule to the Income-tax Act, 1961 . (43 of 1961). " While Section 25 provides for modes ofrecovery ofdebts either by attachment and sale or arrest or appointment of a receiver, Section 28 provides for modes of recovery in addition to the ones specified in Section 25. A perusal of the aforesaid provisions cannot lead one to the conclusion that the same are arbitrary, unreasonable or without any guidelines.

It is quite clear that in order to recover the debts, the recovery officer has to attach and sell the immovable property and that for protection and preservation of the same, he has the power to appoint a Receiver for the management thereof. By virtue of Section 29 of the Act, the provisions of the Second and Third Schedules to the Income-Tax Act, 1961 and the Income-Tax (Certificate Proceedings) Rules, 1962, have become applicable for the realisation of the dues by the Recovery Officer. Detailed procedure for recovery is contained in these schedules to the Income-Tax Act, including provisions relating to arrest and detention of the defaulter. It cannot, therefore, be said that the recovery officer would act in an arbitrary manner. Furthermore, Section 30, after amendment by the Amendment Act, 2000, gives a right to any person aggrieved by an order of the Recovery Officer, to prefer an appeal to the Tribunal.

Thus now an appellate forum has been provided against any orders of the Recovery Officer which may not be in accordance with law. There is, therefore, sufficient safeguard which has been provided in the event of the Recovery Officer acting in an arbitrary or an unreasonable manner. The provisions of Sections 25 and 28 are, therefore, not bad in law. For the aforesaid reasons, while allowing the appeals of the Union of India and the Banks, we hold that the Re<;:overy of Debts Due to Banks and Financial Institutions Act, 1993 is a valid piece of legislation. As a result thereof, the writ petitions or appeals filed by various parties challenging the validity of the said Act or some of the provisions thereof, are dismissed. It would ,b~ ? Prll to the parties to raise other contentions on the merits of their cases before the authority constituted under the Act and, only thereafter, should a High Court entertain a petition under Article 226 and/or 227 of the Constitution.

Transferred Cases stand disposed of accordingly. Parties to bear their own costs. v. s. s. Appeal allowed and transferred cases disposed of. ·......