IN THE HON’BLE SUPREME COURT OF INDIA

SPECIAL LEAVE PETITION (CIVIL) NO. 19555-1955621 OF 2021

IN THE MATTER OF:

M/s. Marg Limited ….Petitioner

VERSUS

Edelweiss Asset Reconstruction

Company Limited & Ors. ….Respondents

COUNTER AFFIDAVIT ON BEHALF OF THE RESPONDENT

I, __________, Director, Edelweiss Asset Reconstruction Company Limited, 1st Floor,

Edelweiss House, Off CST Roag, Kalina, Mumbai, do hereby solemnly affirm and
sincerely state as under:

1. I state that I am the director of Edelweiss Asset Reconstruction Company

Limited, I am well acquainted with the facts and circumstances of the case based
on record and further I am authorized and competent to affirm this Counter
Affidavit.

2. At the outset, it is stated that all the contents of the Special Leave Petition except
those specifically admitted hereunder are denied and the Petitioner is put to
strict proof thereof.

3. That the present Special Leave Petition has been filed against the Impugned
orders dated 20.09.2021 passed by the Hon’ble High Court of Judicature at
 Madras in W.P. No. 19939 of 2021 and Impugned Order dated 10.11.2021
passed in Review Application No. 152 of 2021 in W.P. No. 19939 of 2021,
whereby the Hon’ble High Court rightly dismissed the Writ Petition as well as
the Review Petition.

4. At this juncture, it is pertinent to provide a brief factual background of the

matter. The Petitioner is a public listed company incorporated under the
provisions of the Companies Act, 1956. In pursuance of Letter of Intent dated
21.09.2005 issued by the Respondent No. 4, the Petitioner was awarded with a
Concession Agreement on 25.01.2006 for the Development of the Karaikal Port
(“Concession Agreement”) whereby the Petitioner was granted a concession by
the Government of Puducherry on a Public Private Partnership BOT (Build,
Operate, Transfer) basis for developing and operating a Greenfield Port in
Karaikal in the Union Territory of Puducherry.

5. That on 16.02.2006, the Respondent No. 2, a Special Purpose Vehicle was

incorporated by the Petitioner as its wholly owned subsidiary for the purpose of
undertaking the development and operation of the Karaikal Port. The Petitioner
is one of the promoters of the Respondent No. 2 along with its Managing
Director Mr. GRK Reddy and Mrs. V.P Rajni Reddy.

6. That the Petitioner, Respondent No. 2 and Respondent No. 4 executed a Deed
of Assignment dated 06.11.2006 whereby all the rights, and/or interests,
commitments, responsibilities and obligations accruing to the Petitioner under
the Concession Agreement were transferred and assigned from the Petitioner
to the Respondent No. 2.

7. That in order to develop the Karaikal Port and to efficiently carry out its
obligations assumed under the Concession Agreement, the Respondent No. 2
 had availed loans from a consortium of lenders consisting of the Indian Bank,
Oriental Bank of Commerce, Allahabad Bank, India Infrastructure Finance Co.
Ltd., Corporation Bank and the State Bank of Hyderabad (“Early Lenders”).
Further, a Trust and Retention Account Agreement dated 06.11.2006 was
executed by the Respondent No. 2 with the aforesaid banks in order to record
the terms and conditions for setting up and operating a trust and retention
account (“Retention Account”), the funds from which servicing of debt to the
Early Lenders would be performed and all operation and maintenance expenses
of the Port would be funded from it (“Trust and Retention Agreement”). Indian
Bank was acting as the Lenders’ agent for the consortium of Early Lenders, and
the Trust and Retention Account of the 2nd Respondent was also maintained
with the said India Bank.

8. That in due course of time, Punjab National Bank, Indian Overseas Bank, Central
Bank of India, Syndicate Bank, Union Bank of India also provided financial
assistance to the Respondent No. 2 i.e., a consortium of 11 banks/ financial
institutions (including the institutions who had earlier provided financial
assistance) were the lenders of the Respondent No. 2, hereinafter referred to as
“Initial Lenders”. Together, the Early Lenders and Initial Lenders have provided
financial assistance for a sum of INR 1717 Crores to the Respondent No. 2 over
a period of time.

