International Asset Reconstruction ... vs Official Liquidator Amruta Mills Ltd & 6 on 11 August, 2014

[Cites 29, Cited by 1]

Gujarat High Court

International Asset Reconstruction ... vs Official Liquidator Amruta Mills Ltd & 6 on 11 August, 2014

1. The Petitioner Company and assignee of Standard Chartered Bank who assigned its debt along with all its rights, title and underlying security interest in respect of Shri Amruta Mills Limited, the company in liquidation, as per the assignment agreement dated 21/6/2013 has approached this Court by way of this application and taken out Judges' Summons with following prayers:

"(a) THAT this Hon'ble Court may be pleased to permit the Applicant to substitute its name in place of Standard Chartered Bank Ltd, Respondent no.5, in OLR 212 of 2011;

(b) THAT this Hon'ble Court may be pleased to permit the Applicant to be a member of the sale committee constituted by the Hon'ble Court vide its order dated 30.01.1997 in Miscellaneous Civil Application No. 6 of 1992;

(c) AND THAT this Hon'ble Court may be pleased to pass such further and other directions as this Hon'ble Court may deem it fit and expedient."

2. Affidavit in support of Judges' Summons is also filed which indicate that present petitioner happens to be an assignee from the Page 2 of 31 O/COMA/126/2014 JUDGMENT Standard Chartered Bank who had assigned its debt along with all its rights, title and underlying security interest in respect of Shri Amruta Mills Limited, the company in liquidation, as per their assignment agreement dated 21/6/2013. Now, in that capacity as such the applicant is seeking permission to be substituted in place of Respondent no.6 and accordingly be permitted to be Member of the Sale Committee of the company in liquidation. Affidavit in support of Judges' Summons is filed on 1/5/2013.

3. The facts in brief leading to the controversy for which counsels had to make submissions at length in fact could be summarized and summed up in the following words:

4. The Official Liquidator of the Company In Liquidation as well as the representative of workmen and others concerned have objected to the prayers being granted in favour of the assignee on account of the fact that the issue of assignment and the right of the assignee which is subject of OJ Appeals being O.J. Appeal No. 177 of 2007 and other allied matters and as the Division Bench is in seizin of the entire controversy, this Court may not grant the prayers of the applicant and permit it to substitute the original assignee, i.e. respondent no.6 as that assignment deed was also subject matter of controversy pending before the Court being O.J. Appeal No. 177 of 2007.

5. Learned counsel appearing for the applicant invited this Court's attention to the original order passed by this Court (Coram: Jayant Patel, J) dated 5-6-9/7/2007 in group of Company Applications being Company Application No. 489 of 2006 in O.L.R. No. 88 of 2006 in Company Application No. 190 of 2003 and other allied matters. It was submitted on behalf of the applicant that in fact this is the order which gave rise to various proceedings, including proceedings up to the Supreme Court and Page 3 of 31 O/COMA/126/2014 JUDGMENT therefore, the observations made by Learned Single Judge of this Court may be perused closely in order to appreciate as to whether now the controversy in respect of assignment is still surviving or it is over.

6. Learned counsel for the applicant indicated from the observations in the group of Company Application No. 489 of 2006 that the assignment under consideration was in fact assignment from bank to bank and it was not the assignment from the bank to the company formed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 ('SARFAESI Act' for short) as it envisaged and therefore, he pointedly submitted that the observations made by learned Single Judge in para-6 of the judgment is clear qua the fact that the Court also was not dealing with the assignment from the bank to the company under the provisions of SARFAESI Act. Learned counsel submitted that this is a fundamental defence which deserves to be borne-in-mind while examining the plea against the prayers made in this application. In the instant case on hand applicant is one of the SARFAESI companies for which provisions of SARFAESI Act are inuring and admittedly this Court did not deal with in Company Application No. 489 of 2006 and allowed matters which is absolutely clear from the observations made in para-6 of the order.

7. Learned counsel appearing for the applicant, without prejudice to the aforesaid contention qua the subject matter being not pertinent to assignment deed from bank to bank, further submitted that the observations of learned Single Judge qua assignment from bank to bank also cannot be said to be now not permissible in view of the decision of the Apex Court. The observations of learned Single Judge were in fact only prima facie observations, and therefore the same would not now remain after the specific announcement of law by the Supreme Court on the issue.

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8. It was submitted that the deeds of assignments were not considered to be admissible on account of provisions of Indian Registration Act and the Stamp Act. In fact in the instant case the document of assignment is before this Court and there appears to be no cogent submission qua its admissibility in Court of law on account of those lacuna which were found existing in respect of those documents.

