2009 (1) TMI 955 - HC - Indian Laws

Summary

Issues Involved:

1. Validity of the procedure adopted by the Company Court concerning the Bombay Stamp Act, 1958.
2. Reliance on the opinion of the Chief Controlling Revenue Authority.
3. Requirement of separate stamp duty for each loan transaction.
4. Requirement of separate documentation and registration for assignment of each loan transaction.
5. Substitution of the assignee bank in place of the assignor bank.
6. Legality of the assignment of debts under the Banking Regulation Act, 1949.
7. Applicability of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
8. Priority rights under Sections 529 and 529A of the Companies Act, 1956.
9. Impact of the assignment on the rights and obligations of the borrower.

Detailed Analysis:

1. Validity of the Procedure Adopted by the Company Court:

The appellants argued that the Company Court erred in its procedure by involving the Chief Controlling Revenue Authority, which bypassed the provisions of the Bombay Stamp Act, 1958. The Court concluded that the procedure adopted was not erroneous as it aimed to ascertain the adequacy of stamp duty on the Deed of Assignment. The involvement of the Chief Controlling Revenue Authority was to assist the court in understanding the implications of the Stamp Act on the transaction.

2. Reliance on the Opinion of the Chief Controlling Revenue Authority:

The appellants contended that the Company Court improperly relied on the opinion of the Chief Controlling Revenue Authority. The Court held that the opinion was merely advisory and not binding. It was used to assess whether the document was properly stamped, which is a necessary step in determining the validity of the assignment.

3. Requirement of Separate Stamp Duty for Each Loan Transaction:

The Company Court concluded that separate stamp duty was required for each loan transaction, as each transaction represents a distinct matter under Section 5 of the Stamp Act. The Court found that the Deed of Assignment, which bundled multiple debts, necessitated individual stamp duties for each underlying transaction to be legally valid.

4. Requirement of Separate Documentation and Registration:

The Court upheld the Company Court's view that separate documentation and registration were required for each loan transaction under the Transfer of Property Act and the Registration Act. It emphasized that the assignment of rights as a creditor with security interest required compliance with statutory registration requirements to ensure the validity of the transfer of interests.

5. Substitution of the Assignee Bank:

The Court denied the substitution of the assignee bank in place of the assignor bank, reasoning that the Deed of Assignment was invalid. The transaction did not comply with the legal framework governing banking activities, particularly the Banking Regulation Act, which does not permit trading in debts as a form of business.

6. Legality of the Assignment of Debts:

The Court examined whether the assignment of debts was permissible under the Banking Regulation Act, 1949. It concluded that the Act does not allow banks to trade in debts as it falls outside the scope of permissible banking activities. The assignment was deemed speculative and not conducive to the promotion or advancement of banking business.

7. Applicability of the Securitisation Act:

The Court found that the Securitisation Act did not permit the assignment of debts by banks unless done through a registered Securitisation or Reconstruction Company. The transaction in question was an attempt to circumvent the regulatory framework established by the Securitisation Act, rendering it invalid.

8. Priority Rights Under Sections 529 and 529A of the Companies Act:

The Court emphasized that the pari passu charge under Sections 529 and 529A of the Companies Act is available only to first charge holders. The assignment could potentially disrupt the priority of claims in liquidation proceedings, thereby frustrating the legislative intent of protecting workers' and secured creditors' rights.

9. Impact on Borrower's Rights and Obligations:

The Court noted that the assignment altered the borrower's contractual relationship without prior notice or consent, which contravenes principles of fairness and transparency. The transaction involved not only assignment but also novation, which is impermissible without the borrower's agreement.

Conclusion:

The appeals were dismissed, and the Court upheld the Company Court's decision to reject the substitution application. The transaction was deemed impermissible under the Banking Regulation Act and the Securitisation Act. The Court's judgment emphasized the need for compliance with statutory provisions governing banking and financial transactions, ensuring that such assignments do not undermine the rights of borrowers or disrupt the established order of priority in liquidation proceedings.