9. That in order to avail the loans, the Petitioner as well as its promoters had also
extended their corporate and personal guarantees for the due repayment of the
loan towards the Initial Lenders. Besides, the Petitioner had involved private
equity players viz. India Infrastructure Fund, Ascent Capital Advisors Private
Limited, Nylim Jacob Ballas (FVCI) III LLC, Standard Chartered Private Equity
(Mauritius) II Limited (collectively, the “PE Investors”) as well.
10. That the repayment of loans by the Respondent No. 2 initially was made without
any delay or default and were duly honored and performed every month from
time to time until July 2014. However, subsequently, in view of various macro-
economic factors, economic-slowdown and other external circumstances, there
was delay in servicing of loan repayment by the Respondent No. 2. Indian Bank
acting as the Security Trustee for the Initial Lenders had invoked the shares
pledged in its favor by the Petitioner thereby diluting the shareholding of the
Petitioner by a large extent. In the process, the Indian Bank took control of
about 36.75% of shareholding in the Respondent No. 2 company from the hand
of the Petitioner when the Respondent No. 2’s account was declared as a Non-
Performing Asset by the Initial Lenders.

11. That out of 11 numbers of the Initial Lenders, the Indian Bank along with 8 other
Initial Lenders (all except Corporation Bank and State Bank of Hyderabad)
executed Assignment Deeds between July 2015 to September 2016 by virtue of
which the entire debt extended to the Respondent No. 2 by the aforesaid 9
Initial Lenders was assigned to the Respondent No. 1 for a consideration.
Further, all the rights and remedies of the 9 of the Initial Lenders under the
terms of the Trust and Retention Agreement were assigned and transferred to
the Respondent No. 1. Hence, post the execution of the Assignment
Agreements, the Respondent No. 1 became entitled to regulate the transactions
of the Respondent No. 2 through the Trust and Retention Account. It is
appropriate to mention here that the loans availed by the Respondent No. 2
from the State Bank of Hyderabad was assigned to Pheonix ARC Private Limited
during the same period when the other 9 Initial Lenders had assigned their loans
to the Respondent No. 1.

12. That Respondent No. 1 subsequent to its acquisition of the debts of the
concerned Initial Lender, at the request of the Respondent No. 2, executed a
 Master Restructuring Agreement, inter-alia, with the Respondent No. 2, the
Petitioner in its capacity as sponsor and corporate guarantor, (“MRA”).
Accordingly, the outstanding debt as on 26.07.2018 was restructured under the
MRA. As per the MRA, the Respondent No. 2 was obligated to repay the
Respondent No. 1 the entire debt by 31.03.2021. Further, by virtue of the MRA,
Respondent No. 1 is controlling the key affairs of Respondent No.2, even though
its shareholding in Respondent No. 2 Company is just above 10%.

13. That the Respondent No. 2 had continued to make payments since MRA period
to the Respondent No. 1 timely and without any default until the global
pandemic outbreak of Covid-19. The Respondent No. 2 had vide multiple
communications addressed to the Respondent No. 1 highlighting about the
difficulties faced by the Respondent No. 2 in the wake of the Covid-19 pandemic.
As on April 2021, the Respondent No. 2 had made a payment of Rs.
819,66,00,000/- (Indian Rupees Eight Hundred and Nineteen Crores Sixty-Six
Lakhs only) to the Respondent No. 1, including a sum of Rs 137 Crores to the
Respondent No.1 during the FY 2020-2021.

14. That the Petitioner being the original promoter and sponsor of the Respondent
No. 2 and also being the corporate and personal guarantor for the loans availed
by the Respondent No. 2 had been making several initiatives to provide exit to
the PE Investors and in the process has recently identified IOTC European
Holdings SA, Luxembourg, a reputed international investor group (“IOTC
Group”), who expressed their willingness to take over the debts and substantial
equity of the Respondent No. 2 from the Respondent No.1 and the PE Investors.

15. That the IOTC Group had provided a non-binding Letter of Intent dated
06.08.2021 with an offer amount of Rs. 1400 Crores towards settlement of the
Respondent No.2 debt to the tune of Rs. 2059.24 crs (as of July 2021) with the
 Respondent No. 1 and for acquisition of its shareholding in the Respondent No.
2. All the stakeholders of the Respondent No. 2 including its Board of directors,
the PE Investors and the Respondent No.1 were informed of the said proposal
made by the IOTC Group on 10.08.2021.

16. That the Respondent No. 1 rejected the said proposal vide their email dated
12.08.2021 stating that the offer amount of Rs. 1400 Crores is purportedly low
vis-a vis the outstanding amount and hence could not be accepted.

17. That on 16.08.2021 the Respondent No. 1 published an E-Auction Notice under
Swiss Challenge for re-assigning by auction its entire debt and the shareholding
held in the Respondent No. 2 with base sale price of Rs. 1500 Crores. The bid
document stated that the bid is open for eligible Asset Reconstruction
Companies, banks and financial institutions. It had been issued for the sale of
identified assets in the Respondent No. 1. Under the said Bid Process Document,
the said public E-auction was to be done under the Swiss Challenge Method
through the Respondent No. 5, herein on 17.09.2021.