9. Learned counsel appearing for the applicant contended that the order of Learned Single Judge dated 5-6-9/7/2007, was carried into appeal in which the Bench decided the factum of validity of assignment on the grounds which were not subject matter of consideration by learned Single Judge. Learned counsel appearing for the applicant invited this Court's attention to the judgment dated 12/1/2009 rendered by the Bench in group of O.J. Appeals being O.J. Appeal No. 156 of 2007 and others. Learned counsel for the applicant submitted that the aspect of validity of deeds of assignments were under the Non Performing Assets (NPAs) were transferred. This aspect was addressed and submissions were made to the Bench that this aspect could not be raised and considered in appeal because the Company Court had raised the said issue of RBI's joining was made on record and it was prayed that Learned Single Judge appeared to have impliedly held the same to be permissible as the deeds of assignments were frowned upon only on account of its non admissibility as evidenced in Court of law on account of the provisions or non-compliance with the provisions of the Stamp Act and Registration Act. The Bench had in fact gone into this aspect and held against the assignment and as the Bench had come to the conclusion that the deeds of assignments were not permissible where under the NPAs were transferred. The other issues with regard to registration or lack of adequate stamp duty would not be required to be gone into as could be seen from the discussions by the Bench in the judgment, and the counsel Page 5 of 31 O/COMA/126/2014 JUDGMENT for the applicant therefore submitted that this aspect has been elaborately dealt with by the Supreme Court in the proceeding that had arisen out of the said O.J. Appeals challenged and also in the reported decision in case of ICICI Bank Ltd Vs. O.L. of APS Star Industries Ltd, reported in (2010) 10 SCC pg. 1. Learned counsel for the applicant heavily relied upon the observations of the Apex Court at various stages in the judgment and contended that the observations of the Apex Court and holding of the Apex Court clearly indicate that the issue of permissibility of assignment deeds cannot be said to be now open in any manner to be considered by any Court. The attempt on the part of the counsel for the other side resisting the prayers in the application on the basis of other issues cannot be permitted as they cannot argue contrary to law laid down by the Apex Court. Therefore, the counsels for the other side were not justified in resisting the prayers only on account of the matters being pending before the Division Bench. The Division Bench is considering matters only in light of the observations of the Supreme Court in case of ICICI Bank Limited (supra) and therefore, when the scope of the Division Bench's consideration is not on the permissibility of assignment then, the counsels for the other side could not have resisted the prayers made in the application.

10. Learned counsel appearing for the applicant further submitted that in absence of appropriate pleading for assailing the prayers in the application, the Court may not permit the counsels to make submissions on a specious plea of they being submissions on law. In fact the submissions on law so far as the transferability of NPA is concerned, same is not now open to be argued, as it is already upheld by the Apex Court in the decision of ICICI Bank Limited (supra) as submitted herein above.

11. Learned counsel appearing for the applicant indicated that even this Page 6 of 31 O/COMA/126/2014 JUDGMENT Court on the earlier occasion has passed orders, even of disbursement of the amount on the assignee furnishing appropriate undertaking on the usual terms. Two orders were relied upon passed in Company Application No. 224 of 2012 in Company Petition No. 47 of 1982 and Company Application No. 351 of 2012.

12. Learned counsel for the applicant further submitted that the present documents of assignments cannot be said to have been suffering from any lacuna as they were said to have been existing so far as the matters in which judgments have been rendered. In the instant case the documents on record indicate that there were proper adjudication qua stamp duty and that being a conclusive proof of stamp duty payment and the registration aspect is also available, then said documents cannot be said to be now in any manner open to be challenged on those grounds which were available for challenging admissibility of the deed of assignment at the relevant time.

13. Learned counsel for the opponents resisting the prayers submitted that though there is no stay order inuring against consideration of said applications and prayers when the Division Bench is ceased with the issues of lacuna and inadequacy of stamp fees, then, this Court may not decide the prayers till the group of appeals are decided.

14. Learned counsels resisting the application submitted that in fact the present application is an assignee of original assignee i.e. Standard Chartered Bank and assignment deed in that case was the very subject matter of consideration before the learned Single Judge and the Bench and it is governed by the Supreme Court judgment judgments so far as remanding the matter is concerned. The issue of original assignment deed is therefore can be said to be large before the Bench and therefore, in that view of the matter also this Court may not grant prayers of the assignee's Page 7 of 31 O/COMA/126/2014 JUDGMENT assignee whose status is yet to be determined by the Division Bench in the pending group of appeals. Therefore, now this Court may not permit present applicant assignee to substitute itself.

15. Learned counsels appearing for the opponents submitted that the Supreme Court in case of ICICI Bank Limited (supra) has in fact decided only one aspect of the matter and remanded the matter back to the Bench for adjudicating upon other aspects which were germane for questioning the deeds of assignments. Therefore, it cannot be said that the matters are remanded back only on the issue of inadequacy of stamp or on account of provisions of Registration Act. Learned counsels appearing for the opponents invited this Court's attention to the observations and holding of Division Bench in O.J. Appeal No. 156 of 2007 and other allied matters and contended that the deeds of assignments were questioned on various other aspects, apart from its being admissibility on account of inadequacy of stamp fees or Registration Act and Supreme Court has not gone into those issues and, therefore, the Bench is likely to examine those issues also which may persuade this Court in not entertaining this application at this stage.

16. Learned counsels appearing for the opponents in this application invited this Court's attention to paragraph no.5 of the Division Bench order in judgment in O.J. Appeal No. 156 of 2007 and submitted that, that assignment deeds were assailed also on account of provisions of Section 529 and 539-A of the Companies Act so far as the workmen of the company are concerned. Learned counsel for the workmen with specific emphasize submitted that observations of the Court in para-48 (t) would clearly indicate that, that issue had not been considered by the Supreme Court in case of ICICI Bank Limited (supra) and, therefore, when now the Bench is considering all these aspects, then, this Court may not entertain the application and grant the prayers made in this application at Page 8 of 31 O/COMA/126/2014 JUDGMENT the behest of assignee's assignee.

