Sub clause (a) Sec 2(1)(o) SARFAESI Act violates Article 14: GHC

Declaring sub clause (a) of Section 2(1)(o) of The Securitisation And Reconstruction Of Financial Assets And Enforcement Of Security Interest Act, 2002 (“Act”) as discriminatory, a Division Bench of the Gujarat High Court recently ruled that creditors should not be given rights to treat their debtors according to their whims.

“Allowing a class of secured creditors of a class of debtors to enjoy the benefit of norms/guidelines for NPA declared by their own regulators in a way different from the one fixed by the RBI in respect of the creditors of another section of the debtors, is opposed to the object of the Statute, and thus, the amended provisions of Section 2(1)(o) of the Act is discriminatory and violates Article 14 of the Constitution”, the Court said.

The Court further added, “We must not forget that for the business interest of those secured creditors under the control of such regulators, the power to enforce such drastic measure is vested upon such regulators without the RBI having any control on it. In other words, by the amendment challenged in these applications, different creditors have been given rights to treat their debtors according to their whims – may be favourable to the debtors or may be prejudicial to the debtors, leaving others under the guidelines of the RBI.”

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