Case: Keshavlal Khemchand &amp; Sons Pvt. Ltd. &amp; Others Vs. Union of India &amp; Others

11. The constitutional validity of the Act was examined by this Court in Mardia Chemicals Ltd. & Others v. Union of India & Others, (2004) 4 SCC 311. This Court upheld the constitutionality of the Act except that of(2) of Section 17.We, therefore, subject to what is provided in para 80 above, uphold the validity of the Act and its provisions except that of(2) of Section 17 of the Act, which is declared ultra vires Article 14 of the Constitution of India.One of the grounds on which the Act was challenged in Mardia Chemicals (supra) was that the said Act enables the SECURED CREDITORS to classify the account of a borrower as NPA at the whims and fancies of such SECURED CREDITORS. This Court rejected the said submission for the reasons that the guidelines laid down by the Reserve Bank of India for classifying the account of a borrower as a NPA would eliminate the possibility of the SECURED CREDITOR arbitrarily declaring the account of a borrower as a NPA. "37. Next we come to the question as to whether it is on the whims and fancies of the financial institutions to classify the assets asassets, as canvassed before us. We find it not to be so. As a matter of fact a policy has been laid down by Reserve Bank of India providing guidelines in the matter for declaring an asset to be aasset known as "RBIs prudential norms on income recognition, asset classification and provisioningpertaining to advances" through a circular datedIt is mentioned in the said circular as**** **** ******** **** **** ****From what is quoted above, it is quite evident that guidelines as laid down by Reserve bank of India which are in more details but not necessary to be reproduced here, lay down the terms and conditions and circumstances in which the debt is to be classified asasset as clearly as possible. Therefore, we find no substance in the submission made on behalf of the petitioners that there are no guidelines for treating the debt as a. Section 2(1)(o) of the Act defines NPA. The said definition came to be amended by Act 30 of 2004. It is the amended definition which is the subject matter of dispute in this bunch of matters. The said amended definition came to be challenged in various High Courts.14. The High Court of Gujarat, by a common judgment dated 24.4.14 in a batch of writ petitions, held that the amended Section 2(1)(o) of the Act is unconstitutional.In view of thethe writ application is partly allowed by holding that the amended provisions of Section 2(1)(o) of the Securitisation Act are ultra vires the Article 14 of the Constitution and the object of the above Act itself and consequently, we restore the provisions which existed earlier, i.e., prior to the amendment of 2004 and existed at the time of decision of the Supreme Court in the case of Mardia Chemicals (supra). We, however, uphold the guidelines of the RBI challenged in this application.On the other hand, in another common judgment dated 18.5.14 in a batch of writ petitions, the Madras High Court rejected the challenge.16. Hence these appeals by the various aggrieved parties, either the borrowers or the SECURED CREDITORS. Various writ petitions invoking Article 32 of the Constitution also came to be filed by some borrowers against whom proceedings under Section 13 of the Act were initiated during the pendency of the appeals from the two judgments referred to above.