17. Learned counsel Shri Vasavada appearing for the workmen submitted that the deeds of assignments are also required to be viewed from the provision of Section 125 of the Companies Act and the non- registration or modification of the charge at the end of assignee seeking replacement of the original secured creditor will have to face the stringent provision of section 125 and 135 of the Companies Act, if they are not complied with, and ordinarily, there will be case of non-compliance. Learned counsel for the workmen relied upon the decision of the Supreme Court in case of Rajasthan Financial Corporation Vs. Jaipur Spinning And Weaving Mills Ltd And Another, reported in [2006] 133 Comp Cas 1 (SC), and submitted that the Court did not permit the Corporation to claim priority in disbursement on account of non- registration of its charge under section 125 despite there being availability of section 32 of State Financial Corporation Act 1951.Thus the non- registration of charge under section 125 and non-registration of modification under section 135 is fatal to the assignee so far as the claim is concerned, and on this ground also the Court may not permit present assignee to substitute original assignee whose assignment itself is under consideration by the Bench.

18. Learned counsel for the workmen further submitted that present application is suffering from the vice of suppression of facts as the applicant has not disclosed the fact that the applicant is only an assignee at the instance of original assignee whose assignments deeds itself is under consideration by the Division Bench as pleaded. Therefore, this suppression of fact on the part of the applicant may be considered by this Court in rejecting application and prayers. In support of his submission, learned counsel relied upon decision rendered by Supreme Court in case of Bhaskar Laxman Jadhav and Ors. v. Karamveer Kakasaheb Wagh Page 9 of 31 O/COMA/126/2014 JUDGMENT Education Society and Ors., reported in 2013 AIR SCW 34.

19. Learned counsel for the workman relying upon decision of Supreme Court in Umesh Korga Bhandari v. Mahanagar Telephone Nigam Ltd And Another, reported in (2005) 13 SCC 691, submitted that when larger bench was considering the issue, Single Judge or similar bench may adjourn the matter. In the instant case the deed of assignment being under consideration by the Division Bench, this Court may not entertain this application till Division Bench decision is rendered in group of appeals which are pending before the Bench.

20. Learned counsel appearing for O.L, also resisted this application on the ground that the applicant is an assignee of assignee whose assignment deed itself is under consideration and that should have been brought to the notice of the Court while making submission on the matter. Learned counsel appearing for O.L, thereafter contended that on earlier occasions another Single Judge of this Court chose to adjourn the matter and wait for decision from the Devision Bench so far as assignee's matters are concerned, and this Court may therefore not entertain this application till the Division Bench hear and render its decision in group of appeals which are likely to be heard in near future.

21. Learned counsel for the O.L., further submitted that the assignees are not absolved of their liability to have registration or modification of registration of the charge in view of provision of Section 125 and 135 of the Companies Act and, therefore, on this count also the Court may not at this stage entertain the application of the applicant.

22. This Court has heard counsels of the parties at length and has perused the documents available on record. Before adverting to the rival contentions of the counsels of the parties it would be most appropriate Page 10 of 31 O/COMA/126/2014 JUDGMENT and expedient to set out the relevant observations on the controversy in question so far as the deeds of assignments are concerned as it would be absolutely essential for adjudicating the claim of the parties.

23. The original decision rendered by learned Single Judge of this Court in group of petitions being Company Application No. 489 of 2006 and allied matters is the decision where from the matters were carried up to Supreme Court, therefore let there be reproduction of certain observations and findings of learned Single Judge rendered in its judgment dated 5-6-9/7/2007.

"5. In light of the aforesaid background of the facts, the preliminary aspect, which may be required to be considered is the scope of judicial scrutiny in a case where the application is for substitution of the partiesas the assignee or the purchaser of the rights lis pendens. The analogy can be drawn from the provisions of the Civil Procedure Code, however, by now it is well settled that at the stage of substitution, elaborate, detailed examination of the rights of the parties may not be undertaken by the Court, but the Court has to prima facie examine the availability of the rightsby the party, who approaches before the Court for substitution and in a case of transfer or assignment where the rights are prima facie conveyed through the lawful process or the process known to law, such substitution may be permitted by the Court. It may be that in a suit for recovery of the amount before the Debts Recovery Tribunal or before the other forum, even if the substitution is permitted by the Tribunal or such forum, all defences may be available to the Defendants therein at the time when the applications before the DRT or the suit before the appropriate forum are tried and the Tribunal or the forum ultimately before passing decree may undertake the detailed examination of the aspects of assignment, transfer of the rights, discharge of obligations, validity of such assignment, whether in accordance with law or opposed to public policy or prohibited by law, etc., if required, by permitting the parties to lead evidence, including by giving opportunity to the concerned parties for cross-examination of the witnesses on various aspects, which may directly or incidentally be concerning to the legality and validity of such assignment. However, such Page 11 of 31 O/COMA/126/2014 JUDGMENT elaborate examination of the rights or the final declaration to be pronounced on the validity of the documents or otherwise may not be required, in case where the matter is at the stage of substitution of the proceedings. The Court normally would prima facie consider the acquiring of rights, if any, by the assignee and may permit substitution in a given case, if ultimately found prima facie by the Court that the rights of the original party or the secured creditors in the present case have been acquiring by the applicant/assignee. If prima facie, the Court finds that there is no lawful transfer of the rights, may be on the ground that the requisite procedure as required under the law for convening the rights are not followed, then such substitution may be declined, leaving the parties to have the final adjudication before appropriate forum, may be the Debts Recovery Tribunal or the forum where the recovery proceedings are pending. Therefore, it appears that at this stage the only aspect to be considered is prima facie acquiring of the rights by the applicant assignee through process known to law. (emphasiz supplied).

