Constitutional validity of amended Rule 8(8) of the Security Interest (Enforcement) Rules, 2002 – Sale of secured asset by private treaty can be conducted only after the sale by inviting tenders from the public or by holding public auction fails – Mr Prateek Pradeep Agarwal Vs. Union of India – Bombay High Court
June 27, 2022
The Petitioner is challenging constitutional validity of amended Rule 8(8) as it removes the requirement of consent of borrower for the purpose of settlement of terms of sale for conducting the same by obtaining quotations or by private treaty of secured assets by secured creditor/authorized officer.
Hon’ble High Court held that it is possible that as a result of the amended Rule 8(8), the sale of secured asset by private treaty can be conducted, even at the first instance, without making attempts to sell the same by public auction or by inviting public tender. Thus allowing sale by private treaty without failure of sale by method of public auction or by inviting public tender will be violative of the object of the said Act and said Rules of ensuring receipt of maximum possible price by sale of the secured asset. In that case, the said amended Rule 8(8) will become unconstitutional as unfettered and arbitrary powers are conferred on the secured creditor/authorised officer to that extent. Said amended Rule 8(8) is not per se unconstitutional. However the stage when said amended Rule 8(8) is invoked is very crucial and important. If the said Rule is invoked at the first instance, then in view of absence of public notice as public participation is denied, the same will amount to conferring unfettered, arbitrary and excessive powers on the secured creditor/ authorised officer resulting into destroying the object of the said Act and said Rules. Thus to save the said amended Rule 8(8) from unconstitutionality on the ground that unfettered and arbitrary powers are given to secured creditors/authorised officer it is necessary to read into said Rule 8(8) that sale by private treaty can be conducted only after the sale by inviting tenders from the public or by holding public auction fails.
