The Hindu Business Line : Madras HC asks debtors to repay banks in time

THE Madras High Court has, in what is considered as a far-reaching judgment, refused to exercise its discretion under Article 226 of the Constitution in favour of the petitioners, who were borrowers from banks and did not wish to repay the same.

Dismissing a batch of writ petitions from the borrowers challenging various provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which tended to delay repayments, the court said, "... by staying such recoveries incalculable harm has been done, and will continue to be done, to the economy, because persons who are genuinely in need of loans for setting up new industries cannot get such loans because the borrowers have not repaid them. This court should certainly not countenance such grave malpractices."

The First Bench, comprising Chief Justice Mr M. Markandey Katju and Mr Justice F.M. Ibrahim Khalifulla, while pointing out that the Supreme Court had upheld the validity of the Act, except Section 17(2) (which requires pre-deposit of 75 per cent of the amount of demand notice before an appeal can be entertained), said that, in many cases of defaults in repayment of loans to banks, there had been interim orders of various courts which had stayed the recoveries.

Many such interim orders were wholly unjustified.

To obtain a writ, the petitioner must not only show that the law was in his favour, he must also show that equity was in his favour.

In these cases, even assuming that there was some technical violation of law, there was no equity in the petitioners' favour.

"Hence, we are not inclined to exercise our discretion under Article 226 in these cases in favour of the petitioners who have borrowed money and do not wish to repay the same."

Rejecting the various pleas of the petitioners under Sections 13(2) and 17 of the Act, the Bench rejected the submission of the petitioner that fixation of the ad valorem court fee for applications under Section 17 violated the judgment of the apex court in the Mardia Chemicals Ltd case (in which the apex court upheld the Act).

The apex court had only held that the requirement to deposit 75 per cent of the demand was unreasonable and oppressive.

The court fee was far less than 75 per cent of the demand, and hence could not be said to be arbitrary or oppressive.

"We thus find no merit in the challenge to the fixation of fee," under the section, the Bench said.

On the question of action taken by the creditor under Section 13(4) to get the money recovered, the Bench said there was an alternative remedy to approach the Debts Recovery Tribunal under Section 17, and the petitions challenging the action were dismissed.

However, considering the fact that a large number of petitions on this point had been entertained by this court, the petitioners were permitted to file application under Section 17 with the requisite fee within one month from July 7, and the applications would be entertained without raising any objection as to the limitation and shall be decided on the merits expeditiously thereafter.

Regarding the plea that the court should direct one-time settlement or fixing of instalments or rescheduling the loan, the Bench said this court under Article 226 could not reschedule a loan. A writ was issued when there was violation of law or error of law apparent on the face of the record, and not for rescheduling loans.

The court must exercise restraint in such matters, and not depart from well-settled legal principles, the Bench held.

Turning to the challenge of notices issued by the secured creditor to the borrowers under Section 13(2), the Bench said in a sense the notice was really a show-cause notice, and ordinarily this court did not interfere with show-cause notices.

The notice really did not give any rise to a cause of action because, by itself, the notice did not affect any right or liability of the borrower.

Hence, challenge to the notice was premature, since it was possible that the secured creditor might be satisfied with the reply of the borrower to the notice, and might drop the proceedings.

Hence, all the petitions challenging the notice were dismissed.

As regards objections under Section 22 of the Sick Industrial Companies Act, the Bench ruled that they could also be taken in reply to the notice under Section 13(2) or in the application under Section 17, but they would not be directly entertained by this court without availing of these alternative remedies.

`An honourable man repays his debts'

IS there equity in favour of the petitioners who have challenged the various provisions of the Securitisation Act?

No, according to the First Bench of the Madras High Court which rejected all the petitions.

The petitioners, the Bench observed, borrowed money and hence they have to return the same with interest. An honourable man repays his debts instead of raising "all kinds of technical objections" when the time comes for repayment, the Bench said emphatically.

The Bench said the banks and financial institutions were badly affected by non-recovery of dues, which ran to a colossal Rs 1,34,000 crore, according to the senior counsel of the Government of India.

After availing themselves of the facility of financial assistance, quite often, the borrowers "hardly show interest in repayment of the loans, which keep on accumulating, as a result of which it becomes difficult for the financial institutions to give financial assistance to deserving parties due to heavy blockade of money stuck in with erring borrowers."

Persons who were genuinely in need of money for starting new industries could not get assistance because of non-repayment of dues by borrowers. "This court certainly not countenance such grave malpractices," the Bench held.

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