6. Incidentally, the reference deserves to be made to the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the 'Securitisation Act' for the sake of convenience). After the introduction of the laws for enforcement of the security and the scheme providing for purchase and sale of transactions having security interest, such mode of acquiring interest is recognized under the Securitisation Act. Section 5 of the Act provides for giving effect to the transaction notwithstanding anything contained in an agreement in any law for the time being in force. But the aforesaid would be available to a Securitisation Company or a Reconstruction Company, who may acquire financial assets from any bank or financial institution. Securitisation Companies or Reconstruction Companies are only those companies, which are registered as Securitisation Companies under the Companies Act and also registered as Securitisation Company with Reserve Bank of India and they are governed by the Regulations for such purpose as envisaged in Chapter II of the Securitisation Act. It is an admitted position that none of the applicants in the group of the applications are Securitisation Companies or Reconstruction Companies and are only the Banks or Banking Companies governed by the provisions of the Banking Page 12 of 31 O/COMA/126/2014 JUDGMENT Regulations Act. Therefore, as per the Scheme of the Securitisation Act if the financial assets are acquired by a Securitisation Company or a Reconstruction Company registered as per the provisions of Securitisation Act, possibly it may be contended that the deed of assignment may have the force in law by over-riding contents of the agreement or any other law for the time being in force in view of the Section 5 of the Securitisation Act. As per the deeming fiction of Sub- section (2) of Section 5, such Securitisation Companies acquiring rights is to be treated as deemed lenders and by statutory fiction the rights are to vest in such Securitisation Company in relation to such financial assets. xxxxxxxxxx (emphasiz supplied).

7. Since none of the applicants or assignees is a Securitisation Company or a Reconstruction Company, they would not be entitled to the benefits of provisions of Section 5 of the Securitisation Act of statutory fiction as a deemed lender or for vesting of the rights of the loaner, notwithstanding anything contained in the agreement or any other law for the time being in force. Therefore, in view of such situation, when the legislature itself has also not inclined the Banking Companies, but has expressly provided for the words as 'any Securitisation Company or Reconstruction Company' in the language of Section 5, if the applicant assignees are to assert their rights, they would be abide by any terms of agreement or any other law for the time being in force, which as observed herein above would be the Transfer of Property Act, the Registration Act and also the payment of the Stamp duty as per the provisions of the concerned law governing the stamp duty, may be of Gujarat or other State. In any case, no right can be asserted by the applicants to have over-riding effect of the deed of assignment over any terms of the agreement between the loaner and the loanee or over the law prevailing for assignment of the deed or interests in the immovable properties, may be security interest or otherwise. In view of the aforesaid it will have to be considered as to whether the interest as acquired by the assignee on the basis of the alleged deed of assignment is through the process(es) known to law or not. (emphasiz supplied) Xxxxxxxxxxxxxxxxxxxxxxxxx Page 13 of 31 O/COMA/126/2014 JUDGMENT

24. In any case, if the rights in the immovable properties are not conveyed by requisite documents under the Transfer of Properties Act read with Registration Act, it can be said that the requisite procedure known to law is not followed and, therefore, the rights in the immovable properties as per the provisions of Transfer of Properties Act read with the Registration Act remains unaltered of the original loaner/secured creditor.

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27. In my view, even if the permissibility of the transaction under the Banking Regulation Act in view of Section 6(1) read with the provisions of Section 6(2) and Section 8 of the Banking Regulation Act are kept aside in view of the guidelines issued by RBI, which is expected to supervise the functioning of the Banks, neither in the guidelines, nor any statutory provision is brought to the notice of this Court, which are to nullify the effect of the Transfer of Property Act, the Registration Act and also the State Laws of the Bombay Stamp Act, applicable to Gujarat State. Even if the contention of the learned Counsel for the applicants is considered for the sake of examination, at the most, it can be said that the guidelines of RBI permit sale and purchase of the Non-Performing Financial Assets. Whether it is to be shown in the books of accounts as individual transaction or common pool may have the relevance from the accounting point of view for maintaining the books of accounts by the Bank or the Banking Companies and such guidelines cannot be read as giving a go- by to the statutory provisions of the Transfer of Property Act, the Registration Act or the Bombay Stamp Act, the as the case may be. As such, the guidelines do not speak for any specific procedure to be followed under all the three Acts and, in any event, no guidelines can be read as to nullify the provisions of any statute. Therefore, merely because for accounting purpose, RBI has issued certain guidelines cannot be read as justifiable ground to give a go-by to the mandatory requirements of law for conveying the rights in immovable properties. Therefore, such an attempt on the part of the learned Counsel for the applicant cannot be countenanced.

