Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002:

Validity of the Act-Held: Act enacted for speedier recovery of dues declared as Non performing Assets, better availability of capital liquidity and economic growth of the country-Though some of the provisions have harsh effect on borrowers but they get reasonable protection under the Act-Hence, Act constitutionally valid except sub-section (2) of section 17-Constitution of India, 1950-Article 14. 

Enactment of Act of 2002 for securitisation of debts and faster recovery of Non performing assets when Act of 1993 already in operation-Validity of-Held: On account of mounting dues of banks, recovery through court being time consuming, Act of 1993 failed to bring desired results and also recommendation of expert committees to have such law, enactment of Act of 2002 not uncalled for nor superimposition of undesired law-Also legitimacy of such Act relating to financial policy which is in public interest cannot be tested-There is presumption of constitutionality in favour of such enactment provided person aggrieved gets fair deal-Recovery of Debts due to Banks and Financial Institutions Act, 1993.

Section 13, 13(2), (4) and 34-Enforcement of secured assets without intervention of court under section 13-Objections/dispute raised by borrower against recovery-Adequate and effective mechanism to resolve dispute-Determination of-Held: In terms of Section 13(2) it is mandatory to serve 60 days notice before action is taken under Section 13(4)-Reply-objections to notice is to be considered with due application of mind and internal mechanism is to be evolved-Reasons for non-acceptance of objections is to be communicated to the borrower for his information/knowledge-Furthermore, before sale of property borrower can approach tribunal-Hence, there are adequate safeguards for the borrower before action is taken under section 13.

Section 17(2)-Right to appeal before tribunal-Availability of--On taking over the secured assets /management thereof with transferable interest or selling the property under section 13(4) and pre deposit of 75% of amount claimed in demand notice-Validity of-Held: Requirement of deposit under Section 17(2) is oppressive, onerous, arbitrary and unreasonable-Hence, Section 17(2) invalid and liable to be struck down-Constitution of India,1950-Article 14.

Sections 13 and 34-Providing sale of property for enforcement of security assets without intervention of court-If akin to English mortgage under Section 69-Held: Since Section 69 is overridden by Section 13(1), it is not relevant whether transactions are akin to or amount to English mortgage, since irrespective of the kind of mortgage, security interest is to be enforced without intervention of court as per section 13-Extent of bar of jurisdiction of civil court under Section 34-Held: Section 34 bars jurisdiction of civil court-However, can be invoked to a limited extent in cases of English mortgage on which they are permissible-Transfer of Property Act, 1882- Section 69.

Section 13-Private contract between borrower and financial institutions-Financial transactions-Unrealized dues of financial institutions-Curtailment of borrower's rights and enforcement of secured assets without intervention of court by section 13-Validity of-Held: Though the transaction is between the private parties yet transaction as a whole has impact on the economy of the country-In view of public interest even if individual interest of few borrowers is affected to some extent, it would not impinge upon the validity of Act-Hence, the existing rights under contract entered into by private parties could be amended.

Principle of lender's liability-If ignored while enacting the Act, its effect-Held: Lender's liability is not ignored-Financial institutions-lenders owe a duty to act fairly and in good faith-They are under obligation to comply with their part of contract-Even in absence of any such legislation, financial institution is to act in such manner-Furthermore, borrowers can seek remedy in case of any wrong on part of the bank.