Back
GUJARAT HIGH COURT
KS JHAVERI, A.G. URAIZEE, JJ
KOTAK MAHINDRA BANK LTD. – Appellant
Versus
O.L. OF M/S. APS STAR IND.LTD. & 19 – Respondent
O.J.APPEAL NO. 156 of 2007 | COMPANY APPLICATION NO. 489 of 2006 | OFFICIAL LIQUDATOR REPORT NO. 88 of 2006 | COMPANY PETITION NO. 190 of 2003
For the Appellants/Petitioners: SINGHI & CO
For the Respondents: GOVERNMENT PLEADER, MR BHAGYODAYA MISHRA, MR INDRAVADAN PARMAR, MR RAJESH P MANKAD, MR RD DAVE, MR YOGESH G DEV, MS AMEE YAJNIK
The Banking Regulation Act allows the assignment of debts among banks, legitimizing creditor substitutions in liquidation cases, provided RBI guidelines are followed.
Headnote:(A) Banking Regulation Act, 1949 - Assignment of debts - The court examined the validity of assigning debts between banks, particularly focusing on whether such actions are permissible under the Banking Regulation Act - Apex Court remanded matters, emphasizing the assignment is permissible under certain RBI guidelines. (Paras 23, 24, 46)
(B) Legal representation rights - Dismissed arguments against substitution in place of the original lenders following the assignment of debts - The essence of banking practice allows for the transfer of debts while maintaining borrower rights. (Paras 39, 40)
(C) Substitution rights - The court underscored that once debts are assigned, the assignee becomes the lender, thus entitled to recovery from borrowers, ensuring equitable resolution in the bankruptcy context. (Paras 4.1)
Facts of the case:
The appellants sought permission to substitute their names for ICICI Bank in liquidation proceedings after acquiring ICICI’s debt rights, which had been contested in lower courts as violating banking regulations.
Findings of Court:
The court sanctioned the assignment of debts, clarifying transfer legality under the Banking Regulation Act, while maintaining the validity of the original contracts pending further legal scrutiny.
Issues: The court addressed whether assignments between banks violate the Banking Regulation Act and the implications of such assignments on creditors’ rights.
Ratio Decidendi: The court concluded that assignments of debts do not contravene banking regulations, with the RBI empowering banks to trade in non-performing assets, thereby allowing the assignee bank to recover debts directly from borrowers.
Result: Appeals partly allowed.
| Table of Content |
|---|
| 1. substitution of creditors in liquidation proceedings. (Para 1 , 3) |
| 2. assignment of debts by banks permits rights transfer. (Para 2) |
| 3. legal arguments on debt assignment and substitution rights. (Para 4 , 5) |
| 4. remand for further proceedings on other issues. (Para 6) |
| 5. conclusion of appeal with specific observations retained. (Para 7) |
JUDGEMENT
(PER : HONOURABLE MR.JUSTICE KS JHAVERI)
1. The appellants had filed applications seeking substitution of appellants in place of respondent no. 20 (ICICI Bank Limited) in view of the fact that the applicants had taken over the debts of ICICI Bank Limited. The said applications were heard by learned Single Judge sitting as Company Judge and vide common judgement and order dated 05-06- 09/07/2007 the applications came to be dismissed. This judgement was challenged by filing the present appeals which were decided on 12.01.2009. Against the said judgement passed by the Division Bench of this High Court, the matter was carried to the Apex Court by filing Civil Appeals No. 8393 of 2010 and allied matters. The Apex Court by order dated 30.09.2010 (reported as ICICI Bank Limited vs. Official Liquidator of APS Star Industries Limited and Others reported in (2010) 10 SCC 1) remanded the matters to the Division Bench of this High Court. While remanding and concluding the matte, the Apex Court observed as under:
- “23. 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.
24. 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. “
2. With the consent of the parties, the matters are taken up for final hearing today. The prayers in each application are set out as under:
- KOTAK MAHINDRA BANK LIMITED Sr.
- No.
- Sr.
- No.
- as per the Cau se list of
30.9
.201 4 Matter Prayer made in the Company Application Date of Sub.
order of in DRT Date of Decree passed in DRT
1. 47 OJA/156/2007 in COMA/489/2006 With OJCA/260/2007 A) That this Hon’ble Court may be pleased to allow the name of the applicant to be substituted in place of ICICI Bank - - Kotak Mahindra Bank Ltd. vs. OL of M/s. APS Star Industries Limited & ors.
Limited;
2. 50 OJA/159/2007 in COMA No. 291 of 2006 With OJCA/263/2007 Kotak Mahindra Bank vs. State Bank of India & ors.
(OL of Orient Chemicals Limited) A) That this Hon’ble Court may be pleased to allow the name of the applicant to be substituted in place of the State Bank of India;
16.1.200 7 -
3. 51 OJA/160/2007 in COMA No. 491 of 2006 With OJA/264/2007 Kotak Mahindra Bank vs. OL of M/s.
Varun Seacon Limited & ors.
A) That this Hon’ble Court may be pleased to permit the applicant to be substituted for and in place of the ICICI Bank Limited as the secured creditor of the Company in Liquidation;
- - -
4. 52 OJA/161/2007 in COMA No. 620 of 2006 With OJCA/265/2007 Kotak Mahindra Bank vs. OL of Stanrose A) That this Hon’ble Court may be pleased to permit the applicant to be substituted for and in place of the State Bank of India and State Bank of Saurashtra as the secured creditor of the Company in - 10.7.2014 Steels Limited (formerly Volvo Steels Limited) & anr.
Liquidation;
5. OJA/162/2007 in COMA No. 490 of 2006 With OJCA/266/2007 Kotak Mahindra Bank vs.
S
