2016 Amendment to Section 21 of the RDDB Act - Prospective or Retrospective?

Amendments to legislative provisions often present dilemmas regarding their applicability to ongoing or past cases. A perfect example of this is the debate over the 2016 amendment to Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act (RDDB Act).

At the heart of this debate lies the pressing question: Does the amendment to Section 21 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDDB Act) through Act 44 of 2016, w.e.f September 1, 2016, extend its shadow backward or forward in time—is it prospective or retrospective? The first segment of this article aims to shed light on the intricate backdrop of amendment to Section 21 of the RDDB Act, setting the stage for a deeper inquiry. Then the article delves into an analysis of the decision of the Karnataka High Court in Vijay Mallya v. SBI, 2018 SCC OnLine Kar 173, juxtaposed against Supreme Court verdicts. As the discourse unfolds, it will be argued that the interpretation adopted in Vijay Mallya (supra) case is contrary to the established Supreme Court decisions. This article seeks to underscore the potential oversights in Vijay Mallya (supra) leading to the conclusion that perhaps this view requires further examination.

Background to the Amendment of Section 21

Section 21 of the RDDB provides that appellants are required to make a pre-deposit to file an appeal. Before the amendment of the Section 21, the Appellate Authority held the discretion to waive off or reduce this pre-deposit. The new mandate requires a deposit of at least 25% of the amount due, effectively removing the Tribunal’s ability to fully waive the pre-deposit requirement.

This discretion to waive off the pre-deposit amount was amended in 2016, wherein it was now made mandatory to deposit at least 25 % of the amount due for preferring an appeal. In other words, the 2016 amendment took away the power of the Appellate Tribunal to waive of the pre-deposit for filing of an appeal.

Comparison of the Pre- and Post-Amendment Section 21

Before the 2016 Amendment

21. Deposit of amount of debt due, on filing appeal. —

Where an appeal is preferred by any person from whom the amount of debt is due to a Bank or a Financial Institution or a consortium of Banks or Financial Institutions, such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal seventy-five per cent of the amount of debt so due from him as determined by the Tribunal under Section 19:

Provided that the Appellate Tribunal may, for reasons to be recorded in writing, waive or reduce the amount to be deposited under this section.

Post the 2016 amendment

21. Deposit of amount of debt due, on filing appeal. —

Where an appeal is preferred by any person from whom the amount of debt is due to a Bank or a Financial Institution or a consortium of Banks or Financial Institutions, such appeal shall not be entertained by the Appellate Tribunal unless such person has deposited with the Appellate Tribunal fifty per cent of the amount of debt so due from him as determined by the Tribunal under Section 19:

Provided that the Appellate Tribunal may, for reasons to be recorded in writing, reduce the amount to be deposited by such amount which shall not be less than twenty-five per cent of the amount of such debt so due to be deposited under this section.

A comparison of the unamended and amended Section 21 would show that prior to the amendment, appellants were required to deposit 75% of the debt, with the Tribunal possessing the discretion to reduce or waive the pre-deposit for recorded reasons. Post-amendment, the requirement was reduced to 50%, with a floor limit of 25% for reduction discretion.

Interpreting the amended Section 21, the Supreme Court in Kotak Mahindra Bank (P) Ltd. v. Ambuj A. Kasliwal, (2021) 3 SCC 549 has clarified that the discretion of DRAT to reduce pre-deposit amount from 50% of debt due, is limited to reducing the pre-deposit to 25% thereof, but the pre-deposit cannot under any circumstances be reduced below 25% of the debt due. [1]

However, the question remains whether the amendments to Section 21 apply retroactively or prospectively.

View of the Karnataka High Court in Vijay Mallya Case

A single judge of the Karnataka High Court in Vijay Mallya v. SBI, 2018 SCC OnLine Kar 173 considered this very question as to whether the 2016 amendment in Section 21 of the RDDB Act is prospective or retrospective.

In this case the Petitioner had challenged an order dated 28.03.2018 [2], directing the Petitioner to deposit a sum of Rs. 3,101 Crores, in the failure of which, the appeal will be liable to be dismissed automatically. One of the grounds [3] raised by the Petitioner against this order was that the DRAT erred in basing its decision upon the amendment as the right of appeal accrued to the Petitioner when the original proceedings are instituted. In other words, the argument of the Petitioner was that the amendment was prospective in nature and the Tribunal had the discretion to waive of the pre-deposit since the original proceedings had instituted before the amendment.

