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Borrowers Free To File Appeal Under Section 17 Of Transfer Of Property Act

Vanshita Singh ,
  10 October 2022       Share Bookmark

Court :
Hon’ble Supreme of India
Brief :

Citation :
Transfer Case (civil) 92-95 of 2002

Mardia Chemicals Ltd. Etc. Etc vs U.O.I. & Ors. Etc. Etc on 8 April, 2004

8 April 2004

Justice Brijesh Kumar and Justice Arun Kumar

Petitioner: Mardia Chemicals Ltd. Etc. Etc
Respondent: U.O.I. &Ors. Etc. Etc


A challenge has been made to the constitutionality of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (54 of 2002).Following the passage of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (Second Ordinance), 2002, a number of writ petitions were submitted to several High Courts. However, the Act 54 of 2002 was passed and put into effect; its validity is being contested, particularly the clauses found in Sections 13, 15, and 34.


Transfer of Property Act

  • Section 13 -Transfer for benefit of unborn person. - Where, on a transfer of property, an interest therein is created for the benefit of a person not in existence at the date of the transfer, subject to a prior interest created by the same transfer, the interest created for the benefit of such person shall not take effect, unless it extends to the whole of the remaining interest of the transferor in the property.
  • Section 17 - Direction for accumulation. - Where the terms of a transfer of property direct that the income arising from the property shall be accumulated either wholly or in part, such direction shall, be void to the extent to which the period during which the accumulation is directed exceeds the longer of the aforesaid periods, and at the end of such last-mentioned period the property and the income thereof shall be disposed of as if the period during which the accumulation has been directed to be made had elapsed.


  • The Industrial Development Bank of India (also known as “the IDBI”) sent a notice to the petitioner Mardia Chemicals Ltd. on July 24, 2002, invoking Section 13 of the Ordinance that was in effect at the time. The notice instructed the petitioner to pay the arrears specified therein within 60 days, failing which the IDBI would be permitted to enforce the security interest as a secured creditor without the need for court or tribunal intervention, using all or any of the measures contained therein.
  • Additionally, the petitioner was forbidden from selling, leasing, or otherwise transferring any of the secured assets. Other banks and financial institutions also sent similar notices to various parties who filed petitions with various High Courts in accordance with Section 13 of the Ordinance/Act.
  • The main argument used to contest the legality of specific Act provisions is that banks and other financial institutions have been given arbitrary power without any guidelines for exercising it, as well as without providing an appropriate and sufficient mechanism to resolve disagreements over the accuracy of the demand, its legality, and the actual amount of debt that is being sought from borrowers.
  • The Act’s infringing provisions are such that everything has been rendered one-sided while requiring harsh steps like forcing the sale of the property or assuming control of the management or possession of the secured assets without giving the borrower any option.


  • Whether provisions as contained under Section 13 and 17 of the Act provide adequate and efficacious mechanism to consider and decide the objections/disputes raised by a borrower against the recovery, particularly in view of bar to approach the civil court under Section 34 of the Act?
  • Whether the remedy available under Section 17 of the Act is illusory for the reason it is available only after the action is taken under Section 13(4) of the Act and the appeal would be entertainable only on deposit of 75% of the claim raised in the notice of demand?
  • Whether the provisions under Sections 13 and 17(2) of the Act are unconstitutional on the basis of the parameters laid down in different decisions of this Court?


  • The learned counsel appearing for the petitioner submitted that there was no justification for passing such harsh legislation to find a way to collect debts that the secured creditor believed to be obligations and deem them non-performing assets (NPAs). About half of the overall NPAs, which are estimated to amount about one lac crores, are owed to priority industries including agriculture and other industries. Only 13.90% of the entire debt is made up of debts between 10 lac and 1 crore.
  • It was further argued that the appeals provision in Section 17 of the Act is illusory because an appeal may be filed within the allotted time period from the date that actions under Subsection 4 of Section 13 have been taken, or in other words, the appeal would be maintainable after the property has been sold, taken into possession, or the management of the secured assets has been assumed. It was argued that the remedy that is offered after the harm has been done and upon satisfaction of such an onerous requirement as the deposit of 75% of the demand is illusory and nothing more than a charade.
  • It was further submitted that once the secured assets are transferred, there is almost ever a need to deposit the remaining 75% of the claim because everything was already secured and the creditor now had control over management and custody of the secured assets. As a result, the borrower was placed in a powerless situation where he was unable to express his outrage at the severe measures taken against him. He could not access the civil court, and there was no procedure for adjudication before actions are performed under Section 13 subsection (4). It was submitted that such a law is arbitrary and guilty of the vice of unreasonableness.


