"Equality before the law raises important and complex issues concerning fairness, and justice. Namely, the shortcoming of a theory of legal equality that remains blind to social inequality; the same law applied to all may have disproportionately harmful effects on the least powerful" and "Law without justice is a wound without a cure."
There were many instances when DRT and DRAT ordering pre-deposit of a part of the amount claimed by the bank as a pre-condition to be deposited by the borrower when he prayed for a stay under RDB Act and SARFAESI Act before the adjudication of the legally recoverable debt in ongoing cases. The provisions under RDB Act and SARFAESI Act do not specify any order for pre-deposit of a part of the amount claimed by the bank as a precondition for a stay. Hence, is ordering pre-deposit as pre-condition for a stay before the adjudication of the ongoing case ultra vires under Fundamental Rights under Constitution?
Delhi High Court in their order dated 09.03.2015 in the matter of Prem Kumar Gupta vs. Bank of India and Ors. (W. P. (C) 2630 / 2014 & C. M. No. 5465 / 2014 (stay) observed, "35. The mere fact that the defendant appeared after a long delay did not confer upon the DRT jurisdiction to order pre-deposit of a part of the amount claimed by the bank as a pre-condition. The order of deposit of part of the claimed amount ("the amount demanded" as DRT puts it) does not fall in any of the kinds of interim orders that may be passed under Section 19. Penal action is permitted under Section 19 (17) only in the context of interlocutory orders permitted by the provisions quoted earlier. Since such an order of deposit made before determination of the liability is not envisaged in the legislation, no action on account of "default" (or "defiance", as DRT terms it) could have been initiated. The notice to show cause given by order dated 08.08.2013 was, thus, untenable.The impugned orders and the one upholding the direction for such deposit, therefore, must be held to be oppressive, unjust and without legal sanction and consequentially inoperative".
36. We, thus, set aside the impugned orders of DRT and DRAT. We hope and trust that the said statutory forums created by RDDBFI Act shall hereafter bear in mind the circumspection of the law within which they are expected to function and exercise jurisdiction."It may be noted that The RDDBFI Act was amended in the year 2016 in the wake of enactment of Insolvency and Bankruptcy Code and it became The Recovery of Debts and Bankruptcy Act, 1993.
As per Recovery of Debts and Bankruptcy Act (RDB Act) procedure under section 19 (Application to the Tribunal) states, "When a bank or a financial institution has to recover any debt from any person, it may make an application to the Tribunal within the local limits of whose jurisdiction-" as per Form I (under rule 4), or as per Form II (rule 4) under application under section 31A or as per Form III (rule 4) under application 30 (1) wherein under all the aforesaid forms there is a provision for Interim order/ any other reliefs, if prayed for. Where, as under SARFAESI Act when the borrower or any aggrieved person files his application under section 17 (1) of the Act, there is no provision for an interim order or any other reliefs for the applicant who files his application in the DRT under the SARFAESI Act {Refer APPENDIX VII rule 12 (1)}. But there is such a provision for Interim order under Section 18 when the applicant files an application in The Debts Recovery Appellate Tribunal (DRAT) under section 18 of SARFAESI Act {Refer Appendix IX, rule 12 (2) of SARFAESI Act.} Does it not discriminate the borrower who files his application under section 17 (1) of SARFAESI Act in the DRT wherein he is denied hisprayer for waiver of depositunder an interim order or interim relief?
Since the provisions of RDB Act and SARFAESI Act do not have any section ordering pre-deposit of a part of the amount claimed by the bank as a pre-condition to be deposited by the borrower when he prays for a stay,Debt Recovery Tribunal (DRT) being the trial court cannot insist on deposit to be made during the proceedings in the DRT. Besides DRT also should consider the following aspects also to render justice and to uphold the Fundamental Rights under Article 14 of the Constitution which states, "The State shall not deny to any person equality before the law or the equal protection of the laws within the territory of India."
Equality before law implies the absence of any privilege in favour of any person. This is a substantive part of the Article. But if an unbiased and without any prejudice view is taken as to how the legal and financial system work,it can be observed that there exists a covertly favour shown to banks and financial institutions acting as the custodian of public funds and most of the outcome of debts recovery cases reveal that the results are in favour of the banks and financial institutions except in some rarest of rare cases which comes in favour of the borrower.
