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2025 (3) TMI 691 - HC - Companies Law


ISSUES PRESENTED and CONSIDERED

The core legal questions considered in the judgment were:

  • Whether the compromise recorded in the Minutes of Order dated 20 October 2022, which led to the order dated 21 October 2022, was lawful under Order XXIII Rule 3 of the Code of Civil Procedure, 1908.
  • Whether the assignment of the loan account of Shaila Clubs to Savannah was in violation of the Reserve Bank of India (RBI) Directives, specifically the 2021 Directives on Transfer of Loan Exposures.
  • Whether the Liquidator had the authority to file the Interim Application No. 13400 of 2024 given the statutory limitations on the duration of liquidation proceedings under the Maharashtra Co-operative Societies Act, 1960 (MCS Act).
  • Whether the delay in filing the Interim Application and Review Petitions was a bar to the exercise of the Court's inherent power to recall the order.

ISSUE-WISE DETAILED ANALYSIS

1. Lawfulness of the Compromise under Order XXIII Rule 3

The Court examined whether the compromise recorded in the Minutes of Order was lawful. Under Order XXIII Rule 3, a compromise must be lawful to be recorded by the Court. The compromise involved the assignment of Shaila Clubs' loan account to Savannah, a private entity, which was challenged as unlawful.

  • Relevant Legal Framework and Precedents: The Court referred to the RBI Directives issued under Sections 21 and 35A of the Banking Regulation Act, 1949, which regulate the transfer of loan exposures. The Directives specify that only certain entities can be transferees of stressed loans.
  • Court's Interpretation and Reasoning: The Court found that the assignment of the loan to Savannah was unlawful under the RBI Directives as Savannah was not an eligible transferee. The Directives aim to prevent banks from transferring loan accounts to ineligible entities.
  • Application of Law to Facts: The Court concluded that the compromise was unlawful because it violated the RBI Directives, which are binding on banks.
  • Conclusions: The compromise could not be accepted by the Court as it was not lawful, thus warranting the recall of the order based on it.

2. Violation of RBI Directives

The Court analyzed whether the assignment of the loan account to Savannah violated the RBI Directives.

  • Relevant Legal Framework: The RBI's 2021 Directives on Transfer of Loan Exposures apply to stressed loans, defined as non-performing assets (NPAs) or special mention accounts (SMAs).
  • Court's Interpretation and Reasoning: The Court noted that Shaila Clubs' loan account was classified as an NPA, making the RBI Directives applicable. Savannah was not listed as a permitted transferee under the Directives.
  • Conclusions: The assignment of the loan account to Savannah was in violation of the RBI Directives, rendering the transaction unlawful.

3. Authority of the Liquidator

The Court considered whether the Liquidator had the authority to file the Interim Application given the statutory limits on liquidation proceedings.

  • Relevant Legal Framework: Section 109 of the MCS Act limits the duration of liquidation proceedings to 15 years.
  • Court's Interpretation and Reasoning: The Court noted that the liquidation proceedings were deemed terminated after 15 years unless extended by the Registrar. However, the Court found it unnecessary to delve deeply into this issue, given the review petition filed by Shaila Clubs.
  • Conclusions: The Court did not base its decision solely on the Liquidator's application, as the review petition independently warranted consideration.

4. Delay in Filing Applications

The Court addressed whether the delay in filing the applications was a bar to recalling the order.

  • Relevant Legal Framework: The Court has inherent power to recall orders, which is not circumscribed by delay unless it involves laches, acquiescence, or estoppel.
  • Court's Interpretation and Reasoning: The Court found that mere delay, without more, should not prevent the exercise of its inherent power to correct an unlawful order.
  • Conclusions: The delay was not a bar to recalling the order, especially given the unlawful nature of the compromise.

SIGNIFICANT HOLDINGS

  • The Court held that the compromise recorded in the Minutes of Order was unlawful as it violated the RBI Directives, which prohibit the transfer of loan accounts to ineligible transferees like Savannah.
  • The Court emphasized that the RBI Directives have statutory force and are binding on banks, thus rendering the assignment of the loan to Savannah impermissible.
  • The Court recalled the order dated 21 October 2022, restoring Writ Petition No. 11610 of 2022 for further proceedings.
  • The Court allowed the applications for recall and review, emphasizing that the unlawful nature of the compromise justified the recall of the order.

 

 

 

 

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