18. That the Bid Process Document, inter-alia, has classified that Rs. 2059.24 crores
outstanding as on 31.07.2021 and 6,50,63,869 equity shares of the Respondent
No. 2 held by the Respondent No. 1 as constituting Non- Performing Asset which
have been defined by the Respondent No. 1 as “Identified Assets” to be sold
upon inviting bids for eligible Asset Reconstruction Companies (ARC), eligible
Banks and eligible Financial Institutions under the rules prescribed by the
Respondent No. 3. The Identified Assets have been offered for sale on “100%
Cash” and “As is, where is and what is, where is, no recourse” basis under “SWISS
Challenge Method” based on an existing offer in hand, with the right to match
the highest bid and the reserve bid for any bidder had been fixed as Rs. 1500
 crores. Further, it has been expressly stipulated that “The Participants shall hold
a valid RBI registration certificate”.

19. That it is the contention of the Petitioner that as per the bid Process Document,
it seems to have permitted the submissions of the bids by eligible ARC, Banks
and Financial Institutions, restricting it majorly to ARCs only and not even to the
banks and financial institutions, much less private equity investors or strategic
investors like the IOTC Group. Petitioner argues that such restricted and narrow
manner of proposed sale of the Identified Assets is clearly against the principles
of open, transparent and competitive bidding with level playing field to all
bidders.

20. That the Petitioner sent and Email Communication dated 01.09.2021 to the
Respondent No. 1 seeking extension of Auction process so that they can
communicate with IOTC Group and give a better offer to Respondent No.1.
Another email was sent to Respondent No. 1 informing them that IOTC has
revised their offer to Rs. 1500 Crs for acquisition of Respondent No. 2’s debt held
with the Respondent No. 1. (ANNEXURE P-8 & P-9, SLP Document @ Pg. 124-
125)

21. That the Petitioner sent an email to Respondent No.3 apprising them that the
Auction Notice has been issued contrary to the circular no. RBI/2015-2016/94-
DNBR. (PD). CC.No.03/SCRC/26.03.001/2015-16 dated 01.07.2015. An email
response was received from Respondent No. 3 stating that the Petitioner should
take up the issue directly before the appropriate forum. (ANNEXURE P-11 & P-
13)

22. That various circulars and guidelines have been issued by Reserve Bank of India
i.e., Respondent No. 3 in relation to the working of Asset Reconstruction
 Companies and to develop and improve the SARFAESI law. Some of the
circulars/guidelines relevant for the case at hand are as follows:
 Circular No. RBI/2013-2014/460 dated 23.01.2014 allowing ARCs to
acquire financial assets from another ARC for the purpose of aggregation
of debts. (ANNEXURE P-1, SLP Document @ Pg. 41-45)
 Circular No. RBI/2015-16/94 DNBR. (PD). CC.
No.03/SCR/26.03.001/2015-16 dated 01.07.2015, updating the
Securitization Companies and Reconstruction Companies (Reserve Bank)
Guidelines and Direction 2003. (ANNEXURE P-2, SLP Document, Pg. 46-
70)
 Circular No. RBI/2016-17/56 DBR. No.BP.BC.9/21.04.048/2016-17 dated
01.09.2016, dealing with Guidelines on Sale of Stressed Assets by Bank.
(ANNEXURE P-3, SLP Document Pg. 71-76)
 Circular No. RBI/DNBR/2018-19/227 DNBR.PD(ARC) CC. NO.
07/26.03.001/2018-19 dated 28.06.2019 on “Permission to acquire
financial asset from other Asset Reconstruction Companies” (Annexure
P-4, SLP Document, Pg. 77)
 Circular No. RBI/2019-20/110 DOR.NBFC(ARC) CC. No.
8/26.03.001/2019-20 dated 06.12.2019 on “Acquisition of financial
assets by Asset Reconstruction Companies from sponsors and lenders”.
 Circular No. RBI/2020-21/13 DOR.NBFC(ARC) CC. No. 9/26.03.001/2020-
21 dated 16.07.2020 on “Fair Practice Code for Asset Reconstruction
Companies” (ANNEXURE P-6, SLP Document, Pg. 79-81)

