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Judgment
J.M. Malik, J
State Bank of India, respondent No. 1, assigned its debt of O.A. No. 688/2000 pending before DRT-I, Delhi to M/s J.P. Morgan Chase Bank, respondent No. 2. The learned DRT, vide its order dated 21.7.2006, passed final order in favour of State Bank of India and against defendants 1 to 4, who are appellants herein, for recovery of a sum of Rs. 1,04,35,44,851.31 along with interest and costs. The defendants' liability were joint and several. M/s. J.P. Morgan Chase Bank moved an application before the Tribunal for its substitution in place of State Bank of India in the Recovery Certificate to be issued pursuant to the final order passed in the O.A. The DRT allowed the said application and directed its Registry to prepare the recovery certificate substituting the name of the M/s. J.P. Morgan Chase Bank in place of State Bank of India, vide the impugned order dated 30.3.2009. Aggrieved by the said order, the defendants have preferred this appeal. It is to be mentioned here that the appellants had filed an appeal (No. 178/ 2010) before this Tribunal against the order passed by the learned trial Court on 21.7.2006. At the time of admission of that appeal, on 11.8.2010. this Court had directed the appellants to deposit 50% of the principal amount due minus the pendente lite and future interest as well as the costs within four weeks. Since the appellants failed to deposit the amount as ordered, therefore, their appeal was dismissed under Section 21 of the RDDBFI Act by order dated 9.9.2010.
Since the appeal against the final order stood dismissed for one reason or the other, therefore, it is difficult to fathom as to how the appellants can be heard on an order passed on a miscellaneous application.
However, I have heard the Counsel for the appellants on the merits of this case. The learned Counsel for the appellants vehemently argued that the abovesaid assignment is against the guidelines of Reserve Bank of India. He submitted that he had filed written submissions before the learned trial Court, but the same were not discussed. The learned Counsel for the appellants has produced a copy of the written submissions which he had filed before the learned DRT. The main contention raised by the appellants therein was that the debt in dispute was sold/assigned in March 2006 when the account of the appellants was a standard account and it was not declared as NPA. It was contended that in these circumstances. State Bank of India was not in a position to assign the debt. The learned Counsel for the appellants has also placed on record a number of documents/letters in support of his case. He also argued that no amount was disclosed to the appellants. He, however, admitted that at the time of final arguments the respondent Bank had placed on record the amount of consideration paid, but no copy of the assignment deed was furnished to him. He also invited my attention towards a letter dated 9.6.2003 of Industrial Development Bank of India. This letter was written by Mr. J.N. Godbole, Executive Director to Mr. Krishnamoorthy, Assistant General Manager of State Bank of Travancore. The relevant portion of the said letter runs as follows:-
SVC Superchem Ltd.
Confirmation of arrangement for sharing additional assistance
Please refer to the agenda item (copy enclosed) on the captioned subject discussed in the Empowered Group (EG) at its meeting held on May 28,2003. As you are aware, more than 89.74% of the lenders have already agreed to the restructuring scheme of the above company (minutes of the previous meeting dated March 31,2003 enclosed). The project is still under implementation. In terms of RBI circular No. DBOD. No. BP.BC. 108/21.04.048/ 2001-02 dated May 28, 2002 and as per the report of the "Independent Group" relating to the above circular (copies enclosed), the captioned company's project is deemed to be completed by October 2002 and as such account could remain standard for 2 years thereon (i.e. upto October 2004). The company therefore is in effect eligible for restructuring under Scheme 1 of CDR.
The learned Counsel for the appellants also invited my attention to the letter dated 28.6.2002 written by Mr. O.K. Kambale, General Manager, CRD of Industrial Development Bank of India to the General Manager, Recovery Management Department, Dena Bank The relevant portion of the said letter is as follows:
Project under implementation -
Deemed date of completion
Please refer to your letter No. HO:RMD:RND:721:2002 dated June 27,2002 on the above subject. We advise the deemed date of completion of the project as recommended by the Expert Group in respect of following companies:
Name of (he company
Deemed date of Completion
1 to 7 xxxx
xxxx
SVC Superchem Ltd.
October 2002"
The attention of the Court was also invited to the letter dated 31.3.2003 written by Mr. Pawan Kumar, Manager of IFC1 to The State Bank of Bikaner & Jaipur (SBBJ). Nehru Place, New Delhi. The relevant portion of the said letter reads as under:
In this connection we have to advise that the deemed date of completion of the project of SVC Superchem Ltd. is October, 2002, as per the Report of the 'Independent Group' constituted by RBI and the asset may be treated as Standard Asset only for a period not exceeding two years beyond the deemed date of completion of the project as directed by the RBI Group.
For the following reasons I see no merit in these arguments. It is clear that the Original Application was filed in December, 2000.1 find considerable force in the argument urged by the learned Counsel for the respondent Bank that the Bank could not have filed the Original Application without the account being declared NPA. He further submitted that the legal notices for payment of the outstanding amount were given to the appellants, but they did not respond to the same. He argued that there was difference between sale and assignment of a debt. These two terms speak of two different transactions. Assignment of debt could not be equated with sale and as such RBI guidelines have got no application to this case.
It is an indisputable fact that the appellants had filed a writ petition before the Hon'ble Delhi High Court, which was subsequently withdrawn and another writ petition was filed before the Hon'ble High Court of Allahabad. The Allahabad High Court, vide its order dated 11.8.2008 dismissed the said writ petition on the main ground that it had no territorial jurisdiction. The Hon'ble Allahabad High Court held that State Bank of India had duly informed the appellants about the assignment well in advance on 19.4.2006 and the Bank is not required to give advance notice to the defaulting borrowers as was held in Haryana Steel and Alloys Ltd. v. IFCI Ltd. and Anr., : 137 (2007) DLT 554 (DB) : AIR 2007 Delhi 65. The Hon'ble Allahabad High Court further held:
(i) In our view, the State Bank of India had clearly informed the petitioner well in advance on 19th April, 2006 about the assignment of the debt in favour of the J.P. Morgan Chase Bank. Even if the matter had been adjourned for judgment, nothing prevented the petitioner from making necessary application before the particular Court. Mr. Ravi Kant, submits that the Executing Court cannot go behind the decree. In the instant case, the petitioner had the opportunity to object to the assignment even before the decree. Now the assignee has applied for substitution. As held by the Apex Court in Allahabad Bank (supra), the judgment of the D.R.T. is quite wide. While executing the decree, it can certainly apply the principle analogous to Order 21 Rule 16 of the C.P.C, as held in Gangabai (supra), even a transferee pendente lite is a representative of his transferor. Whether the J.P. Morgan Chase Bank is the representative of the State Bank of India for the purposes of this debt has to be gone into in the substitution application filed by the State Bank of India., and it is permissible under Section 47(3) of C.P.C. Such a plea cannot be permitted to be raised in a parallel proceeding by filing a writ petition.
In a recent authority reported in ICICI Bank Limited v. Official Liquidator of APS Star Industries Ltd. and Ors., I (2011) BC 178 (SC)=2010(3 0) SCALE 378, the Hon'ble Supreme Court was pleased to hold:
In the case of Camdex International Ltd. v. Bank of Zambia, (1998) Q.B. 22 (CA) the following observation which is relevant to the present case needs to be quoted:
The assignment of a debt will not be contrary to public policy solely on the grounds that the assignee has purchased the debt for a considerably discounted price or because that price is only payable after a period of credit. