The Hindu Business Line : An honourable man repays his debt

CHARLES Dickens once said, "Credit is a system by which a person who can't pay gets another person who can't pay to guarantee that he can pay." The inevitable result of the above is non-performing assets (NPAs). Although NPA numbers in India vary as widely as monsoon predictions, a figure of Rs 1,34,000 crore is being proclaimed to be realistic. The Asset Reconstruction Company of India, in a study, has indicated that NPA provisioning by public sector banks over the last three years has been over Rs 70,000 .

To stem the rot, the SARFAESI Act was enacted, which immediately went into a prolonged legal battle between Mardia Chemicals and ICICI Bank resulting in a decision in favour of the bank with some riders. When one thought that was about all, writ petitions were being filed in every conceivable court in the country in spite of the apex court's decision.

A recent Madras High Court decision has given yet another victory to bankers. The petition was filed by a creditor under Article 226 of the Constitution of India challenging, inter alia, the issue of a notice under Section 13(2), levy of a court fee and the inevitable objections of a sick company. The High Court ruled that a notice under Section 13(2) was actually a show-cause notice and courts generally do not touch show-cause notices with a bargepole.

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

Challenging the notice was pre-mature since there was a faint hope that the secured creditor may be satisfied with the reply of the borrower to the notice and might drop the proceedings. The writ petitioner had strongly objected to the action taken under Section 13(4) of the Act to which the court replied that there was an alternative remedy to approach the Debts Recovery Tribunal under Section 17.

Considering the plethora of legal cases pending on the topic, the court permitted the petitioners to file applications under Section 17 with the requisite fee within a month from July 7 which would be entertained without watching the limitations with an aim to provide speedy justice.

Since the petitioners challenged the levy of a court fee stating that it crossed purposes with the Supreme Court decision in the Mardia Chemicals case, the court replied that the apex court decision was that the requirement to deposit 75 per cent before going into a further round of litigation was unreasonable and oppressive. One could not jump to the conclusion that a court fee — much lower than 75 per cent — was arbitrary or oppressive.

Talking of the habit of obtaining stays, the judgment was that such stays have done incalculable harm and will continue to do so, 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 and the court could not countenance such grave malpractices.

Many such interim orders were wholly unjustified. The petitioners had another request: The court needs to direct one-time settlement, fixing instalments or rescheduling loans. Pat came the answer that Article 226 did not give a right to the court to reschedule a loan. The court needs to exercise restraint in such matters and not depart from well-settled legal principles.

An honourable man repays his debts instead of raising all kinds of technical objections when the time comes for repayment. The final word from the court was that there was no equity in favour of the petitioners who have challenged the provisions of the SARFAESI Act.

There have been petitions galore since the enactment of the SARFAESI Act, even after the Mardia Chemicals decision of the apex court, that is.

Though unfettered legal rights are a given for a democratic country, filing writ petitions with an objective to buy time needs to be discouraged by suo moto dismissing all petitions pending. This would ease the load on courts and prevent writ petitions being filed against the same provision in every State and Union Territory.

(The author is a Hyderabad-based chartered accountant.)

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