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2016 (9) TMI 266 - GUJARAT HIGH COURT

2016 (9) TMI 266 - GUJARAT HIGH COURT - TMI - Application for substitution of secured creditor preferred by the applicant bank - Held that:- The learned Company Judge has considered the aspect with regard to registration of charge under Section 125 of the Companies Act, 1956 and also paras 44, 45, 46, 51 and 52 of the judgment of the Apex Court in the case of ICICI Bank Ltd. [2010 (9) TMI 236 - SUPREME COURT OF INDIA ] and definition of banking company, financial institution, reconstruction comp .....

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ch we are in agreement and in addition to other factual aspects noted and discussed by us hereinabove. That somersault was made in application filed under Rule 9 of the Rules, 1959 that no such status as a secured creditor under SARFAESI Act claimed by the appellant, was rightly rejected by the learned Company Judge. Even applicability of Section 130 of the Transfer of Properties Act in the facts of the case was considered by learned Company Judge is also based on submissions made by learned cou .....

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rry with it the assignment of the obligations of the assignor unless there is a novation of contract by all parties, the Apex Court [supra] held that an outstanding in the account of borrowers [customers] is debt due and payable by the borrowers to the bank. Further, the bank is the owner of such debt and such debt is an asset in the hands of the bank as a secured creditor or mortgagee or hypothecatee and, therefore, the bank can always transfer its assets. Such transfer in no manner affects the .....

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trength of decision of the Apex Court in the above case of ICICI Bank Ltd. [supra] cannot be said to be incorrect and application for substitution preferred by the applicant bank is rightly rejected. - O.J.APPEAL NO. 4 of 2016 In COMPANY APPLICATION NO. 248 of 2014 In COMPANY PETITION NO. 150 of 1996 With CIVIL APPLICATION (OJ) NO. 53 of 2016 In O.J.APPEAL NO. 4 of 2016 - Dated:- 2-9-2016 - MR. ANANT S. DAVE AND MR. R.P.DHOLARIA, JJ. FOR THE APPELLANT : MR NAVIN PAHWA for MR PRATIK Y JASANI, ADV .....

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pany Application No.248 of 2014; and the very CAV judgment and order dated 31.07.2015 in which prayer of seeking substitute of the applicant, a company registered under the Companies Act, 1956, came to be rejected. 2 The above company application was preferred before the Company Court in the backdrop of certain facts that IFCI Ltd. a company registered under the Companies Act, 1956 and a public Financial Institution in terms of Section 4A(1)(ii) of the Companies Act, 1956 and established under S .....

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, 1948 is about nature of business which the Corporation may transact, as defined in clauses [a] to [p] also include granting loans or advances to industrial concerns as per clause [i]. IFCI Limited was the first charge holder and M/s. MPL defaulted in making the payment of the dues in respect of the financial facilities granted by IFCI Limited. In the proceedings initiated before the Company Court, vide order dated 19.04.2010 passed in Company Petition No.150 of 1996, the company was ordered to .....

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above Deed of Assignment was duly registered with the office of Sub Registrar, Kalol - Gandhinagar. Accordingly, application for substitution was preferred by the appellant company before the Official Liquidator. In another proceedings debt was endorsed by IFCI Ltd. upon filing a pursis dated 21.11.2011 before Debt Recovery Tribunal Ahmedabad in O.A. No.452 of 2000, assigning its dues in favour of the appellant company. 3 In addition to the above, before the Company Court, provisions of Section .....

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it was held that the law on the subject of assignment of a contract was well settled and an assignment of a contract might result by transfer either of the rights or by transfer of obligations thereunder. Further, reliance was placed on oral judgment dated 11/12.08.2014 rendered by the Company Court in Company Application No.126 of 2014 where issue with regard to requirement of registration of charge in light of Sections 125 and 135 of the Companies Act was considered and held that such issue wa .....

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the ground that such an agreement was entered into by the applicant with sole intention of defrauding the rights of the secured creditors and in violation of provisions of Sections 531 and 536 of the Companies Act, 1956 and proceedings for winding up the company were initiated in the year 1996 and final order was passed on 19.04.2010. The MoU dated 01.01.2004 was entered into between the appellant and company in liquidation and thereafter Deed of Assignment was executed between the appellant and .....