Reasoning:
We have already noticed that under the said guidelines FINANCIAL ASSETS areinto 4 categories i.e. (i) standard, (ii)(iii) doubtful, and (iv) loss. Depending upon the length of the period for which the installment of money is over due, such assets are classified as NPA. As the length of the period of over due increased, the account of the borrower is progressively classified fromto "loss".45. The same classification is adopted by the Parliament while enacting the Act. Therefore, all NPAs do not belong to the same class. Their characters vary depending on the length of time for which they remained NPAs.46. In our view, such a classification is relevant and assumes importance in the decision making process of the SECURED CREDITOR under Section 13(2) as to which one of the steps contemplated under Section 13(4) should be resorted to in the case of a given defaulting borrower. We hasten to add that it may not be the only factor which determines the cause of action to be taken by the SECURED CREDITOR. The magnitude of the amount due and outstanding in a given case, the reasons which prompted the borrower to default in the repayment schedule, the nature of the business carried on by the defaulting borrower, the overall prospects of the defaulters business, national and international market conditions relevant to the business of a defaulterin our opinion, are some of the factors which are germane to a decision that action under Section 13(4) is required to be taken against a defaulting borrower. Even in a case where on rational and objective consideration of all the relevant factors including the representations/objections referred to under Section 13(3A), the CREDITOR comes to a conclusion that steps contemplated under Section 13(4) are required to be taken in the case of a particular defaulter, the further question as to which one of the steps contemplated under Section 13(4) is required to be taken or would meet the ends of justice is a matter for a further rational decision on the part of the SECURED CREDITOR.We are of the firm opinion that it is not necessary that legislature should define every expression it employs in a statute. If such a process is insisted upon, legislative activity and consequentially governance comes to a standstill. It has been the practice of the legislative bodies following the British parliamentary practice to define certain words employed in any given statute for a proper appreciation of or the understanding of the scheme and purport of the Act. But if a statute does not contain the definition of a particular expression employed in it, it becomes the duty of the courts to expound the meaning of the undefined expressions in accordance with the well established rules of statutory interpretation.66. Therefore, in our opinion, the function of prescribing the norms for classifying a borrowers account as a NPA is not an essential legislative function. The laying down of such norms requires a constant and close monitoring of the financial system demanding considerable amount of expertise in the areas of public finance, banking etc., and the norms may require a periodic revision. All that activity involves too much of detail and promptitude of action. The crux of the impugned Act is the prescription that a SECURED CREDITOR could take steps contemplated under Section 13(4) on the "default" [Section 2(1) (j) "default" meansof any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified asasset in the books of account of the secured creditor ;] of the borrower. The expression "default" is clearly defined under the Act. Even if the Act were not to be on the statute book, under the existing law a CREDITOR could initiate legal action for the recovery of the amounts due from the borrower, the moment there is a breach of the terms of the contract under which the loan or advance is granted. The stipulation under the Act of classifying the account of the borrower as NPA as a condition precedent for enforcing the security interest is an additional obligation imposed by the Act on the CREDITOR. In our opinion, the borrower cannot be heard to complain that defining of the conditions subject to which the CREDITOR could classify the account as NPA, is part of the essential legislative function. If the Parliament did not choose to define the expression "NPA" at all, Court would be bound to interpret that expression as long as that expression occurs in Section 13(2). In such a situation, Courts would have resorted to the principles of interpretation (i) as to how that expression is understood in the commercial world, and (ii) to the existing practice if any of either the particular CREDITOR or CREDITORS as a class generally. If the Parliament chose to define a particular expression by providing that the expression shall have the same meaning as is assigned to such an expression by a body which is an expert in the field covered by the statute and more familiar with the subject matter of the legislation, in our opinion, the same does not amount to any delegation of the legislative powers. Parliament is only stipulating that the expression "NPA" must be understood by all the CREDITORS in the same sense in which such expression is understood by the expert body i.e., the RBI or other REGULATORS which are in turn subject to the supervision of the RBI. Therefore, the submission that the amendment of the definition of the expressionasset under Section 2(1)(o) is bad on account of excessive delegation of essential legislative function, in our view, is untenable and is required to be rejected.67. Coming to the submission that by authorizing different REGULATORS to prescribe different norms for the identification of a NPA with reference to different CREDITORS amount to unreasonable