LI Network
Published on: February 4, 2024 at 11:31 IST
In a recent landmark decision, the Supreme Court emphasized that a valid legal provision should not be subject to the practice of ‘reading down’ merely due to the imposition of harsher consequences.
The Court’s stance came in response to a disagreement with a prior High Court observation, asserting that ‘reading down’ a clause should be a last resort, exercised only when the plain meaning of a provision leads to its potential invalidation.
The bench, comprising Chief Justice DY Chandrachud, and Justices JB Pardiwala and Manoj Misra, underscored that ‘reading down’ should only be considered when a provision’s plain meaning cannot be saved from invalidation, thereby ensuring the Court’s intervention remains minimal.
This approach aims to make a provision workable and salvageable, preserving its intended purpose.
The Supreme Court’s clarification arose from a specific case where it permitted a bank to forfeit the entire 25% deposit when an auction purchaser failed to meet the 15-day deadline for depositing the remaining 75%, as mandated under Rule 9(5) of the SARFAESI Rules.
Critiquing the High Court’s inclination towards ‘reading down’ Rule 9(5), the Supreme Court contended that this approach, based on the perception of harsh consequences, was flawed.
The High Court suggested the forfeiture of the earnest-money deposit only to the extent of the loss caused to the bank due to the auction purchaser’s default.
The Supreme Court firmly held that the perceived harshness of a provision should not prompt ‘reading down’ if its plain meaning is unambiguous and valid. Rule 9(5) of the SARFAESI Rules, incorporating the forfeiture of the entire earnest-money deposit, aligns with the legislative intent to promptly address bad debts. The Court cautioned against diluting this provision, as it could undermine the overall objective of the SARFAESI Act to enhance financial stability and streamline the recovery of bad debts.
The judgment underscored that the High Court’s decision to ‘read down’ Rule 9(5) without demonstrating its inherent invalidity or unworkability, overlooked the provision’s purpose and objectives.
The Court concluded that such an approach could potentially thwart the auction process under the SARFAESI Act, contradicting the legislative aims of promoting financial stability and reducing non-performing assets.
