Allahabad High Court
M/S Gorakhpur Steels & Metals Pvt. Ltd. vs The Presiding Officer, D.R.T. And ... on 10 February, 2017
Author: Mahesh Chandra Tripathi
Bench: Mahesh Chandra Tripathi
HIGH COURT OF JUDICATURE AT ALLAHABAD A.F.R. Judgment reserved on 09.01.2017 Judgment delivered on 10.02.2017 Case :- WRIT - C No. - 62682 of 2012 Petitioner :- M/S Gorakhpur Steels & Metals Pvt. Ltd. Respondent :- The Presiding Officer, D.R.T. And Others Counsel for Petitioner :- Arvind Srivastava Counsel for Respondent :- Vipin Sinha,Anil Sharma,K.M. Asthana,O.P. Mishra,Rahul Sripat,S.C. Hon'ble Mahesh Chandra Tripathi,J.
1. Heard Shri Arvind Srivastava, learned counsel for the petitioner-company, Shri K.M. Asthana, learned counsel appearing for first and second respondents, Shri Rahul Sripat, learned counsel for the eight respondent and Shri Anil Sharma, learned counsel for the tenth respondent.
2. Brief background of the case, as reflected from the record, is that M/s Ashok Iron & Steel Rolling Mills, Ashok Nagar, Tehsil Chauri Chaura, District Gorakhpur (fifth respondent) is a partnership firm with its Head Office at 194/1/7, Grand Trunk Road, Salkia Howrah, West Bengal and principal office of business and manufacturing unit at Ashok Naga, Tappa Kewatali Pargana Haveli, Tehsil Sadar, (Now Chauri Chaura), District Gorakhpur, U.P. The firm was set up by its partners to manufacture M.S. Rods, Flats, Iron angles etc. The firm was availing a cash credit loan from the State Bank of India, Branch Bank Road, Gorakhpur (third respondent) from a long time. Due to death/retirement of its partners, the firm was reconstituted on 30th day of December, 1991 and since thereafter the firm was carrying on business with following partners namely (i) Maghraj Garg; (ii) Krishna Chang Garg; (iii) Prem Chand Garg; (iv) Lachhman Dass Jindal; (v) Ramesh Kumar Jindal and (vi) Lajwanti Goel, arrayed as sixth to eleven respondents. They requested the respondent-bank to grant a cash credit (working capital) limit for carrying on their manufacturing business and the respondent bank allowed them to execute the document of loan and arrange for suitable guarantors to mortgage immovable properties in favour of the bank as security for payment of loan, interest and charges. They were further asked to pledge their materials, goods in the process of manufacture, finished goods and machinery as security for repayment of loan, interest and charges.
3. Thereafter the contesting respondents requested the bank to sanction an overall limit of Rs. One Crore. The respondent bank examined the stage of the business of the firm and came to the conclusion that a limit of Rs.75,00,000/- was sufficient to meet their requirements. They had again requested the respondent bank to sanction them an overall limit of Rs. One Crore. The respondent bank sanctioned an overall limit of Rs. One Crore but the operational limit was pegged upto Rs.75 lacs. They had also agreed to guarantee the loan of Rs. One Crore and the respondents executed an agreement for cash credit of Rs. One Crore in Form 'C' General dated 25.1.1993, demand promissory note dated 25.1.1993, agreement for partnership firm dated 25.1.1993, deed of guarantee in Form 'I' (Special) dated 25.1.1993 and an arrangement letter. The aforesaid cash credit loan was under facilities and the raw materials/goods in process of manufacture, finished goods and machinery pledged to the respondent bank. The private respondents were permitted to retain possession and custody of the above stated materials and goods to facilitate their business activities. The private respondents availed the loan within the operational limit of Rs. 75 lakhs and carried on their business. They had also acknowledged the loan in writing and executed revival letter form on 11.7.1995.
4. All the transactions were made by the private respondents through its account, which was opened in the respondent bank at the time of advancement of the loan but they failed to operate the account as per agreement of the loan. They informed the bank in the month of December, 1995 that the firm had been reconstituted. The private respondents were asked to liquidate the outstanding loan amount and in case they want to carry on their business, they would liquidate the loan and complete the formality of opening a new account by the partners of the reconstituted firm to carry on their business but they did not respondent to it. Thereafter, the respondent-bank stopped the operation of the account of the firm. When the loan account had not been liquidated and the facility of the loan of cash credit, the bank had given the legal demand notice to the private respondents through letters dated 31.3.1997 and 12.1.1998 asking them to liquidate the entire dues of the bank.
5. Consequently, the bank had proceeded to file a Suit No.405 of 1998 (State Bank of India vs. M/s Ashok Iron and Steel Rolling Mills and ors) on 17.4.1998 for recovery of Rs.74,96,423/- together with interest, cost and other reliefs. The aforesaid Suit was transferred to the Debt Recovery Tribunal, Allahabad on 28.9.2000 and the same was registered as T.A. Case No.884 of 2000. The aforesaid case was decided by the Debt Recovery Tribunal, Allahabad on 3.10.2005 and a recovery certificate dated 3.10.2005 was issued. The execution proceedings were pending before the Debt Recovery Tribunal, Allahabad and during the pendency of the execution proceedings the rights of State Bank of India were assigned to Kotak Mahindra Bank Limited-fourth respondent through an Assignment Deed dated 29.3.2006. An application dated 20th March, 2007 was moved by Kotak Mahindra Bank Limited for substituting its name in place of State Bank of India in the execution proceeding and the name of Kotak Mahindra Bank Limited had been substituted. The Debt Recovery Tribunal, Allahabad issued a notice to the debtors on 25.1.2008.