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liquidation with the applicant by MoU dated 01.01.2004 be validated under the provisions of Section 536(2) of the Companies Act. However, in both the aforesaid applications, the appellant had neither mentioned about Deed of Assignment dated 28.07.2010 nor it was produced before the Court. It was further argued by respondent banks that IFCI Ltd. had no right to assign debts because Bank of Baroda and Punjab National Bank had initiated the proceedings under SARFAESI Act and one of the units of the .....

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d creditor of the company in liquidation. 5 Learned counsel for the respondent No.4 also relied on certain communications addressed by IFCI Ltd to Bank of Baroda and One Time Settlement, etc. to which Bank of Baroda objected. Even reference about pending proceedings under Section 15 of the Sick Industrial Companies (Special Provision) Act, 1985 [for short, SICA, 1985'] by filing a Reference No.385 of 2000 before BIFR also relied on. It was further submitted before the learned Company Court t .....

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fore the assignment of debt by IFCI Ltd in favour of appellant company is not permissible and, therefore, the law laid down in the case of ICICI [supra] is not applicable to the facts of the present case. 7 The learned Company Court by well reasoned order and considering provisions of Banking Regulation Act, SARFAESI Act, Contract Act and other relevant provisions of the Companies Act, 1956 and the judgment relied on by learned counsels for the parties, dismissed application on the limited groun .....

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which gives inherent powers to the Company Court, on the ground that appellant did not pray that appellant may be permitted to be substituted in place of IFCI Ltd. as secured creditor for the purpose of SARFAESI Act, but it was a simple application for substitution in place of IFCI Ltd. by virtue of contract or by Deed of Assignment and provisions of SARFAESI Act would not apply. 9 The above application to recall also came to be rejected by assigning reasons and relying on various decisions abou .....

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preferred to recall the above order on the ground that the appellant never claimed any status as secured creditor under SARFAESI Act also came to be rejected though only prayer made before the learned Company Judge was that the appellant was to be permitted to be substituted in place of IFCI Limited as a secured creditor of the company in liquidation. According to learned counsel for the appellant, learned Company Judge ought to have appreciated that stand of the appellant throughout the procee .....

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t the substitution prayed for by the appellant before the learned Company Judge was under the provisions of the Contract Act read with the Transfer of Property Act. While arguing this appeal, learned counsel for the appellant invited our attention to pleadings in the application seeking substitution in which nowhere it was pleaded that appellant wanted to be substituted for the purpose of enforcing any right under the SARFAESI Act. In view of inherent powers conferred under Rule 9 of the Compani .....

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ellant that impugned judgment and order dated 31.07.2015 is therefore required to be quashed and set aside. It is further submitted that irrespective of the fact that the appellant is not a defined entity under the SARFAESI Act still by virtue of Deed of Assignment, the appellant was entitled to be substituted in the proceedings of liquidation of the company. 10.1 Mr. Pahwa, learned counsel for the appellant has relied on the following decisions in support of his submission that appellant's .....

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ia Steels Ltd. & Anr. [Company Application No.59/2007]. [g] ICICI Bank Limited v Official Liquidator of APS Star Industries Limited & Others [(2010) 10 SCC 1] 11 Mr. M.B.Gandhi, learned counsel for the respondent No.5 opposed prayer of the appellant and submitted that the learned company Judge has neither erred in law or on facts and reasons are assigned for arriving at findings and conclusions drawn warrant no interference by this Court in appeal preferred by the appellant. It is submit .....

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ion and, therefore, the prayer of the appellant for substitution came to be rejected. Learned counsel for the appellant further placed reliance on various paras of the judgment and submitted that application filed by the applicant to recall CAV judgment and order dated 31.07.2015 being misconceived was rightly rejected and therefore in absence of merit appeal deserves to be dismissed. 12 In rejoinder to the above, Mr. Pahwa, learned counsel for the appellant would submit that OJ Appeal Nos. 76 a .....

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undertaking filed by the authorized signatory of the company to deposit the amount and to continue to pay monthly rent etc, Official Liquidator was permitted to take symbolic possession of the property in question while the physical possession of the property in question was to continue with the appellant and other issues were kept open including that of rights and contentions of both the sides on the aspects of assigning of debt and to agitate such issues before the appropriate forum in accorda .....

