Non Performing Assets
Transfer of Non-Performing Assets between Banks and Beyond
Niloy Pyne comments on the recently issued ruling of the Supreme Court, in the case of ICICI Bank Limited Versus Official Liquidator of APS Star Industries Ltd. & Ors. on whether non-performing assets (NPAs) can be transferred between banks without the concurrence of the borrowers.
Background
This case involved a transfer of Non Performing Assets (NPAs), relating to the borrower, APS Star Industries Ltd., from ICICI Bank to Kotak Mahindra Bank. The borrower was a company in liquidation. Upon the Assignee, Kotak Mahindra Bank seeked to substitute its name in place of one of the erstwhile creditors being ICICI, the Assignor of the debt, before the Company Court and that the borrower objected on several grounds, including the insufficiency of the stamp duty paid on the instrument of Assignment. The Company Court refused to recognize the Assignee on account of improper presentation of the document of transfer. On appeal, a Division Bench of the Gujarat High Court upheld the Company Court’s decision, but on a different ground, being that the assignment of debts by banks is not an activity permissible under the Banking Regulation Act, 1949. On further appeal, the Supreme Court considered chiefly two issues, which were, whether inter se transfer of debts between banks is an activity permissible under the Banking Regulation Act, 1949 and whether the Assignee Bank is entitled to substitution in place of the original lender / Assignor in proceedings relating to liquidation of the borrower company.
Assignment of debts and the Banking Regulation Act, 1949
Considering the issue whether the inter se transfer of debts between banks is permissible, the Court examined in detail the scheme and provisions of the Banking Regulation Act, 1949 and concluded that assignment of NPAs is within the purview of a bank’s permitted business activity. According to the Supreme Court, the Reserve Bank of India (RBI) can
Niloy Pyne comments on the recently issued ruling of the Supreme Court, in the case of ICICI Bank Limited Versus Official Liquidator of APS Star Industries Ltd. & Ors. on whether non-performing assets (NPAs) can be transferred between banks without the concurrence of the borrowers.
Background
This case involved a transfer of Non Performing Assets (NPAs), relating to the borrower, APS Star Industries Ltd., from ICICI Bank to Kotak Mahindra Bank. The borrower was a company in liquidation. Upon the Assignee, Kotak Mahindra Bank seeked to substitute its name in place of one of the erstwhile creditors being ICICI, the Assignor of the debt, before the Company Court and that the borrower objected on several grounds, including the insufficiency of the stamp duty paid on the instrument of Assignment. The Company Court refused to recognize the Assignee on account of improper presentation of the document of transfer. On appeal, a Division Bench of the Gujarat High Court upheld the Company Court’s decision, but on a different ground, being that the assignment of debts by banks is not an activity permissible under the Banking Regulation Act, 1949. On further appeal, the Supreme Court considered chiefly two issues, which were, whether inter se transfer of debts between banks is an activity permissible under the Banking Regulation Act, 1949 and whether the Assignee Bank is entitled to substitution in place of the original lender / Assignor in proceedings relating to liquidation of the borrower company.
Assignment of debts and the Banking Regulation Act, 1949
Considering the issue whether the inter se transfer of debts between banks is permissible, the Court examined in detail the scheme and provisions of the Banking Regulation Act, 1949 and concluded that assignment of NPAs is within the purview of a bank’s permitted business activity. According to the Supreme Court, the Reserve Bank of India (RBI) can