6. During the pendency of the execution proceeding the petitioner has been assigned the rights to recover the amount in question in pursuance of the order passed by the Debt Recovery Tribunal, Allahabad through Deed of Assignment dated 14.8.2008. An application was preferred for substitution/impleadment of the petitioner in the execution case. Kotak Mahindra Bank Limited moved an application for removal of the name of Kotak Mahindra Bank Limited from the proceedings. Thereafter an application for urgent hearing was moved and the copy of the application was not given to the petitioner. On 2.7.2012 a notice was given to the counsel for the petitioner informing that the case was listed on 13.7.2012. Before 13.7.2012 the father of the counsel for the petitioner was seriously ill and he was hospitalized in Apollo Hospital, New Delhi, therefore, the counsel for the petitioner was not in a position to go Debt Recovery Tribunal on 13.7.2012. After receiving the notice dated 2.7.2012, the counsel for the petitioner immediately had to leave for Delhi where his father was hospitalized and he was in New Delhi for taking case of his father. He returned on 9th August, 2012 after the death of his father and on his request the case was again fixed on 3.9.2012.
7. Again an application dated 16.7.2012 was moved on which an ex-parte order dated 17.7.2012 was passed fixing 20.7.2012. On 20.7.2012 again by an ex-parte order the case was fixed on 30.7.2012. Again an ex-parte order was passed on 30.7.2012 and no notice or information was given to the petitioner about the case being fixed on 30.7.2012 for hearing. Thereafter the matter was heard ex-parte on 3.9.2012 and the date was fixed on 9.8.2012 for pronouncement of the order without hearing the petitioner. It is alleged that Kotak Mahindra Bank had colluded with the private respondents and have succeeded in passing the order dated 9.8.2012. By the impugned order dated 9.8.2012 the Tribunal has rejected the application of the petitioner for substituting its name and also deleted the names of Kotak Mahindra Bank Limited.
8. Shri Arvind Srivastava, learned counsel for the petitioner has submitted that the right to recover the amount has been assigned to the petitioner and the substitution application is maintainable before the Debt Recovery Tribunal in execution proceedings. Since the application for substitution was filed by petitioner after the Transfer Application was decreed, it could have been allowed by the Debts Recovery Tribunal. In support of his submission, he has placed his reliance on the judgment passed by this Court in M/s Kotak Mahindra Bank Ltd vs. M/s Chopra Fabricator and Manufacturers (P) Ltd AIR 2011 Allahabad 19. He submitted that the Tribunal has failed to consider the law, which is binding upon it. The application moved by the petitioner was fully maintainable in the eyes of law and the impugned order having treated to be not maintainable is unsustainable in the eyes of law. The Debt Recovery Tribunal has executable right to execute the judgment and decree in question and dropping of recovery proceeding is vitiated in the eyes of law. The right to recover the amount has been assigned to the petitioner and the Debt Recovery Tribunal is the only forum, which could recover the amount of the award. The impugned order has been passed without taking into consideration the material evidence on record, which is unsustainable in the eyes of law.
9. On the other hand, Shri Rahul Sripat, learned counsel appearing for the eight respondent submitted that there was no legally enforceable assignment existed between the parties and the alleged Assignment Deed dated 29.3.2006 executed by the respondent-bank is illegal and the same was not permissible under the Banking Regulation Act, 1949 (in short, 1949 Act). The alleged assignment of financial instruments between the third respondent and fourth respondent transfers not only the right of recovering debt but also transfers the obligations under the financial instruments "as if the said financial instruments were executed by the fifth respondent in favour of the fourth respondent." The assignment of a debt can never carry with it the assignment of the obligations of the assignor, and unless there is a novation of the contract by all the parties, there cannot be a transfer of the obligations of the assignor as per provisions contained in Section 130 of the Transfer of Property Act, 1882. Therefore, such an assignment cannot be legally sustained without novation of original contract executed by the fifth respondent and guarantors of the financial assistance granted by the third respondent. Such assignment cannot be under any circumstances come within the permissible mode of business under Section 6 (1) of 1949 Act and hence, the alleged assignment by the third respondent to the fourth respondent is against the provisions of 1949 Act. Moreover, the assignment of debt by the fifth respondent is not a mode of recovery. The assignment of debt and recovery of debt are two different concepts. When there is recovery, the debt is totally extinguished, whereas in the case of assignment the debt is not extinguished. The debt remains, the debtor remains and only the creditor changes. The assignee bank cannot be said to be recovering debt when in fact it assigns the debt because both the debtor and the debt continue to exist and they are extinguished.
10. Shri Rahul Sripat further submitted that when a delegate is empowered by Parliament to enact a policy and to issue directions which have a statutory force and when the delegatee issues such guidelines having statutory force, such guidelines have to be read as supplement to the provisions of 1949 Act. Section 21 of 1949 Act empowers Reserved Bank of India (RBI) in the interest of the banking policy to lay down guidelines in relation to advances to be followed by the banking companies. Thus the guidelines are issued by the RBI for classification of NPA from time to time as a restructuring measure in order to avoid set backs in the banking system. The NPAs do not generate interest and are account receivables. The object of issuance of NPA guidelines by the RBI is to minimize the problem of credit risk. The corporate debt restructuring is one of the method for reducing NPAs and such restructuring as a matter of banking policy cannot be treated as trading. One has to keep in mind the object behind enactment of the 1949 Act. The said guidelines are a part of credit appraisal mechanism. Dealing in NPAs as part of the credit appraisal mechanism and as a part of restructuring mechanism falls within Section 21 read with Section 35A of the 1949 Act. The obligations under a contract cannot be assigned except with the consent of the promises and when such consent is given, it is really a novation resulting in substitution of liabilities. Under the alleged Deed of Assignment dated 29.3.2006 not only the account receivable in the books of SBI has been transferred to fourth respondent, but also the obligations of the third respondent towards its borrowers/fifth respondent including the eight respondent under the loan agreement secured by deed of hypothecation/mortgage have not been assigned by the third respondent to the assignee and hence, the alleged Deed of Assignment dated 29.3.2006 is unsustainable in law.