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33. The learned Counsel for the applicants did submit that in certain earlier matters, this Court has permitted substitution. It was also submitted that in certain cases the substitution is permitted by the Debts Recovery Tribunal and not only that, but in certain cases, the recovery certificates are also issued in favour of the applicant assignee by the DRT and, therefore, such companies are estopped either themselves or through the Official Liquidator from resisting the substitution of the applicant. It was further submitted that the observations made by this Court qua the deed of assignment in either way not only may prejudice the rights of the applicant assignee in the proceedings before the DRT, but if the order of the DRT is to be upset or modified or reversed the appeal is the proper remedy and not in the present proceedings.

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39. In view of the aforesaid observations and discussion, as the rights are not acquired by the assignee through the process known to law, the applicants cannot be permitted to be substituted in place of secured creditors of the company in liquidation (assignor). However, in view of the aforesaid, the situation has arisen, resulting into abandonment of the rights by the assignor and non-acquiring of the rights by the assignee. It may be that in a given case on account of ultimate establishing of the right before the appropriate forum, the Official Liquidator In-charge of the company in liquidation may be required to pay the dues of the secured creditor(s), may be pro rata or otherwise, at a later stage and, therefore, with a view to see that further complications may not arise or the situation may not become irreversible, appropriate directions deserve to be issued to Official Liquidator, who otherwise is to function under the supervision of this Court as per the provisions of the Companies Act..

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41. Before parting with, it deserve to bed that the observations made by this Court are prima facie and shall not Page 15 of 31 O/COMA/126/2014 JUDGMENT be read as conclusive if the legality and validity of the deed of assignment is challenged before the appropriate forum or if the rights are asserted or defence is raised as permissible in law, by the respective parties before the appropriate forum, which is to finally adjudicate rights. Such observations would also apply in the event any proceedings are initiated under the provisions of the Stamp Act or the Bombay Stamp Act, as the case may be, for non-payment of the requisite stamp duty. Suffice it to say that all rights and contentions before the appropriate forum of the parties concerned shall not get concluded by the observations made by this Court and shall be treated as concluded only for substitution in the present proceedings."

Thus from the aforesaid observations it has become clear as to what was the basis for rendering the judgment by Learned Single Judge and Learned Single Judge of this Court also made it abundantly clear that those observations were prima facie and not conclusive so far as the rights of the parties are concerned.

24. The observations and findings of Division Bench in appeal being O.J. Appeal No. 156 of 2007 and other allied matters in the judgment dated 12/1/2009 also deserves to be set out herein below for appreciating the contentions of the counsels based there upon.

"1. This group of appeals has been preferred challenging the judgment and order dated 09.07.2007 of the learned Single Judge (hereinafter referred to as 'the Company Court) dismissing Company Application No. 489 of 2006 filed by the appellant of Appeal No. 156 of 2007, and similar other matters."

Para no.2 in the judgment contains questions of law and nowhere those questions touched upon the controversy qua validity of assignment deed in light of the Banking Regulations. The questions which have been mentioned in para-2 numbering xix, those were pertaining to the prima facie Page 16 of 31 O/COMA/126/2014 JUDGMENT observations of the learned Single Judge in respect of document's registration, stamp duty and fees, or acting upon opinion of the revenue authorities and prima facie pronouncement on admissibility of the documents without there being complete perusal of the documents.

"5. The learned counsel for the appellants i.e. the Assignee Banks and the learned counsel for the Assignor Banks, who are supporting the appellants, have raised various contentions. At the time of hearing the Court had called upon the learned counsel for the Assignee and the Assignor Banks to point out and explain as to whether it is open (i) to the Assignor Banks to transfer the Non-performing Assets (NPAs/Debts); AND (ii) to the Assignee Banks to purchase such NPAs/Debts, as a business of a part of the business of the banks in light of the provisions of the Banking Regulation Act, 1949 (the B.R. Act).

6. Initially it was submitted that the said aspect of the matter could not be raised and considered in the appeal because the Company Court had raised the said issue, joined Reserve Bank of India (RBI) as a necessary party in the Company Application, RBI had filed two detailed affidavits along with the guidelines issued for purchase/sale of Non-performing Financial Assets, and thereafter RBI was deleted from the array of the respondents. Thus in fact, the said issue had been considered by the Company Court and it can be presumed to have been held by the Company Court and it can be presumed to have been held by the Company Court that such an exercise viz. sale and purchase of NPAs, was permissible under the provisions of the B.R. Act. Therefore, neither the Assignees nor the Assignors could be called upon to once again submit as regards an issue which was concluded in their favour by the Company Court, in appeals filed by the Assignee Banks. However, subsequently the learned counsel accepted that it was open to the Appellate Court to go into the said legal issue and various submissions have been made on the basis of the provisions of the B.R. Act.

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8.3    Reference was made to provisions of Sections 125 and

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135 of the Companies Act, 1956 to submit that registration of a charge was compulsory and in absence of any charge being registered the same would be void against the liquidator and any other creditor. That by virtue of the Deed of Assignment, the assignee becomes de jure charge holder and is therefore, required to have the modification of charge registered. That after such modification of charge being registered the modification is required to be communicated to the borrower company and in absence of the same the assignee bank cannot be treated as a secured creditor."

8.5 On behalf of the Textile Labour Association it was submitted that the scheme of Sections 529 and 529A of the Companies Act permitted the secured creditor and the workmen to have a pari passu charge because both of them had contributed to building up of the assets of the company (in liquidation). The lender by way of advancement of loan and the workmen by input of labour. That the assigneebank not having contributed in any manner was not entitled to the pari passu charge over the assets of the company (in liquidation).

10.1 Though initially the submissions on behalf of the Assignor and the Assignee banks was to the effect, as noted herein above, that firstly, the Court should not undertake the exercise of finally determining as to whether the transaction was valid in law or not, and secondly, alternatively, the Court should finally decide the issue without restoring the matter back to the company Court, at the time of rejoinder, Mr. Saurabh N. Soparkar, learned Senior Advocate, striking a discordant note, submitted that if the Court comes to the conclusion that the transaction is non est in law, the transferor bank will retain all rights, and then other issues need not be gone into."

10.2 xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx

47. In the view that the Court has adopted it is not necessary to enter into any discussion on merits as regards the applicability of the provisions of the Registration Act, the Stamp Act, etc. Once the transaction in question, namely, the assignment, is held to be impermissible in law, it is not necessary to record any findings in relation to the violation of other laws. However, suffice it to state that, prima facie, the Page 18 of 31 O/COMA/126/2014 JUDGMENT views expressed by the Company Court in relation to these issues merit consideration and acceptance. However, it is not necessary to deal with the said aspect in detail as the transaction itself is held to be bad in law being in violation of the provisions of the B.R. Act, which is the statute governing the business conduct of the assignor and the assignee banks. Hence, various decisions cited at the Bar in relation to the provisions of T.P. Act, Registration Act, Stamp Act, etc. are not referred and dealt with."

xxxxxxxxxxxxxxxxxxxxxxx 48(t) the pari passu charge envisaged by a conjoint reading of Sections 529 and 529A of the Companies Act is available only in relation to first charge holder and the second charge holder cannot be equated with the first charge holder. Therefore, clubbing of debts where the charges might be different does not give a right to the assignee to seek substitution in place of the first charge holder assignor bank.

49. Thus, the judgment and order of the Company Court does not merit intervention in so far as the rejection of the application for substitution in principle is concerned. However, the directions issued by the Company Court, and the observations made, permitting the parties to raise the issue at the time of disbursement cannot be upheld considering the fact that the transaction in question, namely,. assignment is itself held to be bad in law as not being permissible in law, in light of what is stated herein before. In fact as per directions made in order dated 17.10.2007 in Civil Application Nos. 376 of 2007 and 377 of 2007 the Official Liquidator has been directed to disburse the amount payable, the amount which were otherwise payable to the assignor prior to the deed of assignment, only to the assignor subject to the conditions that the assignor shall file an undertaking as directed. Therefore, no further directions are required to be mad as the assignee banks have not been substituted in effect."

25. Thus, it becomes clear from the aforesaid reproduction of the observations and findings of the Division Bench that the assignment document was considered to be untenable in eye of law on various other grounds and grounds in respect of provisions of Registration Act as well Page 19 of 31 O/COMA/126/2014 JUDGMENT as Stamp Act which were not gone into as they were not required to be dealt with as the Bench was of the clear opinion that assignment deed documents were not tenable in eye of law on account of various provisions mentioned in the judgment. This judgment & order of Division Bench rendered in group of appeals was carried into Supreme Court by way of Special Leave Petition and the Supreme Court decided the same vide its order dated 30/9/2010 which came to be reported in (2010)10 SCC pg.1. In case of ICICI BANK LIMITED Vs. OFFICIAL LIQUIDATOR OF APS STAR INDUSTRIES LIMITED AND OTHERS. Relevant observations and findings of the Apex Court in case of ICICI Bank Ltd (supra) are also required to be set out in order to appreciate the scope of the controversy thereafter.

" 37. The point we are trying to make is that apart from the principal business of accepting deposits and lending the said 1949 Act leaves ample scope for the banking companies to venture into new business subject to such business being subject to the control of the regulator viz. RBI. In other words, the 1949 Act allows banking companies to undertake activities and businesses as long as they do not attract prohibitions and restrictions like those contained in Sections 8 and 9. In this connection we need to emphasize that Section 6(1)(n) enables a banking company to do all things as are incidental or conducive to promotion or advancement of the business of the company. Section 6(1) enables banking companies to carry on different types of businesses. Under Section 6(1), these different types of businesses are in addition to business of banking viz. core banking. The importance of the words "in addition to" in section 6(1) is that even if different businesses under clause (a) to (o) are shut down, the company would still be a banking company as long as it is in the core banking of accepting deposits and lending so that its main income is from the spread or what is called as "interest income".Thus, we may broadly categorise the functions of the banking company into two parts viz. core banking of accepting deposits and lending and miscellaneous functions and services. Section 6 of the BR Act, 1949 provides for the form of business in which banking Page 20 of 31 O/COMA/126/2014 JUDGMENT companies may engage. Thus, RBI is empowered to enact a policy which would enable banking companies to engage in activities in addition to core banking and in the process it defines as to what constitutes "banking business".