23. That a Writ Petition being W.P. No. 19939 of 2021 was filed by the Petitioner
before the Hon’ble High Court of Judicature at Madras, inter alia praying that
the Respondent No. 3 may direct the Respondent No. 1 to not hold the Swiss
Challenge E-Auction as it is violative of the directions issued by it.
24. That the above-mentioned Writ Petition filed by the Petitioner was decided by
way of the “Impugned Order” dated 20.09.2021 by the Hon’ble High Court of
Judicature at Madras and the relevant portion of the order states that
“Quite inarguably, the fourth respondent herein as the successor in interest of
the original secured creditor and as an asset reconstruction company can take
steps to realise the dues by taking measures under Section 13(4) of the Act. The
only subtle issue is as to whether the auction may be conducted by the Swiss
challenge mode or otherwise. Even if it is accepted at face value that the fourth
respondent may not be governed by the guidelines issued by the Reserve Bank
since the fourth respondent is not a bank, there does not appear to be any
express statutory embargo preventing the fourth respondent from adopting the
same methodology. More importantly, when a statutory body is tasked with the
duty of entertaining grievances against measures taken by a secured creditor
under the said Act of 2002, the methodology proposed to be adopted in course
of the relevant measure would also be amenable to a challenge under Section 17
of the Act before the jurisdictional Debts Recovery Tribunal.”

25. That the Petitioner challenged the Impugned Order dated 20.09.2021 by filing a
Special Leave Petition SLP (C) No. 16208 of 2021 which was listed on 08.10.2021,
where in the Supreme Court while disposing of the SLP passed the following
order:
“…The Petitioner is granted liberty to approach this court in the event of the
dismissal of the review petition, by challenging the review petition as well as the
judgment dated 20.09.2021.” (Annexure P-14, SLP Document).

26. That a Review Application being Review Application No. 152 of 2021 in W.P. No.
19939 of 2021 was filed by the Petitioner before the Hon’ble High Court of
Judicature at Madras. The said Review Application and the Writ Petition was
rightly dismissed by the Hon’ble High Court of Judicature of Madras vide
“Impugned Order II” dated 10.11.2021. Relevant Paras of the order are:
“6. At the time that the petition was moved on September 20, 2021, it was the
methodology of the transfer that was sought to be challenged. However, there
is no doubt that this court misconstrued the purport of the petition and perceived
the challenge to be in respect of a measure adopted by the concerned secured
creditor under Section 13(4) of the Act of 2002 instead of noticing that it was a
sale under Section 5 of the said Act.
7. Section 5 of the Act permits an asset reconstruction company, which is the new
compendious form of describing entities referred to as securitisation companies
and reconstruction companies in the original statute, to acquire the financial
assets of any bank or financial institution. Unlike Section 13 of the Act which
permits, inter alia, the secured creditor to access the secured asset and conduct
a sale thereof, Section 5 of the Act permits the "financial assets" of a bank or
financial institution to be transferred to an asset reconstruction company. As to
what an asset reconstruction company may do upon acquiring the financial
assets of any bank or financial institution is governed by Section 9 of the Act, but
it is completely unnecessary in the present context, despite the copious reference
to parts thereof to circulars issued by the Reserve Bank thereunder. In the present
case, the asset reconstruction company which holds the financial asset seeks to
transfer it to another entity entitled to receive the same in terms of the Act of
2002. There is no dispute in such regard. The totality of the assets that the fourth
respondent holds includes the debt due which is in excess of Rs.2,059 crore and
the shares which have been indicated in the relevant advertisement.
8. Ordinarily, the "financial assets" that a bank or a financial institution may hold
in respect of credit facilities granted would be the amount outstanding together
with the securities furnished. In the present case, the shares may have been the
securities furnished or such shares may have been issued against a part of the
debt due.”
 PRELIMINARY SUBMISSION

27. That Reserve Bank of India (hereinafter “RBI”) i.e., Respondent No. 3 takes upon
the responsibility of financial stability of the country. The role of RBI is to
safeguard the economic and financial stability of the country. It is an expert body
having large number of expert advisors relating to the matters deciding the
economy of the entire country and nobody can doubt the bona fide intention of
the bank in connection to this.

28. That the RBI is vested with the responsibility of regulation and supervision of the
banking system. The deterioration in asset quality has been a subject of
continued concern for the Indian banking sector since the last decade. As part
of its supervisory role, in 2015, the Reserve Bank of India undertook the Asset
Quality Review AQR to encourage a proactive asset quality recognition by banks.
The asset quality recognition is to be followed by an effective asset resolution
and recovery by banks for a healthy banking system.

29. That the passage of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act SARFAESI Act in 2002 empowered the
banks and financial institutions to recover the loans by enforcing security
interest and auctioning borrower’s property without court’s intervention.