Equal protection of the Lawsmeans that the same law will be applied to all the people equally across the society. This is a procedural part of article 14. Besides, Article 14 also deals with The Doctrine of Anti Arbitrariness. "The scope of article 14 was drastically increased by the Supreme Court by including the executive discretion under its ambit. In the case of E.P. Royappa v. State of Tamil Nadu, 1974, the court said that Article 14 gives a guarantee against the arbitrary actions of the State. The Right to Equality is against arbitrariness. They both are enemies to each other. So, it is important to protect the laws from the arbitrary actions of the Executive." Asking for pre-deposit as a precondition for granting sa tay by DRT and DRAT during the trial process is nothing but an arbitrary order violating Fundamental Rights. The reasons for the arbitrariness are explained below.
(i) The bank or the financial institution has to file their applicationunder RDB Act by way of Original Application (O.A) for the recovery outstanding dues as claimed by them in the DRT under whose jurisdiction the case comes wherein the DRT has to crystalise the claim of bank or financial institution, as the case may be, after hearing the arguments of the bank or financial institution and the defaulted borrower.
(ii) The defaulted borrower and other stake holders being the defendants under O. A. filed by the bank or financial institution can defend themselves by way of their written statements and also invoking their rights to counter claim and write to set off which should be adjudicated by the DRT to finally arrive at thelegally recoverable crystalised debt for which the DRT will issue the recovery certificate to the recovery officer which again can be challenged and the copies of the final order and recovery certificate are to be sent to the applicant and defendant (s) also. But the notice issued by a bank or financial institution under section 13 (2) of SARFAESI Act is akin to a decree but can be challenged under section 17 (1) when the borrower (s) file their securitisation application in the DRT under whose jurisdiction the case comes.
(iii) When DRT and DRAT orders for the pre-deposit of a part of the amount claimed by the bank as a pre-condition for getting a stay before arriving at the crystalised amount of debt to be recovered, the order for pre-deposit by DRT and DRAT becomes arbitrary and also unilateral which becomes a violation of Fundamental Rights under Article 14 of the Constitution.
The Principles of Natural Justice is also an aspect coming under Article 14 of the Constitution."From the case of A.K. Kraipak v. Union of India, It is evident that Natural Justice (natural justice is technical terminology for the rule against bias and the right to a fair hearing (audi alteram partem)) is an integral part of Article 14." The court held that "the Principle of Natural Justice helps in the prevention of miscarriage of Justice, These Principles also check the arbitrary power of the State."The Principles of Natural Justice is also applicable under Article 21 of the Constitution which states, "No person shall be deprived of his life or personal liberty except according to the procedure established by law."
Section 22: Procedure and powers of the Tribunal and the Appellate Tribunal states under section 22 (1) of the RDB Act states, "The Tribunal and the Appellate Tribunal shall not be bound the procedure laid down by the Code of Civil Procedure, 1908 (5 of 1908), but shall be guided by the principles of natural justice and, subject to the other provisions of this Act and of any rules, the Tribunal and the Appellate Tribunal shall have powers to regulate their own procedure including the places at which they shall have their sittings".
Provisions under SARFAESI ACT, 2002 or its amendments do not directly mention anything about Principles of Natural Justice. However, sub section (7) of section 17 under "Right to appeal" states, "Save otherwise provided in this Act, the Debts Recovery Tribunal shall, as far as may be, dispose of the application in accordance with the provisions of the Recovery of Debts due to Banks and Financial Institutions Act, 1993 (51 of 1993) and the rules made there under". Besides, under Section 37 of the SARFAESI Act under "Application of other laws not barred" it is stated, "The provisions of this Act or the rules made thereunder shall be in addition to, and not in derogation of, the Companies Act, 1956 (1 of 1956), the Securities Contracts (Regulation) Act, 1956 (42 of 1956), the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (51 of 1993) or any other law for the time being in force."
In view of what has been stated above, ordering by DRT and DRAT for the pre-deposit of a part of the amount claimed by the bank as a pre-condition for getting a stay before arriving at the legally recoverable crystalised amount of debtbecomesviolations of Fundamental Rights under Articles 14 and 21 of the Constitution and cannot be maintained under the law.
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