11. It has been submitted that no proper stamp duty as payable in the State of UP has been paid over the alleged Assignment Deed when the same is used to enforce rights over the immovable properties situated in the State of UP and before the said alleged Deed of Assignment is to be considered and taken as a valid document, the same is required to be impounded and the deficit stamp duty is to be recovered from the party concerned in terms of the provisions contained in the Indian Stamp Act and other laws in force for the time being. The substitution application filed on behalf of fourth respondent was not maintainable and the third respondent could not be substituted. It had no authority to assign its liabilities towards its customers i.e. fifth respondent. The Tribunal by an ex-parte order had allowed the substitution application without even issuing any notice on the substitution application to all the concerned parties to the litigation before the first respondent including the eight respondent. Moreover, the assignment of debt is not the mode of banking business and the private respondents cannot be termed as borrower for recovery under the Act No.51 of 1993 Act before the first respondent, hence the whole proceeding gets vitiated from that stage itself. The Deed of Assignment dated 14.8.2008 is invalid and illegal and the same was executed without paying proper stamp duty as applicable in the State of U.P. The petitioner is neither a bank nor a banking company nor a financial institution nor a securitization and reconstruction company under the provisions of SARFAESI Act. The petitioner being a company is not falling in any of the categories mentioned above and it cannot be an applicant for recovery of the amount in question before the Tribunal under the provisions of Act No.51 of 1993. However, the substitution application filed on behalf of the petitioner was not maintainable. No notice was ever issued or served upon the eight respondent and the petitioner cannot step into the shoes of the third respondent. There is no lis between the petitioner and the eight respondent as there is no oral or written agreement between them nor the eight respondent had ever rectified the alleged Assignment Deed dated 14.8.2008 in favour of the petitioner.
12. As a matter of fact, the petitioner did not have any locus to step into the shows of the third respondent and also the fourth respondent in a proceeding under Act No.51 of 1993 before the Tribunal as the petitioner is not the creditor within the meaning of Act No.51 of 1993. The petitioner is hand in glove with the fourth respondent and had colluded in order to take into the personal custody of the petitioner the valuable properties of the private respondents. The petitioner had no locus to maintain the proceeding and step into the shoes of the third respondent.
13. Shri Anil Sharma, learned counsel appearing for tenth respondent has, however, supported the impugned order and has submitted that the Debts Recovery Tribunal committed no illegality in rejecting the application filed by the petitioner. He also submitted that the decision of this Court in M/s Chopra Fabricator and Manufacturers (P) Ltd (supra) will not help the petitioner. He has submitted that such assignment by the Kotak Mahindra Bank in favour of the petitioner was not permissible under the 1949 Act.
14. In rejoinder, apart from reiterating what was stated in the principal address, it was submitted by Shri Arvind Srivastava, appearing for the petitioner that the assignment is an enforceable document and is totally permissible in the law. The petitioner has step into the shoes of the State Bank of India and is fully entitled to recover the debts, which were due to the State Bank of India. There is no record of any consent of the debtor before assigning the debt of the property stamp duty, and has been paid, which is required in law. When the sale deed was executed, the application under the contract can be assigned and there is no prohibition to the contrary. The substitution application was fully maintainable and the State Bank of India as well as Kotak Mahindra Bank are fully entitled to assign its debts. The assignment deed dated 14.8.2008 is not at all an illegal document and it has been validly executed and proper stamp duty has been paid over it. The petitioner has every locus to step into the shoes of the State Bank of India. Kotak Mahindra Bank has colluded with the private respondents and created the present litigation.
15. I have considered the submissions advanced by the learned counsel for the parties.
16. Before proceeding to consider the rival submissions, it would be appropriate to re-produce the relevant provisions of the 1949 Act:-
"5. Interpretation. In this Act, unless there is anything repugnant in the subject or context,
(a) ....
(b) "banking" means the accepting, for the purposes of lending or investment, of deposits of money from the public, repayable on demand or otherwise, and withdrawal by cheque, draft, order or otherwise;
(c)...
(ca) "banking policy" means any policy which is specified from time to time by the Reserve Bank in the interest of the banking system or in the interest of monetary stability or sound economic growth, having due regard to the interests of the depositors, the volume of deposits and other resources of the bank and the need for equitable allocation and the efficient use of these deposits and resources;
6. Forms of business in which banking companies may engage.- (1) In addition to the business of banking, a banking company may engage in any one or more of the following forms of business, namely:--
(a) the borrowing, raising, or taking up of money; the lending or advancing of money either upon or without security; the drawing, making, accepting, discounting, buying, selling, collecting and dealing in bills of exchange, hoondees, promissory notes, coupons, drafts, bills of lading, railway receipts, warrants, debentures certificates, scrips and other instruments and securities whether transferable or negotiable or not; the granting and issuing of letters of credit, traveller's cheques and circular notes; the buying, selling and dealing in bullion and specie; the buying and selling of foreign exchange including foreign bank notes; the acquiring, holding issuing on commission, underwriting and dealing in stock, funds, shares, debentures, debenture stock, bonds, obligations, securities and investments of all kinds; the purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances; the receiving of all kinds of bonds, scrips or valuables on deposit or for safe custody or otherwise; the providing of safe deposit vaults; the collecting and transmitting of money and securities;
(b) acting as agents for any Government or local authority or any other person or persons; the carrying on of agency business of any description including the clearing and forwarding of goods, giving of receipts and discharges and otherwise acting as an attorney on behalf of customers, but excluding the business of a (managing agent or secretary and treasurer) of a company;
(c) contracting for public and private loans and negotiating and issuing the same;
(d)...