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Assignment: SCHEDULE A FINANCIAL ASSETS MAHENDRA PETROCHEMICALS LTD [Rs. in Lakhs] Facility Amount Sanctioned Amount disbursed Principal Outstanding [as on 30.6.2008] Interest & other dues / charges [as on 30.6.2010] Total Dues [Pri+Int] RTL 1000.00 1720.00 432.50 15773.30 16205.80 RTL 225.00 Corporate Loan 500.00 Grand Total 1725.00 1720.00 432.50 15773.30 16205.80 SUMMARY OF SCHEDULE B The contents of Schedule B are of Term Loan of ₹ 1000 lakhs , Additional Rupee Term Loan of ₹ .....

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at ₹ 58 lakhs against the outstanding dues of ₹ 10865.66 lakhs [principal + interest] as on 30.06.2008 and the borrower - MPL accepted the terms and conditions of IFCI letter of approval dated 22/23.07.2008. The above outstanding dues as on 30.06.2010 is ₹ 16205.80 lakhs as per Schedule-A. Upon exchange of correspondence, the assignor as per letter dated 03.09.2008, agreed to assign and the assignee has agreed to acquire the financial assistance and all rights, benefits title a .....

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ed [the Borrower] including its movable plant and machinery, machinery spares, tools and accessories and other movable, both present and future [save and except book debts] whether installed or not and whether now lying loose or in case or which are now lying or stored in or about or shall hereafter from time to time during the continuance of the security of these presents be brought into or upon or be stored or be in or about all the Borrower's factories, premises and godowns at Plot Nos.21 .....

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about 5475 Sq. Mtrs. being, lying and situated at GIDC Industrial Estate, Chhatral, District Gandhinagar [then Mehsana[, forming part of Survey No.135 of Mouje Chatral, Taluka Kalol, District Gandhingar [then Mehsana] Gujarat State together with all buildings, sheds, columns, warehouse, etc. constructed / to be constructed there on and anything attached to the earth of permanently fastened to anything attached to the earth or any part thereof The above Deed of Assignment, no doubt was registered .....

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t] and that the appellant was to be into physical possession of the property for which the appellant made investment to the tune of ₹ 1,93,40,946/- and also for installation of new machinery and employing labourers. That MoU dated 01.01.2004 was entered into between the appellant - SSPL and MPL. As against the above, other secured creditors viz. Bank of Baroda, IFCI and Punjab National Bank already initiated proceedings under SARFAESI Act and one of the properties situated at village Sani, .....

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lace between all the parties for settlement of dues, no mention was ever made of MoU dated 01.01.2004 nor was it brought on record at any point of time even by company in liquidation. That a particular type of MoU was entered into between SSPL and MPL. The Company Court passed order on 19.04.2010 in Company Application No.150 of 1996 for winding up of the company and advertisement was published in a widely circulated vernacular newspaper on 11.08.2011, but correct facts were not brought on the r .....

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d since the scheme was under preparation the company could not have transferred assets of the company in view of pending inquiry under Section 16 of the SICA, 1985. Without obtaining No Objection Certificate from BIFR, no transfer of rights, title, and interest in the property / assets could have been made even by Deed of Assignment. It is an admitted fact that the company in liquidation has prepared MoU dated 01.01.2004 during pendency of reference before BIFR. In addition to above, other secur .....

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lement of more than ₹ 160 crores of dues against paltry sum of ₹ 58 lakhs towards consideration is nothing but an eye wash to defeat measures undertaken by respondent banks under Section 13(4) of SARFAESI Act as well as winding up proceedings before the Company Court. It is also an admitted fact that applicant company is not registered under Section 5 of the SARFAESI Act and keeping in mind definition of Securitisation company, reconstruction company, banking company, financial insti .....

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to OL not to take possession of MPL, the company in liquidation, which was ordered to be wound up on 19.04.2010 and Company Application No.346 of 2010 was filed for validating the transaction made by the company in liquidation of entering into a MoU dated 01.01.2004 with SSPL under the provisions of Section 536(2) of the Companies Act, 1956. The Company Court in para 10 of CAV Judgment dated 16.12.2014 passed in Company Application No.346 of 2011 in Company Petition No.150 of 1996 with Company .....

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ry of the assets and properties of the company in liquidation. He is allowed to open the sealed cover regarding inventory taken out pursuant to the order dated 29th February, 2012 passed in Official Liquidator Report NO.04 of 2012 mentioned hereinabove, and match the details thereof with the inventory of the assets and properties to be taken as per the present direction. It goes without saying that Official Liquidator shall take charge of the assets and properties which belonged to the company i .....