30. That as part of the SARFAESI Act, Asset Reconstruction Companies (hereinafter
“ARCs”) were set up as another institutional alternative for NPA resolution in
India. The ARCs, regulated and supervised by the Reserve Bank, were institutions
created for the sale of financial assets by banks and financial institutions. (ARCs
in India: A Study of their Business Operations and Role in NPA Resolution, RBI
Bulletin April 2021)
31. That the SARFAESI Act, provides the RBI i.e., Respondent No. 3 to determine the
policy and issue necessary guidelines for the regulation and supervision of the
Asset Reconstruction Company.

32. That Section 9 of the SARFAESI Act provides for the measures which an ARC can
undertake for the purposes of asset reconstruction. Section 9(1)(b) provides for
“the sale or lease of a part or whole of the business of the borrower”. Further
Section 9(2) provides power to the RBI for the purpose of sub section (1) to
determine the policy and issue necessary directions including the directions for
regulation of management of the business of the borrower and fees to be
charged.

33. That it is pertinent to note here that the Section 9(2) is in the form of an inclusive
clause which grants the power to the RBI to determine policy and issue
necessary directions for the purpose of sub-section (1) “including” the directions
for the regulation of management of business of the borrower and fees to be
charged. Therefore, the word “including” expands the power of the RBI to issue
directions under this section.

The verbatim Section 9 is provided hereunder:

“Section 9: Measures for assets reconstruction. —(1) Without prejudice to the
provisions contained in any other law for the time being in force, an asset
reconstruction company may, for the purposes of asset reconstruction, provide
for any one or more of the following measures, namely:—
(a) the proper management of the business of the borrower, by change in, or
take over of, the management of the business of the borrower;
(b) the sale or lease of a part or whole of the business of the borrower;
(c) rescheduling of payment of debts payable by the borrower;
 (d) enforcement of security interest in accordance with the provisions of this Act;
(e) settlement of dues payable by the borrower;
(f) taking possession of secured assets in accordance with the provisions of this
Act;
(g) conversion of any portion of debt into shares of a borrower company:
Provided that conversion of any part of debt into shares of a borrower company
shall be deemed always to have been valid, as if the provisions of this clause were
in force at all material times.
(2) The Reserve Bank shall, for the purposes of sub-section (1), determine the
policy and issue necessary directions including the direction for regulation of
management of the business of the borrower and fees to be charged.
(3) The asset reconstruction company shall take measures under sub-section (1)
in accordance with policies and directions of the Reserve Bank determined under
sub-section (2).”

34. That in D.A.V College Trust and Management Society and Ors. vs. Director of
Public Instructions and Ors. AIR 2019 SC 4411, the Hon’ble Supreme Court held,
“The words ‘and includes any’, in our considered view expands the definition as
compared to the first part.”

35. That, therefore, as per Section 9(2), it can be said that the Respondent No. 3 i.e.,
RBI is empowered to make guidelines for ‘sale or lease of a part or whole of the
business of the borrower Section 9(1)(b)’.

