The Delhi High Court upheld the constitutionality of Chapter II of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, observing that it is not manifestly arbitrary and does not violate Article 14 of the Indian Constitution.

The Court observed that "The provisions of the SARFAESI Act as a whole have been made to give effect to its purpose and object and the legislature has enacted the legislation on rational and determined principles.

32. In light of the foregoing, it is held that Chapter II of the SARFAESI Act is not manifestly arbitrary and is not in violation of Article 14 of the Constitution of India"

The Division Bench of Delhi High Court comprising of Chief Justice Satish Chandra Sharma and Justice Subramoniuam Prasad, held that the ruling in a petition challenging Chapter II of the Act on the grounds that it did not provide an avenue of judicial redress against asset reconstruction companies (ARCs) that had defaulted on their statutory obligations, including for the borrowers.

After reviewing the statutory provisions and relevant judgments on the subject, the court concluded that the remedy under Section 17 of the Act, which allows the borrower to challenge the secured creditor's actions on all grounds that would render the secured creditor's action illegal, is not limited to Chapter III and that the DRT has the authority to investigate the secured creditor's compliance.

The Court held that "These functions of regulation are within the exclusive domain of the RBI and a borrower cannot claim that his grievance with the actions of a secured creditor be adjudicated by the RBI under Chapter II of the SARFAESI Act. The borrower cannot approach the RBI, in its capacity as a regulatory body to adjudicate whether the actions of an ARC are in compliance with the SARFAESI Act. As stated above, the SARFAESI Act under Section 17 provides for an efficacious and efficient remedy to adjudicate the grievances of a borrower and the DRT has the power to determine whether the actions of an ARC are in compliance with the SARFAESI Act."

Noting the second prayer, the court concluded that it lacks the authority to direct the Legislature or the Executive to perform legislative functions because such a directive would violate the doctrine of separation of powers.

"With regards to these alternate prayers made by the Petitioners, it is sufficed to say that this Court does not have any power to direct the Legislature or the Executive to perform a legislative function as such a direction would be in conflict with the doctrine of separation of powers."

Case Details:-

W.P.(C) 1122/2021& CM APPL. 3147/2021, CM APPL. 36355/2021CM APPL. 46482/2021

M/S M. Sons Gems N J jewellery Private Limited & Ors V. Reserve Bank of India & Ors