classification is also required to be rejected for the reason that all the CREDITORS do not form a uniform/homogenous class.68. There are innumerable differences among the CREDITORS. Differences based on the legal structure of the CREDITORS organization, differences based upon the nature of the loan advanced by them, and differences based on the terms and conditions subject to which such loans or advances are made by each of those CREDITORS, etc. For example, the Exim Bank loans are generally in foreign currencies. Similarly, loans granted by Housing Finance CREDITORS which are in turn regulated by the National Housing Bank are loans which are term loans for relatively longer periods than other loans. There is nothing uniform about these CREDITORS or their activities.Therefore, to say that enabling them to follow different norms would be violative of Article 14, in our view, would be wholly untenable.72. Coming to the third submission of the borrower, we would not like to deal with this submission in the instant batch of cases as there are few cases where factually the SECURED ASSETS have been transferred by the ORIGINAL CREDITORS. Those cases have beenfrom this batch to be heard separately.73. Coming to the fourth submission of the borrower, it must fail on the basis of express language of Section 13(3A) [Section 13(3A). If, on receipt of the notice under(2), the borrower makes any representation or raises any objection, the secured creditor shall consider such representation or objection and if the secured creditor comes to the conclusion that such representation or objection is not acceptable or tenable, he shall communicate within fifteen days of receipt of such representation or objection the reasons forof the representation or objection to the borrower.Provided that the reasons so communicated or the likely action of the secured creditor at the stage of communication of reasons shall not confer any right upon the borrower to prefer an application to the Debts Recovery Tribunal under section 17 or the Court of District Judge under section 17A.] which obligates the SECURED CREDITORS to examine the representation/objection, if any, made by the borrower on the receipt of notice contemplated under Section 13(2) and communicate the reasons to the borrower if such a representation is not accepted by the SECURED CREDITORS. We have already indicated in our judgment, in para no. 48, that the representation/objection contemplated under Section 13(3A) is required to be examined objectively. Section 13 obligates the SECURED CREDITOR to communicate the reasons forof the representation or objections to the borrowers.74. Before closing these matters, we may also deal with one aspect of the judgment of the Gujarat High Court. The Gujarat High Court recorded that the impugned amendment is ultra vires the object of the Act. We presume for the sake of this judgment that the impugned amendment is not strictly in consonance with the objects enunciated when the Act was initially made. We fail to understand as to how such inconsistency will render the Act unconstitutional. The objects and reasons are not voted upon by the legislature. If the enactment is otherwise within the constitutionally permissible limits, the fact that there is a divergence between the objects appended to the Bill and the tenor of the Act, in our opinion, cannot be a ground for declaring the law unconstitutional.75. In view of our abovementioned conclusions, we do not propose to examine other submissions regarding the correctness of the Gujarat High Courts declaration that the unamended definition of the expression "NPA" would continue to govern the situation in view of the Gujarat High Courts conclusion that the amended definition of NPA is unconstitutional.The first major decision of this Court on the subject of the validity of delegated legislation is In re Art. 143, Constitution of India and Delhi Laws Act (1912) etc., AIR 1951 SC 332 , by a Constitution bench ofSeven separate judgments were delivered. It was a case where Section 7 of the Delhi Laws Act authorized the provincial government to extend by a notification in the official gazette to the provinces of Delhi, any enactment which was in force in any part of British India as on the date of such notification. Similar provisions were contained in two other enactments. One of the questions was whether such conferment of power on the executive amounted to excessive delegation of the legislative power. Even according to Patanjali Sastri, J., who was a member of the Bench which decided the case, in a subsequent decision in Kathi Raning Rawat v. State of Saurashtra, AIR 1952 SC 123 , while dealing with the decision in Delhi Laws Acts case observedundoubtedly certain definite conclusions were reached by the majority of the Judges who took part in the decision in regard to the constitutionality of certain specified enactments, the reasoning in each case was different, and it is difficult to say that any particular principle has been laid down by the majority which can be of assistance in the determination of otherCourt held that there was no impermissible delegation of legislative power.57. Justice Hidayatullah, speaking for himself and for Justice Ramaswami, agreed with the conclusion reached at by the Chief Justice, though on slightly differentother words, the very fact that the legislature has the power to repeal and withdraw the authority of the delegate and the discretion vested in the delegate, should lead to the conclusion that the legislature did not abdicate its essential functions.Whether defining every word employed in a statute is really necessary and whether it is a part of the essential legislative function was never the subject matter of debate in any of these cases.