36. That, further going into the SARFAESI Act, Section 12 provides the general power
to the RBI to determine policies and issue directions in public interest or to
regulate the financial system of the country to its advantage. RBI can issue
directions under this section in relation to the ARCs for their betterment and
improvement of working. The power of RBI under a general clause to issue
directions within an enactment has been given wide interpretation since RBI is
an expert body which supervises and regulates the baking & financial system of
India.
The verbatim of Section 12 of SARFAESI Act is provided hereunder:
“Section 12. Power of Reserve Bank to determine policy and issue directions.—
(1) If the Reserve Bank is satisfied that in the public interest or to regulate
financial system of the country to its advantage or to prevent the affairs of any
[asset reconstruction company] from being conducted in a manner detrimental
to the interest of investors or in any manner prejudicial to the interest of such
[asset reconstruction company], it is necessary or expedient so to do, it may
determine the policy and give directions to all or any [asset reconstruction
company]in matters relating to income recognition, accounting standards,
making provisions for bad and doubtful debts, capital adequacy based on risk
weights for assets and also relating to deployment of funds by the [asset
reconstruction company], as the case may be, and such company shall be bound
to follow the policy so determined and the directions so issued.
(2) Without prejudice to the generality of the power vested under sub-section (1),
the Reserve Bank may give directions to any [asset reconstruction company]
generally or to a class of [asset reconstruction companies] or to any [asset
reconstruction company]in particular as to—
(a) the type of financial asset of a bank or financial institution which can be
acquired and procedure for acquisition of such assets and valuation thereof;
(b) the aggregate value of financial assets which may be acquired by any [asset
reconstruction company].
(c) the fee and other charges which may be charged or incurred for management
of financial assets acquired by any asset reconstruction company;
(d) transfer of security receipts issued to qualified buyers.”
37. That the Courts have India have interpreted the powers of RBI provided in
various legislation for the supervision and regulation of the Indian financial
system. In ICICI Bank Limited vs. Official Liquidator of APS Star Industries Ltd.
And Ors. AIR 2011 SC 1521, the Hon’ble Supreme Court held that:
“…When a delegate is empowered by the Parliament to enact a Policy and to
issue directions which have a statutory force and when the delegatee (RBI) issues
such guidelines (Policy) having statutory force, such guidelines have got to be
read as supplement to the provisions of the BR Act, 1949. The "banking policy" is
enunciated by RBI. Such policy cannot be said to be ultra vires the Act. The idea
behind empowering RBI to determine the Policy in relation to Advances is to
enable banking companies to expand their business of banking and in that sense
such guidelines also define - as to what constitutes banking business.
…..
Thus, in our view the impugned Guidelines are not ultra vires the BR Act, 1949.
Dealing in NPAs as part of the Credit Appraisal Mechanism and as a part of
Restructuring Mechanism falls within Section 21 r/w Section 35A of the Act.
Hence, it cannot be said that "transfer of debts/NPAs" inter se between banks is
an activity which is impermissible under the 1949 Act. The BR Act, 1949 is an Act
enacted to consolidate and amend the law relating to banking. Thus, while
interpreting the Act one needs to keep in mind not only the framework of the
banking law as it stood in 1949 but also the growth and the new concepts that
have emerged in the course of time, (see: Principles of Statutory 11th
Interpretation by G.P. Singh, edition at page 328.)”

38. That, in Internet and Mobile Association of India v. Reserve Bank of India AIR
2021 SC 2720, it was observed by the Hon’ble Supreme Court that
“6.99. Law is well settled that when RBI exercises the powers conferred upon it,
both to frame a policy and to issue directions for its enforcement, such directions
become supplemental to the Act itself. The rules made under a statute must be
 treated as if they were contained in the Act and that therefore, they must be
governed by the same principles as the statute itself.
6.100. In his treatise on Administrative Law, Durga Das states:
The scope of judicial review is narrowed down when a statute confers
discretionary power upon an executive authority to make such Rules or
Regulations or orders 'as appear to him to be necessary' or 'expedient', for
carrying out the purposes of the statute or any other specified purpose. In such
a case, the check of ultra vires vanishes for all practical purposes inasmuch as
the determination of the necessity or expediency is taken out of the hands of the
Courts and the only ground upon which Courts may interfere is that the authority
acted mala fide or never applied his mind to the matter, or applied an irrelevant
principle in making a statutory order.”

Further the court held that, “There can be no quarrel with the proposition that
RBI has sufficient power to issue directions to its regulated entities in the
interest of depositors, in the interest of banking policy or in the interest of the
banking company or in public interest.”

39. That in Reserve Bank of India and Ors. vs. Peerless General Finance and
Investment Company Ltd. And Ors. AIR 1996 SC 646, the Hon’ble Supreme
Court made the following observations:
“In our view a very wide power is given to the Reserve Bank of India to issue
directions in respect of any matters relating to or connected with the receipt of
deposits. It cannot be considered as a power restricted or limited to receipt of
deposits as sought to be argued on behalf of the companies that under this
power the Reserve Bank would only be competent to stipulate that deposits
cannot be received beyond a certain limit or that the receipt of deposits may be
linked with the capital of the company
….
 Section 45-K is in the nature of an enabling provision. In the matter of
construction of enabling statutes the principle applicable is that if the Legislature
enables something to be done, it gives power at the same time, by necessary
implication, to do everything which is indispensable for the purpose of carrying
out the purpose in view. It has been held that the power to make a law with
respect to any subject carries with it all the ancillary and incidental powers to
make the law effective and workable and to prevent evasion”

40. That in Small Industries Development Bank of India v. Sibco Investment Pvt.
Ltd. (2022) 1 MLJ 629 the Hon’ble Supreme Court held that “It is clear from the
discussion above, that the RBI has wide supervisory powers over the financial
institutions like SIDBI etc., in furtherance of which, any direction issued by the
RBI, deriving power from the RBI Act or the Banking Regulation Act is statutorily
binding on the defendant”

41. That in Keshavlal Khemchand and Sons Pvt. Ltd. vs Union of India AIR 2015 SC
1168, the Hon’ble Supreme Court held that, “Realising the same, the Parliament
left it to the Reserve Bank of India and other REGULATORS to prescribe guidelines
from time to time in this regard. The Reserve Bank of India is the expert body to
which the responsibility of monitoring the economic system of the country is
entrusted under various enactments like the RBI Act, 1934, the Banking
Regulation act, 1949.”