  • In the respondents’ case, financial institutions were severely harmed by non-recovery of debts; however, despite existing laws like the Recovery of Debts due to Banks and Financial Institutions Act, little was accomplished; as a result, additional legislative measures were required to hasten recovery of the significant amount of debts. Financial institutions find it challenging to continue providing financial aid to deserving parties due to a significant blockade of money stuck up with the erring borrowers because after frequently using the financial assistance facility, the borrowers hardly show interest in repayment of loan which keep on accruing.
  • Learned Attorney General, appearing for the Union of India submitted that the Act was passed to stop the growing threat of non-performing assets (NPAs). It has an impact on banks and financial institutions, which is ultimately counterproductive for the general welfare. The banks also lack the financial resources to continue their financial activities and to satisfy the needs and requirements of their other depositors and clients as a result of the non-recovery of the outstanding debts. The reported NPA amounts are in the neighbourhood of one lakh crores. The success in recovering debts hasn’t been all that promising since the Recovery of Debts owed to Banks and Financial Institutions Act went into effect and Debt Recovery Tribunals were established. As a result, the need for a quicker process enabling secured creditors to collect their debts and for the securitization of financial assets in order to maximise financial liquidity was felt.
  • The remedy outlined in Section 17 of the Act is sufficient, and the requirement that 75% of the claim be paid in advance before an appeal may be considered is not an unusual one; it can be found in other legislation as well. The proviso to Section 17 is then put up as having very clearly stated that on a motion made in that regard, the requirement of the deposit of the amount may be waived or the amount may be lowered. Therefore, it would not be accurate to claim that the pre-deposit condition is onerous because it can be reduced in meritorious circumstances.


  • The bench observed that in accordance with Section 17 of the Act, any action taken against the borrower under Subsection (4) of Section 13 of the Act must be appealed to the Debt Recovery Tribunal within 45 days of the action being taken. It is obvious that an appeal under subsection (1) of Section 17 would only be admissible after a measure has been implemented in accordance with subsection (4) of Section 13, and not prior to the stage of implementation. Before his appeal is taken into consideration, the borrower must deposit 75% of the sum demanded by the secured creditor, as per sub-section (2).
  • The notice was intended to be sent on the borrower in accordance with subsection (2) of Section 13 of the Act so that the borrower may respond and explain why actions under subsection (4) of Section 13 may or may not be taken in the event that the notice is not complied with within 60 days. The creditor must give thought to the objections made in response to the notification, and a special internal system must be developed to take those concerns into account.
  • The right of such a person to know the cause of his non-acceptance and of his objections cannot be denied in cases where actions under Section 13(4) of the Act are likely to be taken. It is true that under the terms of the Act, he may not be permitted to contest the justifications provided or the likely course of action taken by the secured creditor at that time, unless his right to file a complaint with the Debt Recovery Tribunal as provided by Section 17 of the Act matures following the taking of any action under Section 13((4)) of the Act.
  • A secured borrower’s ability to approach the Debt Recovery Tribunal in accordance with Section 17 of the Act is another safety accessible to them within the framework of the Act. Only once actions are completed in accordance with Section 13 sub-section (1) does such a right become available.


Finally, it was noted that in situations where a secured creditor has taken action under Section 13(4) of the Act, borrowers would be free to file appeals under Section 17 of the Act within the time frame set down therefor, to begin counting as of the day of the judgement. The petitions, appeals, and transfer cases are therefore partially permitted to the extent mentioned above. They are rejected for the remaining reliefs.

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