SARFAESI Act: A Brewing Conspiracy 


A law meant to aid the recovery of debts but could result in the back-door acquisition of property by non-Kashmiris in Jammu and Kashmir. Little wonder then that it’s stirred a hot debate in the state, where only Kashmiris are permitted to acquire property.

The Jammu and Kashmir government contended in the high court that the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (Sarfaesi) Act that the parliament passed in 2002 wasn’t applicable in the state due to its special status under Article 370 of the Constitution.

The ruling came in 2015 on a challenge to a State Bank of India decision to enforce the act to recover its dues from a defaulter. The Supreme Court overturned this last week.

What, then, is the contentious act all about?

Passed by Parliament in 2002, it states: “If borrower of financial assistance makes any default in repayment of loan or any installment and his account is classified as non-performing asset by secured creditor, then secured creditor may require before expiry of period of limitation by written notice to the borrower for repayment of due in full within 60 days by clearly stating amount due and intention for enforcement.”

“Where he does not discharge dues in full within 60 days, then without intervention of any court or tribunal secured creditor may take possession (including sale, lease and assignment) of secured asset, or take over management of business of borrower or appoint manager for secured asset or without taking any of these actions may also proceed against guarantor or sell the pledged asset, if any,” the act says.

State Law and Parliamentary Affairs Minister Abdul Haq Khan has previously clarified that in the case of distress sale of assets of defaulters by financial institutions, only permanent residents of the state would be permitted to bid for and own such assets.

In legal and public circles a hot debate has since been raging over the larger implications of the apex court’s decision.

“The state government should have legislated on this and passed its own act accommodating all the good things of the central act while safeguarding the special status of the state,” lawyer Abdul Samad told online news portal IANS.

“The apex court decision could open the floodgates for extension of acts passed by Parliament through the judicial route bypassing the legislative powers of the state,” he added.

The separatists have also criticised the apex court decision, saying that their assertion that the special status of the state existed only on paper had been proved right.

Confused over whether the larger implications of the apex court decision would benefit or harm his interests, the common man is ambiguous in his comments. “Big sharks have taken huge loans from banks and are now not paying these back,” bank employee Irfan Ahmad, told the Wire.

“They would definitely be opposing the Supreme Court decision, but if the decision compromises the special status of the state, then it must be appealed against,” he added.

While delivering its verdict, a Supreme Court bench of Justices Kurian Joseph and Rohinton Nariman also rejected the high court’s view that the state’s Constitution was equal to the Constitution of India. The state’s residents are “first and foremost Indian citizens”, the apex court said.

“It is, therefore, wholly incorrect to describe it as being sovereign in the sense of its residents constituting a separate and distinct class in themselves. The residents of Jammu and Kashmir, we need to remind the high court, are first and foremost citizens of India, permanent residents of the state of Jammu and Kashmir are citizens of India, and that there is no dual citizenship as is contemplated by some other federal Constitutions in other parts of the world,” the court said.

It pointed out that it was constrained to observe that in at least three places, the high court, in its judgment, “has gone out of its way to refer to a sovereignty which does not exist”.

Referring to article 370 of the Constitution, the high court division bench said: “This provision clears the constitutional relationship between people of rest of the country with the people of Jammu and Kashmir.”

“The citizens of State of Jammu and Kashmir have their own constitution and their sovereign character which cannot be challenged, altered or abridged.

“The power of Parliament to make laws in respect of the state of Jammu and Kashmir is circumscribed and it can make laws for it only where permitted by State and not the other side, and that too in accordance with mechanism prescribed by Article 370 of Constitution of India.

“The sovereignty of the state of Jammu and Kashmir under the rule of Maharaja, even after signing of Instrument of Accession and in view of the framing of its own Constitution, thus legally and constitutionally remained intact and untampered,” the high court had contended.

As the public and legal circles are agog with confusing opinions, the controversy is unlikely to settle down anytime soon in Kashmir.

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