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TMI Blog2013 (4) TMI 943X X X X Extracts X X X X X X X X Extracts X X X X ..... cial assistance from the Bank of Punjab since merged into Centurian Bank of Punjab and thereafter into HDFC Bank Limited. The account of the petitioner was declared Non- Performing Asset (NPA) in the year 2004. In the year 2007, one time settlement was arrived at for a sum of ₹ 7.40 crore and in furtherance of the said settlement, ₹ 40 lacs was deposited in the "No Lien Account" with the said Bank. Some where, in May 2006 the petitioner approached the respondent No. 1-Bank and desired fresh working capital funding for the 3rd company i.e M/s Pari Foods Pvt. Ltd. It was in February, 2007 the contract styled as "Indicative Terms Sheet for Fund Raising and Corporate Reconstructing" was entered upon by the petitioner with respondent No. 1- Bank whereby in terms of the said agreement, the respondent No. 1 was engaged to facilitate the one time settlement on behalf of the petitioner with the secured creditors. Lateron, vide notice dated 28.09.2007 (P-8), the petitioner was informed that by deed of assignment on 27.09.2007, the Centrurion Bank of Punjab has assigned the total debts due from the petitioner to respondent No. 1. The letter reads as under:- "By a deed of Assi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs The interest will be charged on reducing balance The Company shall be permitted to sell the securities now charged to Kotak with the prior consent from Kotak. The sale proceeds shall be used to pay the settlement amount of Kotak. In addition to the above, the Company agrees to pay management fees of ₹ 16 lacs by 31st March, 2008 of the sanction of the aforesaid settlement by Kotak We request you to kindly approve the settlement on the above lines and issue us the sanction letter as well as file the consent terms." Since the petitioner failed to discharge the loan accounts, a notice was served culminating with the notice of possession (P-19), which is the subject matter of challenge in the present writ petition. Learned counsel for the petitioner has vehemently argued that respondent No. 1 is not registered with the Reserve Bank of India as provided under Section 3 in terms of Section 2(1)(z) and (za) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short 'the Act'), therefore, the assignment of assets in favour of the said respondent is an offence under Section 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Banking company. It is not disputed that respondent No. 1 is a Banking Company registered under the Banking Regulation Act, 1949 with the Reserve Bank of India. We are not able to agree with the observations of Madhya Pradesh High Court in the aforesaid judgment as the Court has proceeded on the assumption that assignment of debt could only be under the provisions of the Act. The Court has not examined the provisions of the Transfer of Property Act. In fact, the Gujarat High Court has not noticed the judgment of Supreme Court reported as ICICI Bank Limited v. Official Liquidator of APS Star Industries Limited, (2010) 10 SCC 1. The view as reproduced above, was set aside by the Supreme Court. We find that reliance on the judgment of Gujarat High Court in view of the Supreme Court order is rather unfortunate. The Supreme Court was examining the question as to "Whether the Gujarat High Court was right in holding that assignment of debts by the banks inter se is not an activity permissible under the BR Act, 1949 and consequently all executed contracts of assignment of debts were illegal?" The Supreme Court observed as under: 38. The BR Act, 1949 basically seeks to regulate banking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch restructuring as a matter of banking policy cannot be treated as "trading". One has to keep in mind the object behind enactment of the BR Act, 1949. Thus, the said guidelines fall under Section 21 of the 1949 Act. These guidelines are a part of credit appraisal mechanism. Thus, in our view the impugned guidelines are not ultra vires the BR Act, 1949. Dealing in NPAs as part of the credit appraisal mechanism and as a part of restructuring mechanism falls within Section 21 read with Section 35-A of the Act. Hence, it cannot be said that "transfer of debts/NPAs" inter se between banks is an activity which is impermissible under the 1949 Act. The BR Act, 1949 is an Act enacted to consolidate and amend the law relating to banking. Thus, while interpreting the Act one needs to keep in mind not only the framework of the banking law as it stood in 1949 but also the growth and the new concepts that have emerged in the course of time. (emphasis supplied) xxx xxx 46. As stated above, an outstanding in the account of a borrower(s) (customer) is a debt due and payable by the borrower(s) to the bank. Secondly, the bank is the owner of such debt. Such debt is an asset in the hands of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when an account receivable is treated as NPA and assigned to the assignee Bank, the parties have to follow certain guidelines issued by RBI. If there is a breach of the guidelines or statutory directions issued by RBI by the assignor in regard to transfer of NPA then the assignee Bank can enforce such obligations vis-à-vis the assignor Bank. It is these obligations which are referred to in the impugned deed of assignment. That, an account receivable becomes an NPA only because of the default committed by the borrower(s) who fails to repay. Lastly, it may be mentioned that the said SARFAESI Act, 2002 was enacted enabling specified SPVs to buy NPAs from the banks. However, from that it does not follow that the banks inter se cannot transfer their own assets. Hence the said SARFAESI Act, 2002 has no relevance in this case. 52. Before concluding, we may state that NPAs are created on account of the breaches committed by the borrower. He violates his obligation to repay the debts. One fails to appreciate the opportunity he seeks to participate in the "transfer of account receivable" from one bank to the other." The Gujarat High Court has not only failed to notice the above ..... X X X X Extracts X X X X X X X X Extracts X X X X
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