2009 (5) TMI 978 - HC - Companies Law

Issues Involved:
1. Legality of the deed of assignment executed by the State Bank of India in favor of Kotak Mahindra Bank Ltd.
2. Compliance with the guidelines issued by the Reserve Bank of India.
3. Validity of the assignment under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
4. Adequacy of consideration for the assignment.
5. Fraud and misrepresentation in obtaining the deed of assignment.
6. Maintainability of the writ petition under Article 226 of the Constitution of India.
7. Rights and obligations of the guarantor and principal borrower.

Issue-wise Detailed Analysis:

1. Legality of the Deed of Assignment:
The petitioner challenged the deed of assignment dated 16.1.2006 executed by the State Bank of India (SBI) in favor of Kotak Mahindra Bank Ltd., alleging it was done without proper notice and was less than the amount deposited by the Helios Company. The court found that the assignment was executed in an arbitrary and illegal manner, selling the company's assets for a meager amount of Rs. 39.63 lakhs, even though Rs. 47.50 lakhs was already deposited by Helios Company with SBI.

2. Compliance with RBI Guidelines:
The court noted that the RBI issued guidelines on 13.7.2005 for the purchase/sale of non-performing assets. However, these guidelines are executive instructions and do not have statutory force. The court held that the SBI should have followed the statutory enactments rather than the RBI guidelines, especially when the recovery proceedings were already underway under the Recovery of Debts Due to Banks and Financial Institutions Act, 1993.

3. Validity under Securitisation Act:
Kotak Mahindra Bank Ltd. was not registered as an Asset Reconstruction Company (ARC) under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The court found that the assignment was invalid as Kotak Mahindra Bank Ltd. falsely claimed to be an ARC in the affidavit filed before the Collector of Stamps, Alibaug, Maharashtra.

4. Adequacy of Consideration:
The court observed that the assignment deed was executed for Rs. 39.63 lakhs, which was significantly lower than the Rs. 195 lakhs offered by Helios Company for a one-time settlement. This was considered inadequate and arbitrary, especially since the company's assets were valued at Rs. 141 lakhs by SBI's valuers.

5. Fraud and Misrepresentation:
The court found that Kotak Mahindra Bank Ltd. committed fraud and misrepresentation by claiming to be an ARC and stating that the assignment was executed under the Securitisation Act. This false statement was used to evade stamp duty and mislead the authorities, rendering the deed of assignment void.

6. Maintainability of the Writ Petition:
The court held that the writ petition was maintainable under Article 226 of the Constitution of India. The petitioner, being the Director and Guarantor of Helios Company, had the right to challenge the arbitrary and illegal actions of SBI and Kotak Mahindra Bank Ltd. The court rejected the argument that the matter was purely contractual and should be dealt with by the Debt Recovery Tribunal.

7. Rights and Obligations of the Guarantor and Principal Borrower:
The court emphasized that the position of a guarantor is co-extensive with that of the principal borrower. Since the initial agreement was amended without the guarantor's consent, the petitioner was discharged of his liability. The court directed SBI to accept the Rs. 195 lakhs deposited by Helios Company as a one-time settlement and release the charge on the company's property.

Conclusion:
The court allowed the writ petition, quashed the deed of assignment dated 16.1.2006, and directed SBI to accept the Rs. 195 lakhs deposited by Helios Company towards the one-time settlement. The court also ordered SBI to release the charge on the property of Helios Company, ensuring that the actions of public financial institutions are fair, just, and equitable.

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