Taka Masa Ao
Senior Advocate & Ex MLA
The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (for short the Act of 2002) was enacted by the Parliament in the year 2002. It was enforced on 17-12-2002. The purpose of the Act is to regulate securitization and reconstruction of financial assets and enforcement of security interests and for matters connected therewith or incidental thereof. The Act of 2002 was amended in the year 2004 and 2012. The legislative evolution, in the field of financial matters of Banks reached to its zenith by the enactment of the Act of 2002. It was enacted to facilitate and ensure immediate recovery of finances/money which was/ is due to financial institutions from the borrowers. In the fast changing global financial scenarios, it was deemed imperative and essential to have legislation, which ensure speedy and hassle free recovery of finances/money from the borrowers/loanees. It was found that the slow speed with which the loan is being recovered, in view of the existing legal system and further for the reason that some of the borrowers/loanees would delay payment of finances/amount by adopting different delaying tactics, it was deemed necessary to enact a law which would arm the financial institutions/banks to recover money without delay. Initially, in order to overcome the aforesaid difficulties, the Parliament enacted “Recovery of Debts Due to Bank & Financial Institutions Act 1993”. With the passage of time, it was found that the Act of 1993 could not measure up the expectations of the Bank/ financial institutions, in as much as, the speed, which was required for recovery of finances/money, was not achieved. It is in this backdrop that the Act of 2002 was enacted to secure the financial interests of the nations. Section 31 (i) of the Act of 2002 provides that the provisions of this Act not to apply in any security interest created in agricultural land. Hence, the Act of 2002 is only applicable in security created in the notified cadastral area.
Article 371 (A) of the Constitution of India was inserted into Constitution of India through the Constitution (Thirteen Amendment) Act, 1962 with effect from 01-12-1963 on account of certain historical and political necessities and was based on an agreement reached by the Government of India with the Naga Peoples Convention. Article 371 (A) starts with a “non-obstante” clause; “No Act of Parliament in respect of ownership and transfer of land and its resources shall apply to the State of Nagaland unless the Legislative Assembly of Nagaland by a resolution so decides.”
In view of Article 371 (A), the SARFAESI Act, 2002 is yet to be enforced in Nagaland since the Nagaland Legislative Assembly is yet to pass a resolution to make it applicable. There has been a demand from the business community of Nagaland, political leaders etc. to enforce the SARFAESI Act 2002 in Nagaland in order to facilitate loan with immovable assets as collateral securities from Banks/ financial institutions without any legal bottlenecks with the twin objectives of uplifting Naga businesses towards economic freedom, move Nagaland from a salary economy to market economy and entrepreneurships’. It is also learned from the media that the Nagaland Legislative Assembly Committee is seriously examining its applicability in the State. Whereas, the Nagaland Bar Association had expressed some genuine apprehensions in the event the Act of 2002 is made applicable in the State to the detriment of the common people. In the event of default of loan payments, the mortgaged properties shall be auctioned and sold to non-indigenous inhabitants of Nagaland by the Banks/financial institutions etc. The Finance Department, Nagaland through a Press Statement had tried to clarify and dispel the serious concerns of the Nagaland Bar Association on the ground that Nagaland is protected by Article 371 (A) and the Nagaland Land and Revenue Regulation (Amendment Act), 1978 which prohibits transfer of immoveable properties to non–indigenous inhabitants.
Section 13 of the Act of 2002 provides enforcement of security interest. It provides the power to Banks/financial institutions to take possession of the secured assets of the borrower including the right to transfer by way of lease, assignment or sale for realizing the secured asset. It will clearly impinge upon the rights of the indigenous inhabitants of Nagaland guaranteed under Article 371(A). Section 34 provides that civil court shall have no jurisdiction to entertain any suit or proceeding. Section 35 of the Act of 2002 provides that the provision of the Act shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force of instrument having effect by virtue of any such law. It is a valid legal argument to state that Section 35 cannot override the constitutional provision and the rights and protections as guaranteed under Article 371 (A). As such, the Act of 2002, in its present form, if given effect to, in the State of Nagaland, will dilute the rights guaranteed under Article 371 (A).