(e)...
(f) managing, selling and realising any property which may come into the possession of the company in satisfaction or part satisfaction of any of its claims;
(g) acquiring and holding and generally dealing with any property or any right, title or interest in any such property which may form the security or part of the security for any loans or advances or which may be connected with any such security;
(h)...
(I)...
(j)...
(k)...
(l) selling, improving, managing, developing, exchanging, leasing, mortgaging, disposing of or turning into account or otherwise dealing with all or any part of the property and rights of the company;
(m) acquiring and undertaking the whole or any part of the business of any person or company, when such business is of a nature enumerated or described in this sub-section;
(n) doing all such other things as are incidental or conducive to the promotion or advancement of the business of the company;
(o) any other form of business which the Central Government may, by notification in the Official Gazette, specify as a form of business in which it is lawful for a banking company to engage.
(2) No banking company shall engage in any form of business other than those referred to in sub-section (1).
8. Prohibition of trading.-- Notwithstanding anything contained in section 6 or in any contract, no banking company shall directly or indirectly deal in the buying or selling or bartering of goods, except in connection with the realisation of security given to or held by it, or engage in any trade, or buy, sell, or barter goods for others otherwise than in connection with bills of exchange received for collection or negotiation or with such of its business as is referred to in clause (i) of sub-section (1) of section 6:
Provided that this section shall not apply to any such business as is specified in pursuance of clause (o) of sub-section (1) of section 6.
Explanation:--For the purpose of this section, "goods" means every kind of movable property, other than actionable claims, stocks, shares, money, bullion and specie, and all instruments referred to in clause (a) of sub-section (1) of Section 6."
17. The definition of the term "banking" would primarily denote that the same means accepting of deposits of money from the public which is repayable on demand or otherwise, and permitting withdrawal of such deposits by cheque, draft, etc. The purpose of accepting such deposits of money is for lending or investment. Thus, the core business of any bank is to accept money deposited by a customer and utilise the same for lending to another customer or for the purposes of an investment. In other words, the deposits of money are accepted at certain rates of interest and such monies are invested or lent out at a rate of interest which is normally, marginally higher than the rate at which the deposits have been accepted entitling the bank to record profits by such differential rate of interest. The activity of lending would definitely include the right to recover the amount lent just as an investment carries with it a right to recover the amount invested after earning interest therefrom. In the simplest form of this business, "banking" as defined by Section 5 (b) of the 1949 Act does not envisage any right to deal in the securities which have been acquired at the time of lending. The securities are only to ensure the recovery of the outstanding. On failure of the borrower to honour the commitment, it is open to the bank to realise the security. The plain language of the said provision does not permit any other view of the matter.
18. The concept of "banking policy" as defined by Section 5 (ca) of the 1949 Act means any policy specified periodically by RBI in the interest of (a) banking system; (b) monetary stability; (c) sound economic growth, but such policy has to be framed having due regard to the interests of the depositors, the volume of deposits and other resources of the bank, the need for equitable allocation and the efficient use of such deposits and resources. Therefore, on a plain reading a policy such as this cannot be formulated even in the interest of the banking system, namely to permit trading in debts between the banks because the debts are not acquired as a part of banking activity, but are necessary concomitant to the activity of lending. Such an activity cannot also be part of any policy of sound economic growth because it only means, if one may use the expression, clearing the debris from one balance-sheet and dumping the same in another balance-sheet. The activity undertaken by the Assignor and the Assignee is nothing else but a form of window-dressing as understood in commercial parlance. Thus, such an activity cannot be part of any policy, more particularly when before the policy is framed due regard has to be had to the interests of the depositors, volume of deposits and other resources of the bank, and need for equitable allocation and efficient use of the deposits and the resources. Therefore, the 1949 Act itself does not envisage framing of any such policy by RBI. In the circumstances, any guidelines formulated by RBI cannot be a part of banking policy. The said provision grants powers to RBI to issue directions after recording satisfaction that it is necessary to issue directions to banking companies generally, or to any banking company in particular, having regard to (a) public interest; (b) in the interest of banking policy; (c) to prevent affairs of any banking company from being conducted in a manner detrimental to the interests of the depositors or prejudicial to the interests of the banking company; AND (d) to secure proper management of any banking company generally. Thus, the present transaction viz. assignment in question, cannot fall within any of the four prescribed requirements so as to enable RBI to record its satisfaction for the purposes of issuing directions. In fact, no directions are issued and guidelines cannot be equated with directions. If at all any directions have been issued they have not been placed on record and attention of the Court is not invited to any such directions.
19. Section 6(1) of the 1949 Act specifies forms of business in which a banking company may engage. The said section occurs in Part-II under the heading "BUSINESS OF BANKING COMPANIES". Sub-section (1) of Section 6 of the 1949 Act specifies that a banking company may engage in any one or more of the forms of business specified in clauses (a) to (o). The use of the phrase in addition to the business of banking in the said provision thus makes it apparent that Section 6 (1) of the 1949 Act is an enabling provision. Before analyzing the various clauses of sub-section (1) of Section 6 of the 1949 Act it is necessary to bear in mind that Section 6 (2) of the 1949 Act provides that no banking company shall engage in any form of business other than those referred to in Section 6(1) of the 1949 Act.
20. On a close reading of the aforesaid activities, it becomes clear that the concept of buying and selling is available as part of the additional business only for the purposes of certain categories of activities, for instance, in case of bills of exchange, hoondees, promissory notes, etc; or in case of dealing in bullion and specie; or foreign exchange, including foreign bank notes; dealing in stock, funds, shares, debentures, etc.; bonds, scrips or other forms of securities on behalf of constituents or others. The activity of purchasing and selling of bonds, scrips or other forms of securities on behalf of constituents or others, the negotiating of loans and advances is one form of business, but the kind of transaction that is under consideration in the present case cannot fall within such an activity. The activity under contemplation in the clause is negotiating of loans, etc. for the constituents, namely, for whom bonds, scrips, etc. are purchased or sold.