"38. The BR Act, 1949 basically seeks to regulate banking business. In the cases in hand we are not concerned with the definition of banking but with what constitutes "banking business". Thus, the said BR Act, 1949 is an open ended Act. It empowers RBI (Regulator and policy framer in matter of advances and capital adequacy norms) to develop a healthy secondary market, by allowing banks inter se to deal in NPAs in order to clean the balance sheets of the banks which guideline/policy falls under Section 6(1)(a) read with Section 6(1)(n). Therefore, it cannot be said that assignment of debts/NPAs ins not an activity permissible under the BR Act,1949. Thus, accepting deposits and lending by itself is not enough to constitute the "business of banking". The dependence of commerce on banking is so great that in modern money economy the cessation even for a day of the banking activities would completely paralyse the economic life of the nation. Thus, the BR Act, 1949 mandates a statutory comprehensive and formal structure of banking regulation and supervision in India."

39. The test to be applied is-whether trading in NPAs has the characterists of a bona fide banking business. The test is satisfied in this case. The guidelines issued by RBI dated 13-7- 2005 itself authorises the banks to deal inter se in NPAs. These guidelines have been issued by the regulator in exercise of the powers conferred by Sections 21 and 35-A of the Act. They have a statutory force of law. They have allowed the banks to engage in trading in NPAs with the purpose of cleaning the balance sheets so that they could raise the capital adequacy ratio. All this comes within the ambit of Section 21 which enables RBI to frame the policy in relation to advances to be followed by the banking companies and which empowers RBI to give directions to banking companies under Section 21(2). These guidelines and directions following them have a statutory force.

40. When a delegate is empowered by Parliament to enact a policy and to issue directions which have a statutory force Page 21 of 31 O/COMA/126/2014 JUDGMENT and when the delegate (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.

Trading in NPA-a misnomer

41. At the outset one needs to know what is NPA? When a borrower who is under liability to pay to secured creditors, makes default in repayment of secured debt or any installment thereof, the account of borrower is classified as non- performing asset (NPA). Such NPAs cannot be used for any productive purpose. Continuous growth in NPAs threatens the repayment capacity of the banks. They have an adverse impact on the financial strength of the banks which in the present era of globalisation are required to confirm to international standards. Thus, NPA means an asset or account receivable of a borrower, which has been classified by banks or financial institutions in terms of the RBI Guidelines as substandard, doubtful, etc. These guidelines are issued to improve quality of assets of the banks. The 2005 Guidelines of RBI are not to eliminate NPAs but to restructure.

42. The BR Act, 1949 vide Section 21 empowers RBI in the interest of the banking policy to lay down guidelines in relation to advances to be followed by the banking companies. The 2005 Guidelines have been issued as "a restructuring measure" in order to avoid setbacks in the banking system. NPAs do not generate interest. 85% of the Indian banks' income comes from interest. Thus, NPAs adversely impact profits of the banks and hence, as a matter of banking policy, RBI as regulator seeks through its guidelines under Section 21 read with Section 35-A to manage these NPAs and not to eliminate them. The said guidelines deal with restructuring of the banking system which is one f the objects behind giving authority to RBI to frame "banking policy".

43. One more aspect needs to be kept in mind. In this Page 22 of 31 O/COMA/126/2014 JUDGMENT batch of cases we are dealing with assets in the hands of the 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 the1949 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 part of restructuring mechanism falls within Section 35-A of the Act. Hence, it cannot be said that "transferrerr 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 Interpretation by G.P. Singh, 11th Edn. At p.328).

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. (see written submissions filed on 31-8-2010).

Invocation of Section 130 of the TP Act, 1882.

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 Page 23 of 31 O/COMA/126/2014 JUDGMENT 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 ICICII Bank Ltd and becomes the borrower(s) of Kotak Mahindra Bank Ltd (assignee).

47. At this stage, we wish to once again emphasize 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 Page 24 of 31 O/COMA/126/2014 JUDGMENT assignment transfers any obligations of the assignor towards the assignee.

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49. In Camdex International Ltd v. Bank of Zambia 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."

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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 the 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 NPAs from the banks. However, from that it does not follow that the Page 25 of 31 O/COMA/126/2014 JUDGMENT banks inter se cannot transfer their own assets. Hence the said SARFAESI Act, 2002 has no relevance in this case.

xxxxxxxxxxxxxxxxxxxxxxxxx Conclusion

53. As stated above, by the impugned judgment, the Division Bench of the Gujarat High Court upheld the order of the Company Court only on one ground, namely, assignment of debts by the banks inter se is an activity which is impermissible under the Banking Regulation Act, 1949. However, the Division Bench did not go into other issues which arose for determination before the Company Court, including applicability of the provisions of the Registration Act, 1908.

54. In the circumstances, we set aside the impugned judgment(s) on the question of assignment of debts as an activity permissible under the Banking Regulation Act, 1949. However, we remit these matters to the Division Bench of the High Court(s) for consideration of other issues raised in this batch of cases. Subject to above, the impugned judgment(s) is set aside and the civil appeals are allowed with no order as to costs."

(Emphasis on bold at various paras are supplied).

