Supreme Court today upheld the constitutional validity of an amendment in the provision of the securitisation law which authorises the creditor to classify the account of a borrower as Non Performing Assets (NPA) in accordance with RBI guidelines and directions and laid to rest the confusion created by conflicting judgement of the Madras & Gujarat High Courts.
The apex court passed the judgement while dealing with the amended definition of the expression 'NPA' under Section 2(1)(o) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
A bench of justices J Chelameswar and S A Bobde disposed of a bunch of petitions while directing the borrowers to pay costs to the respective creditors at one per cent of the amount outstanding on the date of the notice.
While upholding the validity of the amendment brought out in 2004, the bench said "the submission that the amendment of the definition of the expression 'non-performing asset' 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".
In its 52-page judgement, the apex court noted that to make any attempt to define the expression 'non-performing asset' valid for millions of cases of loan transactions of various categories, lent or made by different categories of creditors, would "not only be an impracticable task but could also simply paralyse the entire banking system".
It would thereby produce results which would be counter- productive to the object and the purpose sought to be achieved by the Act, the court said.
"Realising the same, Parliament left it to the Reserve Bank of India and other Regulators to prescribe guidelines from time to time in this regard. The RBI is the expert body to which the responsibility of monitoring the economic system of the country is entrusted under various enactments like the RBI Act, 1934, the Banking Regulation Act, 1949.
Various banks like State Bank of India, National Housing Bank, which though are bodies created under different laws of Parliament enjoying a large amount of autonomy, were still subject to the overall control of the RBI," the bench said.
The apex court passed the judgement while dealing with the amended definition of the expression 'NPA' under Section 2(1)(o) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.
A bench of justices J Chelameswar and S A Bobde disposed of a bunch of petitions while directing the borrowers to pay costs to the respective creditors at one per cent of the amount outstanding on the date of the notice.
While upholding the validity of the amendment brought out in 2004, the bench said "the submission that the amendment of the definition of the expression 'non-performing asset' 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".
In its 52-page judgement, the apex court noted that to make any attempt to define the expression 'non-performing asset' valid for millions of cases of loan transactions of various categories, lent or made by different categories of creditors, would "not only be an impracticable task but could also simply paralyse the entire banking system".
It would thereby produce results which would be counter- productive to the object and the purpose sought to be achieved by the Act, the court said.
"Realising the same, Parliament left it to the Reserve Bank of India and other Regulators to prescribe guidelines from time to time in this regard. The RBI is the expert body to which the responsibility of monitoring the economic system of the country is entrusted under various enactments like the RBI Act, 1934, the Banking Regulation Act, 1949.
Various banks like State Bank of India, National Housing Bank, which though are bodies created under different laws of Parliament enjoying a large amount of autonomy, were still subject to the overall control of the RBI," the bench said.
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