21. Similarly, the second of the activities relating to lending or advancing of money either upon or without security only permits such an activity, meaning thereby, when read in juxtaposition with other activities the concept of buying and selling the debts with the underlying securities cannot be a part of the said activity. When certain activities specifically permit the activity of buying and selling the said exercise cannot be read into this activity of lending by taking recourse to the provisions of the general law, more particularly the T.P. Act. If the 1949 Act, a special enactment, was not in existence, may be the Assignors and the Assignees might have been in a position to make out a case under the provisions of the Transfer of Property Act. But any reference to the general law cannot be permitted when a special law is in place. More so, in light of sub-section (2) of Section 6 of the 1949 Act, which prohibits any other forms of business, other than those specified in Section 6(1) of the 1949 Act.
22. Clause (c) of sub-section (1) of Section 6 of the 1949 Act stipulates contracting for public and private loans and negotiating and issuing the same. On a plain reading the said clause cannot assist the case of the Assignee. It talks of making a contract for negotiating and issuing a public or a private loan. In other words, the customer is a necessary party for negotiating and issuing a loan either in public or in private. The said clause cannot be read to mean that after a loan is negotiated and issued the same can be contracted to be transferred without recourse to the borrower. Section 6(1)(f) of the 1949 Act relates to managing, selling and realising any property which comes into possession of the banking company in satisfaction or part satisfaction of any of its claims. It is not possible to agree with the appellant or the assignor bank that this will permit the activity of trading in debts. The debt is not the kind of property envisaged by the said clause which can be managed, sold or realised in satisfaction or part satisfaction of the claim, because the debt has to come into possession of the banking company in the course of such satisfaction of the claim. In other words, a debt which has come into existence by virtue of a transaction of advancing of funds cannot be said to have come into possession of the banking company in satisfaction of its claim. If the debt cannot be treated to be a property of such a kind the underlying security guaranteeing repayment of the debt cannot be treated to be an independently tradable property. Such a property, namely, the underlying security, would come into possession of the banking company in satisfaction of the claim and not during subsistence of the claim. The stage at which the property comes into possession has to be understood and considered so as to correctly read the provision. An illustration of application of this clause would be where a suit for recovery is filed and the debtor offers some property, movable or immovable, in satisfaction of the claim; or, in a case where, when the suit is decreed in favour of the creditor, the Court or the Tribunal orders handing over possession of certain properties, may be of the guarantor also and not only of the borrower, towards satisfaction of the outstanding dues. Therefore, the activity of purchasing and selling debts cannot fall within clause (f) of sub-section (1) of Section 6 of the 1949 Act.
23. If the assignment in question is found to be beyond the purview of permissible business of the assignor bank, the assignee petitioner cannot seek substitution. It is not necessary to enter into any discussion on merits as regards to the applicability of the provisions of the Registration Act, the Stamp Act, etc. Once the transaction in question, namely, the assignment deed, is held to be impermissible in law, it is not necessary to record any findings in relation to the violation of other laws.
24. Under Order 1 Rule 10 C.P.C., the Court has jurisdiction to direct impleadment of necessary and proper party. Under Order 1 Rule 10 (2) C.P.C., the Court is required to record a finding that person sought to be impleaded as party in the suit is either necessary or proper party. While Section 146 read with Order 22 Rule 10 C.P.C. confers right upon the person claiming title through a party to the litigation to be impleaded with the leave of the Court and continue the litigation.
25. A Bench of four Hon'ble Judges of Supreme Court in Saila Bala Dassi v. Nirmala Sundari Dassi, AIR 1958 SC 394 held that Section 146 was introduced for the first time in the Civil Procedure Code, 1908 with the object of facilitating the exercise of rights by persons in whom they come to be vested by devolution or assignment, and being a beneficent provision should be construed liberally and so as to advance justice and not in a restricted or technical sense. The right to file an appeal must therefore be held to carry with it the right to continue an appeal which had been filed by the person under whom the applicant claims, and the petition of the appellant to be brought on record as an appellant in Appeal No. 152 of 1955 must be held to be maintainable under Section 146.
26. In Khardah Company Ltd. v. Raymon & Co. (India) Private Ltd. reported in (1963) 3 S.C.R. 183 the Supreme Court has held that the law on the subject of assignment of a contract is well settled. An assignment of a contract might result by transfer either of the rights or by transfer of obligations thereunder. There is a well-recognised distinction between the two classes of assignments. As a rule, obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. That, rights under a contract are always assignable unless the contract is personal in its nature or unless the rights are incapable of assignment, either under the law or under an agreement between the parties. A benefit under the contract can always be assigned. That, there is, in law, a clear distinction between assignment of rights under a contract by a party who has performed his obligation thereunder and an assignment of a claim for compensation which one party has against the other for breach of contract.
27. In Camdex International Ltd. v. Bank of Zambia reported in (1998) Q.B. 22 (CA) the following observation, which is relevant to the present case, needs to be quoted:
"The assignment of a debt will not be contrary to public policy solely on the grounds that the assignee has purchased the debt for a considerably discounted price or because that price is only payable after a period of credit. Nor will the assignment be contrary to public policy simply because the assignee may make a profit on the transaction at the end of the day. If there was no prospect of a profit, Hobhouse L.J. observed, commercial entities would never purchase debts."
