2015 (3) TMI 90 - HC - Companies Law

Matter of Substitution - Assignment of debts - Activity permissible under the Banking regulations Act,1949 - Held that - Having heard learned Senior Advocates for the parties and having gone through the entire records of the case, we are of the opinion that the issue of substitution has already been considered and concluded by the Apex Court in ICICI Bank Limited 2010 (9) TMI 236 - SUPREME COURT OF INDIA as observed in the foregoing paragraphs. Therefore, so far as the other issues which are kept open by the Apex Court and for which the matters are remanded to this Court, considering the interests of both the sides, we remand the matter to the learned Company Judge and deem it fit to keep the matter open at large before the learned Company Judge permitting the parties to raise contentions after completing pleadings. The issues other than substitution shall be allowed to be raised before the learned Company Judge. The learned Company Judge shall decide the issues afresh keeping in mind the pleadings and recent law developed on the subject. It is made clear that the issues, if at all raised by either side shall be decided by the learned Company Judge along with final hearing of the Company Petition. - Appeals are partly allowed.

Summary

Issues Involved:
1. Assignment of debts by banks under the Banking Regulation Act, 1949.
2. Substitution of the assignee bank in place of the original lender in proceedings relating to companies in liquidation.
3. Registration and stamping of deeds of assignment under the Indian Registration Act, 1908.
4. Applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 to non-securitization companies.
5. Compliance with Section 529A of the Companies Act, 1956 in the context of NPAs assigned by secured creditors.

Detailed Analysis:

1. Assignment of Debts by Banks under the Banking Regulation Act, 1949:
The primary issue was whether the assignment of debts by banks inter se is permissible under the Banking Regulation Act, 1949. The Division Bench of the Gujarat High Court had previously held that such assignments were impermissible. However, the Apex Court overturned this judgment, stating that the Banking Regulation Act, 1949 allows banks to engage in activities beyond core banking, including the assignment of debts, as long as these activities do not attract prohibitions and restrictions under the Act. The Apex Court emphasized that the RBI guidelines dated 13th July 2005, which authorize banks to deal inter se in NPAs, have statutory force and supplement the provisions of the Banking Regulation Act, 1949.

2. Substitution of the Assignee Bank in Place of the Original Lender:
The appellants sought substitution in place of ICICI Bank Limited, having taken over its debts. The Apex Court clarified that once ICICI Bank transfers the debt with underlying security, the borrower ceases to be the borrower of ICICI Bank and becomes the borrower of the assignee bank. Consequently, the prayer for substitution by the assignee bank (Kotak Mahindra Bank) was justified. The High Court, acknowledging this, allowed the substitution of the assignee banks in place of the original lenders in the respective company applications.

3. Registration and Stamping of Deeds of Assignment:
The legality of the deeds of assignment was questioned on grounds of registration under the Indian Registration Act, 1908, and stamping under applicable laws. The High Court retained the observations made by the learned Company Judge, which stated that the legality and validity of the deeds of assignment could be challenged before the appropriate forum. The consequences of non-registration and non-stamping would follow as per the law.

4. Applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002:
The respondents raised the issue of whether the assignee, not being a securitization or reconstruction company, could initiate action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. The High Court left this issue open for adjudication by the appropriate forum, allowing the parties to agitate this question before the Company Judge.

5. Compliance with Section 529A of the Companies Act, 1956:
The respondents contended that the assignment of NPAs by secured creditors to the assignee banks might violate Section 529A of the Companies Act, 1956, which prioritizes the claims of workmen and secured creditors in the event of a company's liquidation. The High Court remanded this issue to the learned Company Judge, permitting the parties to raise contentions and complete pleadings on this matter.

Conclusion:
The High Court partly allowed the appeals, retaining the observations made by the learned Company Judge regarding the prima facie nature of the findings on the deeds of assignment. The remaining observations were quashed. The Court remanded the matters to the learned Company Judge for a fresh decision on the issues, other than substitution, during the final hearing of the Company Petition. The parties were allowed to raise permissible contentions under the law.