MARDIA CHEMICALS LTD. ETC. ETC. versus UNION OF INDIA AND ORS. ETC. ETC.

Citation: [2004] 3 S.C.R. 982 · Decided: 08-04-2004 · Supreme Court of India · Bench: V.N. KHARE · Disposal: Case Partly allowed
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Judgment (excerpt)

A 
MARDIA CHEMICALS LTD. ETC. ETC. 
_[ 
v. 
UNION OF !NOIA AND ORS. ETC. ETC. 
APRIL 8, 2004 
B 
[V.N. KHARE, CJ., BRIJESH KUMAR AND ARUN KUMAR, JJ.] 
Securitisation and Reconstruction of Financial Assets and Enforcement 
I 
of Security Interest Act, 2002: 
+ 
c 
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 
D of India, I950-Artic/e 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 
E 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 inf avour of such enactment 
provided person aggrieved gets fair deal-Recovery of Debts due to Banks 
F 
and Financial Institutions Act, 1993. 
Section 13, 13(2), (4) and 34-Enforcement of secured assets without 
,( , 
intervention of court under section 13_:.0bjections/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 
G days notice before action is taken under Section 13(4)-Replylobjections 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, 
• ,-,I 
before sale of property borrower can approach tribunal-Hence, there are 
adequate safeguards for the borrower before action is taken under section 13. 
H 
982 
\ 
MARDIA CHEMICALS LTD. v. U.0.1. 
983 
Section 17(2)-Right to appeal before tribunal-Availability of--On A 
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, B 
1950-Article 14. 
Sections I 3 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(/), it 
is not relevant whether transactions are akin to or amount to English mortgage, C 
since irrespective of the kind of mortgage, security interest is to be enforced 
without intervention of court as per section I 3-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. 
D 
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 E 
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 ignor~d 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 
F 
seek remedy in case of any wrong on part of the bank. 
G 
Various· banks and the financial institutions have heavily
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