28. The Supreme Court in Dhurandhar Prasad Singh v. Jai Prakash University, (2001) 6 SCC 534, held that the plain language of Order 22 Rule 10 C.P.C. does not suggest that leave can be sought by that person alone upon whom the interest has devolved. It simply says that the suit may be continued by the person upon whom such an interest has devolved and this applies in a case where the interest of the plaintiff has devolved. Likewise, in a case where interest of the defendant has devolved, the suit may be continued against such a person upon whom interest has devolved, but in either eventuality, for continuance of the suit against the persons upon whom the interest has devolved during the pendency of the suit, leave of the court has to be obtained. If it is laid down that leave can be obtained by that person alone upon whom interest of a party to the suit has devolved during its pendency, then there may be preposterous results as such a party might not be knowing about the litigation and consequently not feasible for him to apply for leave and if a duty is cast upon him then in such an eventuality he would be bound by the decree even in cases of failure to apply for leave. As a rule of prudence, initial duty lies upon the plaintiff to apply for leave in case the factum of devolution was within his knowledge or with due diligence could have been known by him. The person upon whom the interest has devolved may also apply for such a leave so that his interest may be properly represented as the original party, if it ceased to have an interest in the subject-matter of dispute by virtue of devolution of interest upon another person, may not take interest therein, in ordinary course, which is but natural, or by colluding with the other side.
29. In ICICI Bank Limited Vs. Official Liquidator of APS Star Industries Limited & Ors., (2010) 10 SCC 1 Hon'ble Supreme Court examined whether inter se transfer of non-performing assets by Banks is illegal in the light of the provisions of the Banking Regulation Act. The Gujarat High Court had held that assignment of deed by a Bank, inter se is not an activity which is permissible under the Banking Regulation Act and consequently all the executed contracts of assignment of debts were declared illegal. It was also held by the High Court that the assignee banks were not entitled to substitution in place of the assignor in proceedings relating to companies in liquidation pending in the Company Court. The Supreme Court analyzed the various provisions of the Banking Regulation Act, the guidelines issued by the Reserve Bank of India and the assignment deed and observed as follows:-
"43. One more aspect needs to be kept in mind. In this batch of cases we are dealing with assets in the hands of banks. NPAs are "account receivables". The impugned guidelines show that RBI considers inter se NPA assignment between banks to be a tool for resolving the issue of NPAs and in the interest of banking policy under Section 21 of the BR Act, 1949. The object is to minimise the problem of credit risk. The corporate debt restructuring is one of the methods for reducing NPAs. Thus, such restructuring as a matter of banking policy cannot be treated as "trading". One has to keep in mind the object behind enactment of the BR Act, 1949. Thus, the said guidelines fall under Section 21 of the 1949 Act. These guidelines are a part of credit appraisal mechanism. 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 read with 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.
44. Thus, in our view on reading the provisions of the BR Act, 1949 with the guidelines of RBI issued from time to time in relation to advances and restructuring/management of NPAs we are of the view that the BR Act, 1949 is a complete code on banking and that dealing in NPAs inter se by the banks needs to be looked in the larger framework of "restructuring of banking system". Thus, we need not go into the provisions of the said TP Act. In fact, it is the case of the borrower(s) that provisions of the said TP Act has no application.
45. In the alternative, since the borrower(s) has relied on Section 130 of the said TP Act, one needs to analyse the contentions raised in that regard. According to the borrower(s) assignment of financial instruments in possession of ICICI Bank Ltd. to Kotak Mahindra Bank Ltd. transfers not merely the right to recover the debt but also transfers the obligations under the financial instruments "as if they were executed by the clients of ICICI Bank in favour of the assignee", i.e., Kotak Mahindra Bank Ltd. According to the borrower(s), an assignment of a debt can never carry with it the assignment of the obligations of the assignor unless there is a novation of the contract by all parties. Therefore, according to the borrower(s), the impugned deed of assignment is legally unsustainable without novation of original contract between ICICI Bank Ltd. (assignor) and the borrower(s) (assignee). We find no merit in the above arguments.
46. As stated above, an outstanding in the account of a borrower(s) (customer) is a debt due and payable by the borrower(s) to the bank. Secondly, the bank is the owner of such debt. Such debt is an asset in the hands of the bank as a secured creditor or mortgagee or hypothecatee. The bank can always transfer its asset. Such transfer in no manner affects any right or interest of the borrower(s) (customer). Further, there is no prohibition in the BR Act, 1949 in the bank transferring its assets inter se. Even in the matter of assigning debts, it cannot be said that the banks are trading in debts, as held by the High Court(s). The assignor bank has never purchased the debt(s). It has advanced loans against security as part of its banking business. The account of a client in the books of the bank becomes non-performing asset when the client fails to repay. In assigning the debts with underlying security, the bank is only transferring its asset and is not acquiring any rights of its client(s). The bank transfers its asset for a particular agreed price and is no longer entitled to recover anything from the borrower(s). The moment ICICI Bank Ltd. transfers the debt with underlying security, the borrower(s) ceases to be the borrower(s) of the ICICI Bank Ltd. and becomes the borrower(s) of Kotak Mahindra Bank Ltd.(assignee).
47. At this stage, we wish to once again emphasise that debts are assets of the assignor Bank. The High Court(s) has erred in not appreciating that the assignor Bank is only transferring its rights under a contract and its own asset, namely, the debt as also the mortgagee's rights in the mortgaged properties without in any manner affecting the rights of the borrower(s)/mortgagor(s) in the contract or in the assets. None of the clauses of the impugned deed of assignment transfers any obligations of the assignor towards the assignee.