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isposed of with direction contained in para 15 of the order dated 24.12.2014, which is reproduced hereinbelow: 15. In view of the aforesaid observation and discussion, we find that the following directions shall meet the ends of justice: [1] The transaction of lease is not validated by the learned Company Judge in the impugned order and as the appellants have declared that the appellants are not agitating the merits in the present appeal, we find that the impugned order passed by the learned Com .....

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Official Liquidator, the Official Liquidator shall take symbolic possession of the property in question and the physical possession of the property in question may continue with the appellant, subject to finalization of the sale, as may be made by the learned Company Judge in the respective winding up proceedings upon the report of the Official Liquidator. There shall be additional condition to abide by the undertaking to deposit the accrued rent as well as future rent from time to time at S .....

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₹ 27,50,000.00 shall remain as earnest money of the offer to purchase the property by the appellant at ₹ 2.75 crores. Rental amount at the rate of ₹ 54,166.00 shall be credited in the account by the Official Liquidator towards the rent of the property in question. The Official Liquidator shall get the valuation of the property in question done through its approved valuer within two weeks from the date of deposit of ₹ 27,50,000.00 by the appellants. [4] The Official Liqui .....

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Official Liquidator to the learned Company Judge together with the offer of the appellant as well as the valuation report through approved valuer to the Official Liquidator. The appellant shall be at liberty to raise the offer in the event any offer is received in response to the advertisement exceeding the amount of ₹ 2.75 crores. The learned Company Judge shall further make attempt to realize the highest amount of the property in question and thereafter may decide the issue of finalizati .....

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operty in question shall be handed over by the appellant within six weeks as per the undertaking failing which the official liquidator shall be at liberty to take possession of the property with the help of the police. [7] It is observed and directed that the rights and contentions of both the sides on the aspects of assignment of debt and the consequential aspects thereto before the appropriate forum shall remain open and shall not be prejudiced in any manner by the present order. All the parti .....

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uestion. [9] It is also observed and clarified that until the physical possession is retained by the appellants as per the above referred arrangement, the appellants shall comply with the order passed for rental payment and for submitting of the accounts. If the accounts are not submitted or the rental payment is not made, the amount of rental payment shall be made as directed earlier but the accounts shall be submitted within three weeks with the Official Liquidator in future from time to time .....

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s. Even in para 7 of the above order, learned appellate Court observed and directed that the rights and contentions of both the sides on the aspects of assignment of debt and the consequential aspects thereto before the appropriate forum shall remain open and was not be prejudiced in any manner by the above order. Thus, by the application for substitution in the above circumstances, a specific plea raised by the applicant claiming status as secured creditor under SARFAESI Act rightly came to be .....

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transact business as specified in Section 23 of The Industrial Finance Corporation Act, 1948, is repository of pubic fund. That assignment of debts of more than ₹ 160 crores to be recovered from the company in liquidation for a paltry sum of ₹ 58 lakhs towards consideration of dues amounts unconscionable business transaction and a ground for application of mind prima facie against public interest even at the stage of considering an application for substitution in place of assignor, .....

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sed with the duty of satisfying the Court that the affairs of the company, being dissolved, have not been carried out in a manner prejudicial to the interests of its members and the interest of the public at large. In essence, the Official Liquidator assists the Court in appreciating 25 1951 SCR 277 26 AIR 1968 SC 615 3 the other side of the picture before it, and it is only upon consideration of the amalgamation scheme, together with the report of the Official Liquidator, that the Court can arr .....

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and in fact facilitates the Company Judge to record its satisfaction as to whether or not the affairs of the transferor company had been carried on in a manner prejudicial to the interest of the minority and to the public interest . 13.9 Likewise, even if name of assignee is to be substituted in place of assignor, the Company Court can certainly examine such issue in the context of public interest so as to protect overall interest of secured creditors / workers and other stakeholders. The subst .....

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rest and, therefore also, prayer of substitution cannot be granted. 13.10 In the facts and circumstances of the case, order dated 19.04.2010 came to be passed in Company Petition No.150 of 1996 whereby MPL was ordered to be wound up. Subsequently, deed of assignment of debts came to be executed by IFCI Ltd. assignor in favour of MPL assignee on 28.07.2010. Thus, admittedly, assignment of debt is after the order of winding up came to be passed by the Company Court. That, on order of winding up be .....