On the other hand, it was argued by the Respondents that the amendment being merely procedural in nature would apply retrospectively, since no person has a vested right in procedure.

Rejecting the contentions of the Petitioner, the Single Judge held that Section 21 of the 1993 act relates not to the “right of appeal” but to the conditions subject to which the “right of becomes exercisable”[4]. The court further held that such conditions fall within the domain of procedure and cannot be said to be substantive in nature.[5] The crux of reasoning of the Karnataka High Court can be found in Para 11 as under,

“11. The 2016 Amendment to the provisions of Section 21 of the Act of 1993, in substance, relates not to the right of appeal as such, but to the condition subject to which the said right becomes exercisable; ordinarily such conditions fall within the domain of procedure especially when the alteration of said conditions is not substantial, inasmuch as even after amendment; discretion is left with the DRAT to reduce the amount of pre-deposit, although not below 25% of the decretal amount. Therefore, the law by which such conditions are varied cannot be construed to be substantive law but shall remain within the realm of procedural law….”

In coming to this conclusion, the court had relied upon the decision of Shiv Shakti Coop. Housing Society, Nagpur v. Swaraj Developers, (2003) 6 SCC 659 wherein it had been held that no person has a vested right, in a course of procedure, and such procedural amendments are assumed to be retrospective.[6]

Further the High Court had also been swayed by the reasoning that the amendment being amendment by way of substitution, must be construed as being retrospective[7] in view of the law laid down by the Full Bench of the Karnataka High court in Hassan Co-operative Milk Producers Societies Union Ltd. v. State of Karnataka, Department of Co-operative Societies, ILR 2014 KAR 4257

Critique of Vijay Mallya Case

It is submitted that the Vijay Mallya (case), marks a significant point of reference with respect to the interpretation of the nature of amendment of Section 21 of the RDDB Act. Nonetheless, the interpretation given to this Section by the Karnataka High Court is questionable for at least two three reasons. Firstly, the contention is that the Vijay Mallya (supra) judgment is per incuriam, as the High Court overlooked the decisions of the Supreme Court that have held that modifications to the terms under which the right to appeal is exercised are also deemed to have a prospective effect. Secondly, the High Court failed to consider the decisions of the Supreme Court that have held that when the substituted provisions contain any substantive provisions, then such substitution cannot be assumed to be retrospective. Thirdly, the High Court’s reliance on the decision of Shiv Shakti Coop. Housing Society (supra) is misplaced, as in that case, the Supreme Court was dealing with an amendment to the “right of revision” which is very different from the “right of appeal”.

Varying conditions of appeal affect the substantive right of appeal.

Way back in the decision of Colonian Sugar Refining Company [1905] A.C. 369, the Privy Council had held that the right to appeal is a substantive right and not merely a procedural right. The Privy Council aptly explained the rationale behind this principle as under,

“To deprive a suitor in a pending action of an appeal to a superior tribunal which belonged to him as of right is a very different thing from regulating procedure”.

Applying the above principle, the Privy Council held that Section 39(2) of the Judiciary Act, 1903 which took away the right of appeal from the Supreme Court to the Privy Council and directed that the appeal was to lie to the High Court of Australia would apply only with prospective effect and thus would not be applicable to original proceedings instituted before the introduction of this act.

In Nogendra Nath Bose v. Mon Mohan Singha Roy, 1930 SCC OnLine Cal 90, the Plaintiff had instituted a suit a suit for arrears of rent and had obtained a decree. In execution of that decree, the tenure was sold on 20-11-1928. On 19-12-1928, one of the judgment-debtors had filed an application under Order 21 Rule 90 for setting aside the sale. That application having been dismissed for default; the Petitioner preferred an appeal to the District Judge. The District Judge refused to admit the appeal on the ground that the amount recoverable in execution of the decree had not been deposited as required by the proviso to Section 174, clause (c) of the Bengal Tenancy Act as amended by an amending Act in 1928. Challenging the said order, the Petitioner argued that the amended provision which came into force on 21-2-1929, could not affect the right of appeal from a decision on an application made on 19-12-1928, for setting aside the sale.

At the outset, it must be noticed that this decision was not dealing with the “right of appeal” but with the “conditions of the exercise of such appeal”. Expanding the rule laid down by the Privy Council in Colonial Sugar Refining Company (supra), J. Graham held that since the ‘right to appeal is a substantive right, it would follow that the substantive right of appeal, which the litigant possesses must be deemed to be prejudicially affected by a new provision, which has the effect of attaching to it any clog or disability;[8]. Thus, the Calcutta High Court made it clear that since the right to appeal is a substantive vested right, any modification which introduces any ‘clog’ or ‘disability’ with this right must also be held to be prospective.