48. In Khardah Company Ltd. v. Raymon & Co. (India) Private Ltd. reported in (1963) 3 S.C.R. 183 the Supreme Court has held that the law on the subject of assignment of a contract is well settled. An assignment of a contract might result by transfer either of the rights or by transfer of obligations thereunder. There is a well-recognised distinction between the two classes of assignments. As a rule, obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. That, rights under a contract are always assignable unless the contract is personal in its nature or unless the rights are incapable of assignment, either under the law or under an agreement between the parties. A benefit under the contract can always be assigned. That, there is, in law, a clear distinction between assignment of rights under a contract by a party who has performed his obligation thereunder and an assignment of a claim for compensation which one party has against the other for breach of contract.
49. In Camdex International Ltd. v. Bank of Zambia reported in (1998) Q.B. 22 (CA) the following observation which is relevant to the present case needs to be quoted:
"The assignment of a debt will not be contrary to public policy solely on the grounds that the assignee has purchased the debt for a considerably discounted price or because that price is only payable after a period of credit. Nor will the assignment be contrary to public policy simply because the assignee may make a profit on the transaction at the end of the day. If there was no prospect of a profit, Hobhouse L.J. observed, commercial entities would never purchase debts."
Similarly, the following proposition in Chitty on Contracts, 27th edn.(1994) at para 19.027 is relevant to be noted:
50. "It is also well established that a claim to a simple debt is assignable even if the debtor has refused to pay. The practice of assigning or `selling' debts to debt collecting agencies and credit factors could hardly be carried on if the law were otherwise. "
51. In view of the above exposition of law, we find that under the impugned deed of assignment only the account receivables in the books of ICICI Bank Ltd. has been transferred to Kotak Mahindra Bank Ltd. The obligations of ICICI Bank Ltd. towards its borrower(s) (customer) under the loan agreement secured by deed of hypothecation/mortgage have not been assigned by ICICI Bank Ltd. to the assignee Bank, namely, Kotak Mahindra Bank Ltd. Hence, it cannot be said that the impugned deed of assignment is unsustainable in law. The obligations referred to in the impugned deed of assignment are the obligations, if any, of ICICI Bank Ltd. towards Kotak Mahindra Bank Ltd. (assignee) in the matter of transfer of NPAs. For example, when an account receivable is treated as NPA and assigned to the assignee bank, the parties have to follow certain guidelines issued by RBI. If there is a breach of the guidelines or statutory directions issued by RBI by assignor in regard to transfer of NPA then the assignee Bank can enforce such obligations vis-a-vis the assignor Bank. It is these obligations which are referred to in the impugned deed of assignment. That, an account receivable becomes an NPA only because of the default committed by the borrower(s) who fails to repay. Lastly, it may be mentioned that the said SARFAESI Act, 2002 was enacted enabling specified SPVs to buy the NPAs from banks. However, from that it does not follow that banks inter se cannot transfer their own assets. Hence the said SARFAESI Act, 2002 has no relevance in this case.
52. Before concluding, we may state that NPAs are created on account of the breaches committed by the borrower. He violates his obligation to repay the debts. One fails to appreciate the opportunity he seeks to participate in the "transfer of account receivable" from one bank to the other."
(emphasis supplied)
30. In M/s Kotak Mahindra Bank Ltd vs. M/s Chopra Fabricator and Manufacturers (P) Ltd (supra) it was held by this Court in paras 21 to 26 as follows:-
"21. The assignment of debts by the bank company to another banking company or non banking company is not a transfer of property. Section 130 of the Transfer of Property Act applies to a case where actionable claim. In Khardah Company Ltd Vs. Raymon and Co. (India) Private Ltd [AIR 1962 SC 1810] , a Five Judges Bench of the Apex Court held in para 19 that :- "an assignment of contract might result of transfer either of the rights or of the obligations thereunder. But there is a well-recognized distinction between these two classes of assignments. As a rule obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. On the other hand rights under a contract are assignable unless the contract is personal in its nature or the rights are incapable of assignment either under the law or under an agreement between the parties." In Bharat Prasad Vs. Paras Singh and others [AIR 1964 Allahabad 15 (Vol.51, C.4)] presided by Hon'ble N.U. Beg, J sitting at Lucknow Bench held in Second Appeal No. 55 of 1957 decided on 18.4.1963 it was held that where partners assigned debts of the firm, which was dissolved, a suit for recovery of debts is maintainable. Section 130 of the Transfer of Property Act applies to actionable claim. The assignment of debt is not a transfer of any actionable claim. It is only an assignment of a part of the assets of the firm to one of the partners who already owned a share in the assets.
22. The Act of 2002 only recognizes the right of the bank, to facilitate recovery and consequential losses. A prudent banker may like to assign security interest or debt, which is an 'account receivable' of an estimated value taking into the cost involved in recovery of delayed debts, to avoid losses. The enabling provision in the Act of 2002, only recognises and does not confer any right of assignment of debt to the banker or banking company for the first time. A right to reduce losses and making the bank financially viable by assignment of debts cannot be said to be barred under the Banking Regulations Act. I find that activity of assignment of debt is neither violative of Section 6 of the Banking Regulation Act nor can be said to be abhorrent to the oncept of banking.
23. Section 434 (1) (a) of the Companies Act, 1956 raises presumption of the inability of the companies to pay its debts, if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding five hundred rupees then due, has served on the company, a notice requiring the company to pay the sum so due. The Companies Act, provides for a notice before filing winding up petition by a creditor and also a creditor by assignment. The Companies Act thus takes into account an event in which the debts may be assigned by the creditor.
24. The petitioner - M/s. Kotak Mahindra Bank Ltd is a banking company . The transfer of right to recover the debt from the secured assets by way of assignment, is a transfer of property. The assignee bank purchased the debts with rights of its sale. By such assignment, the assignee bank, as a banking company, has simply stepped into the shoes of the assignor bank to realise the security interest in the asset. The transaction does not suffer from any restriction in law, nor is the contract against public policy.