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re in para 20 of the judgment dated 31.07.2015 reproduced law with regard to registration of charge under Section 125 of the Companies Act, 1956 and also paras 44, 45, 46, 51 and 52 of the judgment of the Apex Court in the case of ICICI Bank Ltd. [supra] and definition of banking company, financial institution, reconstruction company, Securitisation company under SARFAESI Act and also that the applicant company was not a bank or a banking company or a financial institution or a securitization co .....

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Rules, 1959 that no such status as a secured creditor under SARFAESI Act claimed by the appellant, was rightly rejected by the learned Company Judge. Even applicability of Section 130 of the Transfer of Properties Act in the facts of the case was considered by learned Company Judge is also based on submissions made by learned counsel for the appellant in the context of its claim as a secured creditor under SARFAESI Act. 13.12 Therefore, prayer of the appellant company for substitution as a secu .....

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t be given an extended meaning. It not only brings within the ambit the banks and financial institutions but also a trustee holding securities on behalf of banks and financial institutions, in whose favour security interest is created for due repayment by any borrower of any financial assistance. Such secured creditor, if meeting with other requisites can also initiate actions under SARFAESI Act. In the above case, LIC, Canara Bank and Oriental Bank had subscribed to debentures issued by the pet .....

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d and not accepted and allowed respondent NO.1 to invoke jurisdiction of the Chief Metropolitan Magistrate under Section 14 of the SARFAESI Act. The case on hand reveals that the appellant has no such status like that of respondent No.1 in the above case even after execution of deed of assignment of debts, and now that no status is claimed as secured creditor based on any of the provision of the SARFAESI Act in respect of prayer for substitution. [b] In the case of Mafatlal Denim Ltd. [supra], t .....

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titution in pursuance to the deed of assignment was allowed. [d] In the case of Aar Kay Concast Ltd. [supra], The High Court of Punjab and Haryana, held that an assignee was eligible to take recourse of filing a winding up petition after procuring the debt from another company. After the assignment of the debt, the assignee had preferred a winding up petition in which an objection was raised about maintainability of the locus of the assignee to litigate on and for the assignor, the Court overrul .....

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application was filed by the assignee to direct Official Liquidator to recognise them as secured creditors of company under liquidation in place of Central Financial institutions viz. ICICI, IFCI, IDBI and LIC, which was opposed by other secured creditors including Andhra Pradesh Industrial Development Corporation [APIDC] to treat such assignee as sole secured creditors having charge over land of the said application. Upon consideration of various deeds of assignment executed by CFIs in favour o .....

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f Andhra Bank over its immovable properties. Even if APIDC was held to be a secured creditor, holding charge over immovable properties of Company, it would only hold a pari-passu charge along with CFIs and workmen. Therefore APIDC could only claim to be entitled for a pari-passu distribution of sale proceeds, of immovable property, along with assignee and workmen represented by Official Liquidator. Thus assignee was entitled to be treated as a secured creditor, on their having stepped into shows .....

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ation or that an application was made either by company or by them for registration of charge, over immovable property of Company, in their favour - Assignee had also not conveyed its consent to treat Andhra Bank as a secured creditor - C.A. No.1007 of 2011 disposed of and C.A. No.306 of 2012 filed by Andhra Bank dismissed . [f] In the case of Rumonia Marketing Pvt. Ltd. [supra], a private limited company had moved an application for being substituted in place of ICICI Bank pursuant to the deed .....

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delines expanding scope of banking business which was held to be not limited to core banking of accepting deposits and lending, but also Banking Regulation Act, 1949 leaves ample scope for banking companies to undertake such additional businesses as are not violative of prohibitive and restrictive statutory provisions and RBI can formulate policy enabling banking companies to engage in such additional activities and in the process it can define what constituting banking business . After defining .....

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held to be not barred by Section 5 of the SARFAESI Act. The Apex Court found the Banking Regulation Act, 1949 as a complete code on Banking and SARFAESI Act was enacted enabling specified SPVs to buy NPAs from banks. The Apex Court held that in the facts of the case, SARFAESI Act had no applicability. Moreover, it was held that NPA are created on account of breaches committed by the borrowers. Thus, the borrower violates his obligation to repay the dues and in such scenario, no opportunity is t .....

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