Use of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SRFAESIA), 2002 or Securitisation Act, by cooperative bank to recover debts from defaulters has been challenged in the Gujarat High Court.
The petition filed by a Surat-based trader, has sought cancelation of Central government notification dated January 28, 2003, bringing the cooperative societies within purview of Securitisation Act.
The petitioner, who is a defaulter with the Surat Mercantile Cooperative Bank (SMCB), has further claimed that the Union government notification was unconstitutional as it was in contradiction with provisions of the Banking Regulation Act,1949.
He had approached the High Court when the bank sent him a notice under the Securitisation Act after he defaulted on loan payment. Bank had warned to seize his property.
He has further claimed that Securitisation Act was not applicable to the cooperative banks formed under the state acts as there is already a mechanism for recovery under those state Act, in this case it is Gujarat Cooperative Societies Act, 1961.
Also, the Act was applicable to “a company engaged in banking, and not a cooperative society engaged in banking”, he has said in his petition, adding that there was a conscious exclusion and deliberate omission of cooperative banks from the purview of the Banking Regulation Act.
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The petitioner has also relied on observations of the Supreme Court in the case of Greater Bombay Cooperative Bank Limited v/s United Yarn Tex (Pvt) Ltd of 2007.
In that case the applicability of the Central Acts to the Cooperative Societies was dealt with where the Apex Court overruled the full bench judgment of the Bombay High Court and held that the Central Act like Recovery of Debt Act was not applicable to the Cooperative Societies as it had mechanism for recovery under the state cooperative societies act. Because the Respondents failed to test the validity of the applicability of the Securitisation Act to the cooperative banks in the light of the ratio laid down by the three judge bench of Supreme Court in the matter of Greater Bombay, the Union government’s notification needs to be quashed, the petitioner calimed.
Last week a division bench of acting Chief Justice Bhaskar Bhattacharya and Justice J B Pardiwala hearing the case observed that they were “convinced that the petitioner has made out a strong prima-facie case”.
They have also issued notice to the Union government and the SMCB and asked them to file their replies by June 22 when the next hearing is scheduled.
The court has also asked that bank not to take action against the petitioner while the petition was pending with it.