The view of the Calcutta High Court in Nogendra Nath Bose (supra) has been accepted by the Supreme Court in Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh AIR 1953 SC 221. In this case, a division bench of the Supreme Court was dealing with the question as to whether amendment of section 22(1) of the Central Provinces and Berar Sales Tax which introduced requirement of proof of deposit of tax before filing of an appeal was prospective or retrospective. Again, it must be noticed that the amendments did not alter the right of appeal, but merely affected the conditions in respect to which such appeal is to be exercised.

The Supreme Court reiterated that the right of appeal is not merely a matter of procedure, but is a substantive right, and such right becomes vested in a party, when proceeding the first initiated in the inferior court[9]. The court also observed that the amendment placed a substantial restriction on the right of appeal, as the amended section required the payment of the entire assist amount as a condition precedent to the admission of its appeal.[10]

Applying the law laid down in Nogenra Nath Bose (supra), the Hon'ble Supreme Court held that any new requirement which ‘touches’ the substantive right of appeal or introduces any fetter or impairs the exercise of such appeal can only be prospective in nature. The relevant extract of is as under,

31. In the first place the onerous condition may in a given case prevent the exercise of the right of appeal, for the assessee may not be in a position to find the necessary money in time. Further this argument cannot prevail in view of the decision of the Calcutta High Court in Nogendra Nath Bose v. Mon Mohan Singha Roy [Nogendra Nath Bose v. Mon Mohan Singha Roy, (1930) 34 CWN 1009 : 1930 SCC OnLine Cal 90]. No cogent argument has been adduced before us to show that that decision is not correct. There can be no doubt that the new requirement “touches” the substantive right of appeal vested in the appellant. Nor can it be overlooked that such a requirement is calculated to interfere with or fetter, if not to impair or imperil, the substantive right. The right that the amended section gives is certainly less than the right which was available before. A provision which is calculated to deprive the appellant of the unfettered right of appeal cannot be regarded as a mere alteration in procedure. Indeed the new requirement cannot be said merely to regulate the exercise of the appellant's pre-existing right but in truth whittles down the right itself and cannot be regarded as a mere rule of procedure.

The decision of Hoosein Kasam Dada (supra) has been affirmed by a Constitution Bench in Garikapatti Veeraya v. N. Subbiah Choudhury 1957 SCR 488.[11]

Similarly, in State of Bombay v. Supreme General Films Exchange Ltd., AIR 1960 SC 980, the Supreme Court was dealing with the question as to whether the court fees that would be payable would be as on the date of the filing of the suit, or whether the same would be calculated as on the date of filing of the appeal Affirming the decision of Hoosein Kasam Dada (supra), the three judge bench reiterated that that any impairment of the right of appeal by putting a new restriction or imposing a more onerous condition is not matter of procedure only, but affects the substantive right of the parties, and therefore is prospective in nature[12].

The Constitution Bench in Vitthalbhai Naranbhai Patel v. CST, AIR 1967 SC 344 has affirmed the principle laid down in Hoosein Kasam Dada (supra) but has held that such rule would not be applicable where the date of commencement of the lis cannot be conclusively proved. The five-judge bench refused to apply the rule laid down in Hoosein Kasam Dada (supra), because in that case, there was no material on record to show as to when the lis had begun[13].

The above decisions were reaffirmed by the Supreme Court in Ramesh Singh v. Cinta Devi, (1996) 3 SCC 142, where the Supreme Court held that the appellant would be entitled to file the appeal without requiring to make the deposit under the proviso to Section 173 of the New Motor Vehicle Act.[14]

In Videocon International Ltd. v. SEBI, (2015) 4 SCC 33, a division bench of the Supreme Court was dealing with the right of second appeal provided under Section 15Z of the SEBI Act. By virtue of the amendment to the said section, the scope of second appeal, which was earlier maintainable on questions of law and fact, had been narrowed down to be maintainable only on questions of law. Even such restriction was held by the Supreme Court to be a clog on the right to appeal, and the amendment was held to be prospective[15].

