SC for safeguards in seizure law

The bench headed by Chief Justice VN Khare was hearing arguments over Attorney General Soli Sorabjee's suggestions to dilute the severity of certain provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act 2002.

One of the oppressive provisions is Section 13, which says that "any security interest created in favour of any secured creditor may be enforced without intervention of the court or tribunal".

If the borrower does not pay in full within 60 days, the creditor can take possession of his assets and transfer them to anyone. The management of the defaulting company can be taken over. The creditor can appoint a person to manage the assets taken over.

Scores of companies have challenged this procedure which do not give them any chance to defend themselves in genuine cases. The court had asked the Attorney General to bring forth suggestions to make it less stringent.

However, the suggestions made by him has not satisfied the companies. Kapil Sibal, senior counsel leading them, said that the Attorney General's suggestions "take away what was given to me in the first place."

The Attorney General proposed that under Section 13(2), the secured creditors would give a notice to the borrower. It would annex a statement furnishing details of the amounts due and payable by the borrower coupled with a demand to pay the amount specified in the notice.

If the borrower disputes the liability specified in the notice, it would be open to him to make a representation to the creditor within 10 days. The creditor will then consider and dispose of such representation within 60 days.

In doing so, it shall not be obligatory upon the creditor to give an oral hearing to the borrower. Such disposal would not be an order of adjudication. It will be open to the creditor to adopt any measures listed in Section 13(4).

Sibal insisted that these propositions did not contain any adjudicatory steps. Therefore, the defaulters have a right to move the high court. This basic right could not be wiped out by any law. He submitted that the lenders also could be guilty.

They may not release the instalments of the loan according to the schedule, leading to losses for the unit and shut-down. These questions have to be adjudicated by some authority in the beginning itself, and the companies still had the right to go to the high court.

The Act has not provided for any fair procedure and even taken away the right to move the high court. The Attorney General's idea of the creditor giving a response to the representation given by the borrower was not adjudicatory in nature.

The Chief Justice said that no one can be stopped from moving the high court. There should be some adjudicatory procedure at the early stage itself when the creditor gives notice to the borrower.

He asked the Attorney General and other parties to "think over it" and put forward their suggestions to the court next week itself.

Earlier, Sorabjee read out the mind-boggling figures of debts justifying the law. ICICI counsel Harish Salve asserted that the Securitisation Act was not draconian as its strict provisions could be found in other financial laws also.

The Supreme Court had also upheld such laws in the past. He said that the idea of take-over could be found in the "English mortgage" which is recognised in the Transfer of Property Act. Despite the setting up of debt recovery tribunals, non-performing assets were mounting, he said.

LIC counsel T R Andhiarujina pointed out that Sections 176 and 177 of the Contract Act dealing with pledges also contained similar provisions now challenged before the court.