42. That, therefore, it is stated that the guidelines issued by RBI i.e., Respondent No.
3 vide Circular No. RBI/2013-2014/460 dated 23.01.2014 allowing ARCs to
acquire financial assets from another ARC for the purpose of aggregation of
debts and Circular No. RBI/DNBR/2018-19/227 DNBR.PD(ARC) CC. NO.
07/26.03.001/2018-19 dated 28.06.2019 on “Permission to acquire financial
asset from other Asset Reconstruction Companies” are issued well within the
 powers of RBI provided under Section 9 and Section 12 of the SARFAESI Act, and
hence, are valid and in consonance with the objective of the Act.

43. That SWISS Challenge Method is a method of bidding, often used in public
projects, in which interested party initiated a proposal for a contract or the bid
for a project. The Swiss Challenge allows a seller to mix and match the features
of both open auction and a close tender to discover the best price of an asset.
The application of this method allows the seller to squeeze out best price from
the auction.

44. That under the SWISS Challenged Method, a prospective buyer offers a bid to
the lender, which then publicly calls for counter-bids from other prospective
buyers. Once the bids are received, the bank first invited the initial buyer who
offered a bid to match the highest bid in the public counter bidding process to
get the best value.

45. That in Sri Devi Karumariamman Educational Trust vs Central Bank of India and
Ors. W.P. No. 17599 of 2020, W.M.P. Nos. 21816 and 21817 of 2020, Decided
on 08.12.2020, High Court of Madras, the use of Swiss Challenge Method for
sale of financial assets in respect of the “Non-Performing Asset” account of the
Petitioner/borrower was justified.

46. That, further, in Ravi Development v. Shree Krishna Prathisthan and Ors. AIR
2009 SC 2519 whereby the validity of the Swiss Challenge Method was in
question. The Hon’ble Supreme Court of India held that “the application of Swiss
Challenge Method is justified and not violative of Article 14 of the Constitution”

47. That as addressed above, the Asset Reconstruction Company is governed by the
guidelines issued by Reserve Bank of India and its working is regulated and
 supervised by the RBI. Therefore, the petitioner’s challenge that the Respondent
No. 1 may not be governed by the guidelines issued by the Reserve Bank of India,
it is not open to the Respondent No. 1 to adopt the Swiss Challenge Method of
auction, does not hold good in the present case.

48. That the High Court of Madras vide Impugned Order dated 20.09.2021, has
rightly held that “Even if it is accepted at face value that the fourth respondent
may not be governed by the guidelines issued by the Reserve Bank since the
fourth respondent is not a bank, there does not appear to be any express
statutory embargo preventing the fourth respondent from adopting the same
methodology.” Therefore, there is not limitation in law that an ARC cannot use
SWISS Challenge Method for E-Auction.

49. That the Court in a number of judgments held that if there is no statutory
embargo with respect to a certain right or method, the same is valid. In
Municipal Corporation, Bhopal v. Mohd. Yunus 2009(1) MPLJ 282 the Hon’b;e
Court held, “Since this Court has come to a conclusion that there is no statutory
embargo in creating permanent lease in the land belonging to Municipal
Corporation in favour of the Respondent/decree holder, the aspect of doctrine of
eclipse does not get attracted.”

50. That in Sandeep Singh v. State of Haryana and Ors. 2005(2) SLR 8 (SC), the
Hon’ble Supreme Court held , “That apart, even on first principle, it appeals to
us to commend that the vacancies available in any particular service till the date
of interview at least should be filled up from the very same examination unless
there is any statutory embargo for the same.”

51. That hence, as per the arguments stated above, it can be stated that Respondent
No. 1’s act of selling the financial assets of Respondent No. 2 by Swiss Challenge
 Method which is transparent, open and allows competitive bidding as it does
not violate Article 14 of the Constitution is permitted and valid in law.