26. Against the aforesaid backdrop of the observations of the Court on the issue and finality rendered by the Supreme Court in case of deeds of assignments on the aspects of its lawfulness in light of other provisions of the Act is unimpeccable in any manner and, therefore, one can safely conclude that so far as the assignment of debt is concerned even from bank to bank is considered to be an absolute proposition of law and that question cannot be said to be any more res integra. Thus, it can safely be said that now only the issues which were not dealt with by the Division Bench of this Court have been left open to be decided by the Division Bench as per the Supreme Court judgment. But those issues also cannot whittle down in any manner directly or indirectly the ratio laid down by the Apex Court. Therefore, scope of controversy being in a very narrow compass the question arises as to whether on this ground alone all the Page 26 of 31 O/COMA/126/2014 JUDGMENT matters of assignees be permitted to be kept on hold till the group of appeals is heard and decided by the Bench, especially when there is not any interim order against deciding the issue is inuring.

27. The Court is of the considered view that so far as the deeds of assignments and its permissibility is concerned, that issue is settled by the Supreme Court in case of ICICI Bank Ltd (supra). So far as the other issues are concerned, like issue in respect of provisions of Registration Act, Stamp Act and impact upon the issues touching upon provisions of Section 529A of the Companies Act and registration of charge are not the issues which can be said to be unsurmountable as to stall all the proceedings by way of omnibus order of one line that the matters be decided after hearing appeal pending before the Division Bench. That would bring about a stalemate which in my view cannot be permitted as it would rather have adverse impact upon the functions of the financial institutions and it may even bring about a result of violating provisions of SARFAESI Act, which the legislature has acknowledged to be special provision and as such treated by the Courts to be having an overriding effect upon provisions of other law so far as they are inconsistent there with. In other words when the present applicant company is a SARFAESI company as envisaged under Section 5, then even the consideration accorded to it by learned Single Judge should weigh in favour of the applicant as the different considerations are required to be weighed. Provision of Section 5 of SARFAESI Act is set out as under.

"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 securitisation company or reconstruction company may acquire financial assets of any bank or financial institution-

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(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.

(2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.

(3) Unless otherwise expressly provided by this Act, all contracts, deed, bonds, agreements, powers-of-attorney, grants of legal representation, permissions, approvals, consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after he acquisition of the financial assets, be of as full force and effect against or in favour of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectuallyyyy as if, in the place of the said bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of securitisation company or reconstructicompany oryor, as the case may be.

(4) If, on the date of acquisition of financial assettt under sub-section (1), any suit, appeal or other proceeding of Page 28 of 31 O/COMA/126/2014 JUDGMENT whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to sub-section (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be.

(5) On acquisition of financial assetsnder sub-section (1), the securitization company or reconstruction company, may with the consent of the originator, file an application before the Debts Recovery Tribunal or the Appellate Tribunal or any court or other Authority for the purpose of substitution of its name in any pending suit appeal or other proceedings and on receipt of application, such Debts Recovery Tribunal or the Appellate Tribunal or court or Authority shall pass orders for the substitution of the securitization company or reconstruction company in such pending suit, appeal or other proceedings.]"

28. Now, as per this provision also when legislature has in its own wisdom provided specific treatment to be accorded to the proceedings/ recovery under SARFAESI, then adjoining the matter only account of pendency of appeal proceedings before the Bench would not be proper, in my view.

29. The Court is of the considered view that the present application contains prayers which if granted at this stage without final pronouncement upon the issues raised and after making it subject to final outcome of the proceedings pending before the Division Bench, then, that would serve ends of justice and it would take care of the situation and Page 29 of 31 O/COMA/126/2014 JUDGMENT avoid undue adjournment in the matter.

30. So far as the present applicant is concerned, the prayers are only qua substitution and participation in the sale proceedings in place of secured creditor / assignee and so far as the present deed of assignment is concerned under section 32 of the Stamp Act is adjudicated and therefore in view of provision of section 32 of the Stamp Act this being conclusive proof. So far as the Registration Act is concerned same is also not creating an unsurmountable situation so as to bring about a stalemate which is not permissible under law as it would create an impact upon finding under Section 5 of the SARFAESI Act.

31. The Court hasten to add here that the issues with regard to requirement of registration of charge in light of Section 125 and 135 of the Companies Act is not to be addressed at this stage as it expressly kept open to all the parties to argue as and when it becomes opportune and appropriate, as today while dealing with the application the Court is to decide the prayers for substitution and participation of the assignee in the sale proceedings. Therefore, without touching upon that aspect at this stage, the Court is inclined to accept the prayers as made in the application. Accepting of the application and prayers would not amount to pronouncing upon other issues and parties will be at absolute liberty to canvass all the grounds available to them as and when the stage requires. At this stage, if the application is not allowed, then it will create an impasse which would defeat the very purpose of SARFAESI Act and, therefore, it is found to be most appropriate by this Court that the application with its present prayers is required to be allowed with aforesaid safeguards and reservation to all.

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32. Accordingly, this application is allowed. Applicant is permitted to substitute in place of Standard Chartered Bank, subject to any objection by Standard Chartered Bank or any one on other issues. Substitution is subject to final outcome of the controversy pending before the Division Bench, and this order may not be treated as absolving the applicant of its liability to be bound by final outcome and threshing out the law on the other issues that may be decided by the Bench.

(S.R. BRAHMBHATT, J.) vgn Page 31 of 31

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