Whether the power under Article 371 (A) is only restrictive in nature or Article 371 (A) is both restrictive as well as an enabling provision has been a subject matter of debate over the years. The Government of Nagaland over the years, keeping in view our unique political history is of the clear stand that Article 371 (A) have both negative as well as positive powers. The Nagaland Legislative Assembly have the power to make laws with regard to subjects under Article 371 (A) (1) (a) (i) to (iv) and also the power to restrict applications of Central Laws in the same subject matter unless by a resolution so decides. In exercise of power under Article 371 (A), the Nagaland legislative Assembly had enacted The Nagaland Ownership and Transfer of Land and its Resources) Act, 1990 which received the assent of the Governor on 27-05-1993 and published in the Nagaland Gazette on 06-07-1993. Whereas, the stand of the Central Government in the Affidavit filed by the Ministry of Petroleum & Natural Gas in Lotha HOHO Vs The State of Nagaland & 7others, PIL No. 4(K) /2015 that Article 371 (A) is a restrictive provision which put a restriction on the application of laws made by Parliament and not a source of legislative power of the state. It is a very delicate matter and which requires a political negotiation and settlement keeping in view the spirit of Article 371 (A). However, it is a valid legal argument to take a stand that when the Nagaland Legislative Assembly by a resolution allows the application of a central Act in the State of Nagaland, all the protections, rights guaranteed under Article 371 (A) are automatically lifted/diluted and the central Act shall apply in its full force and not in a piece meal.
In exercise of power under Article 371 (A), the Nagaland Legislative Assembly had adopted The Assam Land and Revenue Regulation, 1886 (Regulation 1 of 1886). It was amended by the Nagaland Land and Revenue Regulation (Amendment Act), (Nagaland Act No.8 of 1978). It received the assent of the Governor on 29-09-1978 and published in the Nagaland Gazette on 15-11-1978. The amendment provides that notwithstanding anything to the contrary in any law, usage, contract or agreement no person other than the indigenous inhabitants of Nagaland shall acquire or possess by transfer, exchange, lease agreement or settlement of any land in any arear or areas. No document evidencing or transaction of acquisition or possession of any land by way of transfer, exchange, lease or settlement shall be registered. The Nagaland Post editorial on 04-10-2021 had raised a very pertinent point on the present issue. When the Register of Indigenous Inhabitant of Nagaland (RINN), it is yet to be enacted, when the criteria for recognizing indigenous inhabitant is yet to be finalized, how SARFESAI Act, 2002 can be implemented with the rider that the properties can only be auctioned or sold to an indigenous inhabitant. This is a serious question to be deliberated by all the stake holders before any final decision.
Inspite of the Nagaland Land Revenue Regulation (Amendment) Act, 1978, it is an open secret that there are rampant Benami transactions with regard to land, immovable properties, Benami business with the sole motive to evade taxes especially in Dimapur. Benami transaction is defined as any transaction in which property is transferred to one person for consideration paid by another person. Such transactions are in clear violations of the The Benami Transactions (Prohibition) Act, 1988 and The Benami Transaction (Prohibition) Amendment Act, 2016. The central and well as the state agencies had turned a blind eye to such illegal transactions in the State. Also, the civil societies are totally silent.
In a similarly situated case, Section 187 of The Tripura Land Revenue and Land Reforms Act, 1960 which prohibits sale of hypothecated/mortgaged property of tribal to non-tribal, the Hon’ble Supreme Court in UCO Bank and another Vs Dipak Debbarma and others, (2017)2 SCC 585, had held that the SARFESAI Act, 2002 shall prevail over Section 187 of the Tripura Land Revenue and Land Reforms Act, 1960. The provisions of the Act of 2002, which do not contain any embargo on the category of persons to whom mortgaged property can be sold to bank for realization of its dues that will prevail over the provisions contained in Section 187 of the Tripura Act, 1960.Also, the Hon’ble Supreme Court in State Bank of India Vs Santosh Gupta and another, (2017) 2 SCC 538, had held that the SARFESAI Act, 2002 is fully applicable without any conditions in the erstwhile state of Jammu & Kashmir superseding the protections under Article 370 & 35 A of the Constitution of India (now abrogated).
Section 31 A of the Act of 2002 empowers that Central Government through a Notification that any of the provisions of this Act shall apply not apply/ shall apply to the class or classes of banks or financial institutions with such exceptions, modifications, as may be specified in the notifications. Section 37 of the Act of 2002 provides that applications of any other law for the time being in force is not barred. As such, the State Government can approach the Central Government to ensure such exceptions, modifications in the Act of 2002, by incorporating an exception clause to Section 13 of the Act of 2002, keeping in view the protection under Article 371 (A). Also, the State Government should obtain a written assurance from all the banks/financial institutions for mandatory incorporation of the provisions of The Nagaland Land Revenue Regulation (Amendment) Act, 1978 in all contract/ loan agreements, in the event the Act of 2002 is enforced in Nagaland.
What is the way out? The people of Nagaland should look forward not backward. For the overall economic growth and development of the state and to keep pace with the ever changing financial scenario and to ensure that Nagaland does not lag behind in its overall growth in all the related fields, it is incumbent upon the policy makers to make a serious effort to ensure and facilitate availability of bank loans to encourage business in the state. However, it is also imperative to initiate a serious public debate/ consultation with all the stake holders to ensure and balance the spirit of entrepreneurship, economic growth and the protection of our rights, identity as enshrined under Article 371 (A) of the Constitution of India, before any final decision to enforce the SARFESAI Act, 2002 in Nagaland.
