Law should never be a puzzle, must be drafted in simplest way possible: Karnataka High Court

The Karnataka High Court recently emphasized that the law is not meant to be a puzzle and that efforts should be made to ensure that those who read the law understand it properly [Omkara Asset Reconstruction Private Limited v The Official Liquidator BPL Engineering Limited].

Justice Anant Ramanath Hegde made the observation while calling for a revival of the practice of adding illustrations to explain laws.

"The importance of illustrations found in several enactments, such as the Indian Penal Code, 1860, the Indian Contract Act, 1872, the Transfer of Property Act, 1882, the Specific Relief Act, 1963, the Bharatiya Nyaya Sanhita, 2023 and the Bharatiya Sakshya Adhiniyam, 2023 and the like, in capturing the true import of a provision is well known. However, perhaps unknowingly or unintentionally such a worthy practice is forgotten. It is high time it should be revived," the Court said.

The Court added that such a practice of including illustrations to convey the true purpose of the legislature in enacting the law or in subsequent amendments would help the justice delivery system.

"Wherever needed and appropriate, the incorporation of illustrations while enacting or amending a legislation may greatly assist all stakeholders in the justice delivery system. After all the law is meant for the common man and should be drafted in the simplest possible way. It should never be a puzzle," reads the Court's ruling.

The Court made the observation in a case where it was called to consider whether a provision added by way of an amendment to the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI Act) could have retroactive operation.

The Court observed that when laws are frequently amended, it could give rise to diverse judicial opinions about whether it is prospective, retrospective or retroactive.

The Court, therefore, also urged the legislature to clearly indicate how such amendments to laws should apply.

"It would always be desirable for the Legislature, while introducing an amendment, to indicate in clear terms whether the law or the amended provision is prospective, retrospective, retroactive and more important, with additional prescription as to how the amended provision is intended to apply to transactions and events that occurred prior to the amendment, to pending proceedings, and to future transactions," the Court said.

The Court was dealing with cross-petitions filed by the Commercial Tax Department (CTD) of Andhra Pradesh and Omkara Assets Reconstruction Pvt. Ltd.

Omkara is an asset reconstruction company that had been assigned debts owed by the now-defunct BPL Engineering Limited.

BPL was ordered to be wound up by the Karnataka High Court in 2012. Later, the CTD sought to recover BPL Engineering's outstanding tax dues by auctioning land owned by the company.

Omkara opposed the move, contending that, as a secured creditor, it had priority over enforcing its interest over the property under the SARFAESI Act.

Omkara argued that the land had been mortgaged to secure the loans assigned to it and that it was therefore entitled to enforce its security interest first.

To support this contention, Omkara relied on Section 26E of the SARFAESI Act, which provides that a secured creditor whose security interest is duly registered has priority in recovering its dues from a secured asset over other creditors.

Section 26E was introduced in 2016 and came into force in 2020. Since the mortgage, tax attachments and recovery proceedings in the present case all predated its commencement, one of the questions before the Court was whether the provision applied to such disputes.

Omkara argued that even if Section 26E is prospective, it can nevertheless operate retroactively (as opposed to retrospectively) and apply to decided after 2020, even if the underlying mortgage or security interest had been created earlier.

The CTD countered that there were State tax laws that created a statutory first charge over the property, giving it priority over even a secured creditor.

The Court found merit in CTD's stance and ruled in its favour.

Following recent Supreme Court decisions, it held that Section 26E operates prospectively and does not override statutory first charges created under State tax laws.

It, therefore, allowed the CTD to proceed with the sale of the property to recover the arrears.

Senior Advocate KG Raghavan and Adocate Vignesh Shetty appeared for Omkara.

Advocate Shrishail Raghavan appeared for the Official Liquidator of BPL Engineering.

Advocate Manu Prabhakar Kulkarni appeared for the CTD.

[Read Order]