52. That even though it has been proved that the RBI guidelines allowing acquisition
of financial assets by an ARC from another ARC for the purpose of aggregation
of debts is valid. Even then, taking into account the observation by the High
Court of Madras vide Impugned Order II dated 10.11.2021 in the Review
Application filed by the Petitioner, that the auction was a sale under Section 5
of the SARFAESI Act. The Section 5 permits an ARC to acquire the financial assets
of any bank or other financial institution. Unlike Section 13 which permits the
secured creditors to access the secured assets and conduct sale thereof, Section
5 of the Act permits the “financial assets” of a bank or financial institutions to
be transferred to an asset reconstruction company.
The verbatim of Section 5 is provided here:
“5. Acquisition of rights or interest in financial assets.—(1) Notwithstanding
anything contained in any agreement or any other law for the time being in force,
any [asset reconstruction company]may acquire financial assets of any bank or
financial institution—
(a) by issuing a debenture or bond or any other security in the nature of
debenture, for consideration agreed upon between such company and the bank
or financial institution, incorporating therein such terms and conditions as may
be agreed upon between them; or
(b) by entering into an agreement with such bank or financial institution for the
transfer of such financial assets to such company on such terms and conditions
as may be agreed upon between them.
…..”
53. That, it is clear from the above Section 5 that an Asset Reconstruction Company
can receive financial assets from a bank or a financial institution. This brings us
to the definition of a “financial institution” under the SARFAESI Act.

54. That Section 2(m) of SARFAESI Act defines “financial institutions”, it states that
“Section 2(m) “financial institutions” means-
….
(iiib) asset reconstruction company, whether acting as such or managing a trust
created for the purpose of securitisation or asset reconstruction, as the case may
be;
…”
Therefore, it can be rightly seen that a financial institution includes ARC under
the SARFAESI Act.

55. That upon reading Section 5 with Section 2(m)(iiib), an inference can be made
that financial asset can be transferred from an ARC to another ARC under the
SARFAESI Act.

56. That coming to the issue of sale of Equity Shares as Non-Performing Assets by
an Asset Reconstruction Company under the SARFAESI Act, the Hon’ble
Supreme Court of India in S. Karthik and Ors. vs. N. Subhash Chand Jain and
Ors. AIR 2021 SC 4559 held, “76. We will have to take into consideration the
purpose with which the SARFAESI Act came to be enacted. Unlike international
banks, the banks and financial institutions in India did not have power to take
possession of securities and sell them. It was, therefore, noticed, that it had
resulted in slow pace of recovery of defaulting loans and mounting levels of non-
performing assets of banks and financial institutions. It was also noticed that
there were certain areas in which the banking and financial sector did not have
a level playing field as compared to other participants in the financial markets in
 the world. It was further noticed that the existing legal framework relating to
commercial transactions had not kept pace with the changing commercial
practices and financial sector reforms. As such, the SARFAESI Act was enacted
with the purpose for securitization and empowering banks and financial
institutions to take possession of the securities and to sell them without the
intervention of the Court.”

57. That therefore, it has been rightly held by the Hon’ble High Court of Madras vide
Impugned order II dated 10.11.2021 that “financial assets” of a bank or financial
institutions in respect of credit facilities granted would include amount
outstanding together with the securities furnished. In the present case, shares
may have been the securities furnished or such shares may have been issued
against a part of debt due. Hence, they can be sold for the purposes of asset
reconstruction & securitization.

58. It is humbly submitted that from the discussion above, it becomes abundantly
clear that the Respondent No. 3 had issued guidelines well within its powers as
provided under the SARFAESI Act. Further, the auction conducted by
Respondent No. 1 by the method of SWISS Challenge Method was well within
the four corners of the SARFAESI Act and hence perfectly valid.

59. It is submitted that there is no doubt that this petition is a time-wasting measure
adopted by the Petitioner herein to delay the recovery of the dues that it plainly
cannot afford to pay. Moreover, no new facts and pleadings have been raised in
the present petition which have not been settled by the Hon’ble High Court of
Madras vide Impugned Order dated 20.09.2021 & 10.11.2021.
60. It is therefore submitted that it can be clearly seen that the impugned judgment
of the High Court was passed upon a thorough consideration of all aspects of the
matter and therefore does not suffer from any infirmity.

61. That the Answering Respondent has not filed a para-wise reply and reserves the
right to file the same including any additional affidavit/documents in case this
Hon’ble Court directs or if it is required in the facts and circumstances of the
case.

62. Therefore, in the premises mentioned above, it is most respectfully and humbly
prayed that this Hon’ble Court may be pleased to dismiss the present Writ
Petition and pass such other Order or Orders as this Hon’ble Court may deem fit
and proper in the facts and circumstances of the case and in the interest of
justice.

63. It is stated that no new facts have been stated in the present Counter Affidavit.

DEPONENT

VERIFICATION

I, the above named deponent, do hereby verify the contents of this affidavit as
true and correct to my knowledge based on record and that no part of it is false
and nothing material is concealed therein.

Verified at New Delhi on this ____ day of ____ 2022.

DEPONENT