25. So far as the argument regarding notice to debtor is concerned, there is no statutory or contractual right of the debtor to be given a notice before assignment of the debt. The security interest in the mortgaged property can always be transferred under the Transfer of Property Act by the mortgagor, and thus assignment of debt along with a right to recover the debt from the mortgaged assets is by way to transfer of debt, to be realized from the mortgaged property. The Transfer of Property Act does not place any restriction on such contract.
26. The objections taken by Sri P.K. Jain on behalf of the respondent Company are rejected. The assignment of debt/NPA with the right to recover debt of State Bank of India to the petitioner - M/s. Kotak Mahindra Bank Ltd is held to be valid transaction. The Company has given statutory notice under Section 434 of the Companies Act, 1956 and has right to file winding up petition."
31. In the present case, the State Bank of India filed aforesaid Suit No.405 of 1998 against M/s Ashok Iron and Steel Rolling Mills and ors. The aforesaid suit was transferred to the Debt Recovery Tribunal, Allahabad and the same was registered as Transfer Application No.884 of 2000. The Transfer Application was allowed on 3.10.2005 and a recovery certificate of Rs.74,96,423/- was issued with interest @ 20.75% per annum with quarterly rest from the date of filing of the suit till the full realisation from the defendants jointly & severally. It was during the pendency of the aforesaid Transfer Application that the State Bank of India had executed the assignment deed in question in favour of Kotak Mahindra Bank on 29th March, 2006. An application was filed by Kotak Mahindra Bank on 20.3.2007 for impleading itself during the pendency of the Transfer Application before the Debts Recovery Tribunal. The name of Kotak Mahindra Bank Limited was substituted in place of State Bank of India. Thereafter, the Debt Recovery Tribunal issued a notice on 25.1.2008 to the debtors in the execution case. During the pendency of the execution proceedings by a Deed of Assignment dated 14.8.2008 the petitioner has been assigned the rights to recover the amount in pursuance of the order of the Debt Recovery Tribunal, Allahabad. Thereafter, the petitioner had preferred an application for impleadment in the execution case. This application was rejected by the Debts Recovery Tribunal on 9th August, 2012 and the said order has been assailed by the petitioner before this Court.
32. This much is reflected from the record in question that the Transfer Application No.884 of 2000 was preferred and the matter was fixed on 3.10.2015 for final disposal. The Debt Recovery Tribunal at Allahabad ordered that the respondent bank was entitled to recover a sum of Rs.74,96,423/- together with pendent elite and future interest @ 20.75% per annum with quarterly cost from the date of filing of the suit/application i.e. 17.4.1998 till realisation from the defendants No.1 to 6, 7/1 to 9 jointly & severally. In the event of failure to repay the recovery amount together with interest and costs the applicant/respondent bank was entitled to recover its dues from the sale proceeds of the properties hypothecated and mortgaged as detailed in Schedule 'A' and B of the plaint. The Tribunal was also of the opinion that in case the debt amount is not recovered from the mortgaged and hypothecated properties of the defendants then to recover from the other personal assets/properties of the defendants. Thereafter the matter was fixed on 9.8.2012 for pronouncement of the order. During the pendency of the DRC, an application was filed on behalf of the petitioner with a prayer to substitute its name as applicant in place of Kotak Mahindra Bank Limited and incorporate the application. The said rights have been claimed on the basis of a registered deed of assignment dated 14.8.2008. Kotak Mahindra Bank Limited had absolutely assigned and transferred the rights, interest, securities and benefits in all agreements and deeds in the said recovery case in its favour and as such, the petitioner was entitled to initiate, adopt and/or to continue to pursue the existing legal action in its own name against the JDs for recovery of dues under the facility granted by Kotak Mahindra Bank Limited. A purported claim has been set up by the petitioner to become the lender/secured creditor of the JDs and all the rights, title and interest of Kotak Mahindra Bank Limited claimed to be vested in the petitioner.
33. In this backdrop, the Presiding Officer, Debt Recovery Tribunal at Allahabad had proceeded to consider the claim of the petitioner and observed that the third party applicant/petitioner is neither a Securitization Company nor an Asset Reconstruction Company. It is also not a Bank, not Banking Company nor a financial institution as defined in RDDBFI Act, 1993. At the time of argument the counsel of Kotak Mahindra Bank Limited had also admitted the fact of assignment of the decree debt to the petitioner. The Kotak Mahindra Bank Limited had taken a decision that it had no interest in assigning the debt and requested for deleting the name from the cause title of the application. The Presiding Officer in this backdrop had proceeded to examine the provisions contained in RDDBFI Act, 1993 and proceeded to observe that the same would be applicable to the Banks, FIs and Securitization Companies and as such, the third party was not eligible to become a party and the same is not covered under the RBBDFI Act, 1993. Therefore, the third party applicant cannot be substituted as party in place of Kotak Mahindra Bank Limited, who had assigned the debt but at the same time he had observed that there is no impediment or legal bar for deleting the name of Kotak Mahindra Bank Limited from the cause title and dismissed the application.
34. In the present matter, M/s Kotak Mahindra Bank Limited is admittedly a Banking Company and SBI had transferred the right to recover the debt from the secured asset by way of assignment to M/s Kotak Mahindra Bank Limited and as such, the assigning bank purchased the debts with right of its sale. By such assignment the assigning Bank, as a Banking Company, has simply stepped into the shoes of the assigner bank to realise the secured interest of asset. To that extent the transaction does not suffer from any restriction in law but thereafter the transfer of right to recover the debt from secured asset by way of assignment by M/s Kotak Mahindra Bank Limited to the petitioner is unsustainable in the aforementioned facts and circumstances and as such, this Court is of the considered opinion that there is no infirmity or illegality in the order passed by the Tribunal.
35. The writ petition sans merits and it is, accordingly, dismissed.
Order Date :- 10.2.2017 RKP