The Supreme Court of India, in ECGC Ltd. v. Mokul Shriram EPC JV, (2022) 6 SCC 704 addressed a similar dilemma within the context of the Consumer Protection Act, holding that conditions of pre-deposit stipulated by the 2019 Consumer Protection Act would not apply to complaints filed under the 1986 Act or those pending when the 2019 Act came into force. The court held that no pre-deposit would be required for appeals in cases where the complaints were instituted under the 1986 act or when the 2019 act came into force[16]

Errors in Vijay Mallya (supra)

In view of the above case laws, it is submitted that the decision of Vijay Mallya (supra) is per incurium has it has failed to consider various Supreme Court decisions that have held any modification with respect the conditions of exercise of such appeal also fall in the realm of substantive law, and such amendments are prospective.

It should be noted that the previous version of the proviso to Section 21 allowed the Appellate Tribunal the flexibility to waive or reduce the pre-deposit based on the unique facts and circumstances of each case. However, this flexibility was subsequently eliminated, and a stringent requirement was introduced that mandated a pre-deposit of 25% of the debt owed, without taking the specifics of the case into account. This change has created a significant barrier to exercise the right to appeal. Consequently, the High Court’s stance that the 2016 amendment to Section 21 has retrospective application was arguably misguided, and it would have been more appropriate to consider the amendment as having a prospective effect.

Secondly, the rationale of the High Court that the amendment, being an amendment by way of substitution, should be considered retrospective[17] based on the precedent set by the Full Bench of the Karnataka High Court in Hassan Co-operative Milk Producers Societies Union Ltd. v. State of Karnataka, Department of Co-operative Societies, ILR 2014 KAR 4257, is flawed. The Supreme Court has firmly established that typically, when an amendment substitutes existing provisions, the original provisions are considered repealed, and the new provisions are installed from the start of that enactment. However, if the new provisions introduce substantive elements that establish new rights or obligations, or eliminate any established rights, then such substitution should not be automatically deemed retrospective. In instances where there are substantive changes, it is imperative for the legislature to explicitly state whether the substitution should be applied retrospectively or not[18].

Finally, the reliance placed by the High Court on the decision of Shiv Shakti Coop. Housing Society, Nagpur v. Swaraj Developers, (2003) 6 SCC 659 seems to be erroneous as in that case, the Supreme Court was dealing with the amendments made to the right of exercise of the remedy of ‘revision’ and not of appeal. In fact, the said decision differentiated between the right to appeal and right to revision by holding that while there is no substantive right of revision, right to appeal stands on a different footing.[19]

In conclusion, the view held by the Karnataka High Court in Vijay Mallya (supra) appears to be inconsistent with the decisions of the Supreme Court that have held similar amendments to be prospective in nature, especially when Section 21 alters the accrued rights. The position taken by the Karnataka High Court warrants further scrutiny by other High Courts and ultimately the Supreme Court to ensure that the substantive rights of litigants is protected.

[1] Para 13, Kotak Mahindra Bank (P) Ltd. v. Ambuj A. Kasliwal, (2021) 3 SCC 549

[2] Para 2, Vijay Mallya v. SBI, 2018 SCC OnLine Kar 1733

[3] Para 5, Vijay Mallya v. SBI, 2018 SCC OnLine Kar 1733

[4] Para 11, Vijay Mallya v. SBI, 2018 SCC OnLine Kar 1733

[7] Para 12, Vijay Mallya v. SBI, 2018 SCC OnLine Kar 1733

[8] Page 1010, Nogendra Nath Bose v. Mon Mohan Singha Roy, 1930 SCC OnLine Cal 90

[9] Para 24, Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh AIR 1953 SC 221

[10] Para 11, Hoosein Kasam Dada (India) Ltd. v. State of Madhya Pradesh AIR 1953 SC 221

[11] Para 22, Garikapatti Veeraya v. N. Subbiah Choudhury 1957 SCR 488

[12] Para 12, State of Bombay v. Supreme General Films Exchange Ltd., AIR 1960 SC 980

[13] Para 9, Vitthalbhai Naranbhai Patel v. CST, AIR 1967 SC 344

[14] Para 5, Ramesh Singh v. Cinta Devi, (1996) 3 SCC 142

[15] Para 41, Videocon International Ltd. v. SEBI, (2015) 4 SCC 33

[16] Para 38, ECGC Ltd. v. Mokul Shriram EPC JV, (2022) 6 SCC 704

[17] Para 12, Vijay Mallya v. SBI, 2018 SCC OnLine Kar 1733

[18] Para 53, Katta Sujatha Reddy v. Siddamsetty Infra Projects (P) Ltd., (2023) 1 SCC 355

[19] Para 15, Shiv Shakti Coop. Housing Society, Nagpur v. Swaraj Developers, (2003) 6 SCC 659