The assignment of debts by banks is part of legitimate banking business, validated by applicable laws and recognized under the Companies Act for winding up petitions.

1. Sri. P. K. Jain, learned Senior Advocate assisted by Sri. Raj Kumar Tiwari appear for the applicant M/s. Chopra Fabricators and Manufacturers Pvt. Ltd. Sri. Om Prakash Mishra, appears for the petitioner - M/s. Kotak Mahindra Bank Ltd.

2. On 23.10.2009 the matter was directed to be listed for hearing on the question of maintainability of the company petition, in that, whether the debts of M/s. Chopra Fabricators and Manufacturers Pvt. Ltd (hereinafter referred to as - the company) could be validly assigned by State Bank of India to the petitioner - M/s. Kotak Mahindra Bank Ltd. and on the basis of such assignment, a winding up petition can be filed.

3. An interim order was passed by the court on 23.10.2009 restraining respondent company and its Directors, Officers or Agents from transferring, alienating and or creating any third party interest on the mortgaged assets.

4. The applicant - respondent company is alleged to be indebted to the State Bank of India a sum of Rs. 14,30,70,934/- against the cash credit facility, term loans and interest. The State Bank of India assigned the debts with all its rights, title, interest and benefits in relation to the above credit facility term loans etc. granted to the company to M/s. Kotak Mahindra Bank Ltd. (hereinafter referred to as the assignee bank) by a deed of assignment dated 29.3.2006.

5. A preliminary objection has been taken by the applicant - respondent company on the basis of judgment of Gujarat High Court in Kotak Mahindra Bank Ltd. v. Official Liquidator of M/s. APS Star Industries Ltd. and Others , 2009 (2) Bankers Journal 755 that the debts cannot be assigned by the State Bank of India to the assignee bank and thus the company petition at the instance of the assignee bank is not maintainable.

6. The Division Bench of the Gujarat High Court relied on S.5, S.6 and S.8 of the Banking Regulation Act 1949, and S.130 of the Transfer of Property Act, 1882 to dismiss the appeal arising out of the order of the Company Judge, rejecting the application of the assignee bank to be substituted in proceeding, but permitting it to participate in proceedings under S.529 - A of the Companies Act 1956, that the banking business and policy does not authorize the banking company to assign debts including Non - performing Asset (NPA). The reasons given by the Gujarat High Court are summed up in para 48 of the judgment as follows: - "(a) neither the definition of the term "banking" as appearing in S.5(b) of the B.R. Act, nor the extended meaning available in terms of provisions of S.6 of the B.R. Act can take within its sweep the transaction in question;
(b) the provisions of the B.R. Act do not give any right to deal in securities acquired at the time of lending;
(c) the right to realize a security to ensure recovery of outstanding debt cannot be stretched to mean a right to deal in securities;
(d) the definition of "banking policy" under S.5(ca) of the B.R. Act cannot permit framing of such a policy which permits trading in debts as the debts are not acquired as a part of banking activity but come into existence upon advancement of a loan. The requirements of S.5(ca) of the B.R. Act cannot be said to have been met with by such an assignment;
(e) any guidelines formulated by RBI cannot be part of banking policy because under S.35A of the B.R. Act RBI has powers to issue directions after recording satisfaction that it is necessary to issue directions to banking companies having regard to the factors stated in S.35A of the B.R. Act. The present transaction cannot fall within any of the four prescribed requirements so as to enable RBI to record satisfaction for the purposes of issuing directions. No direc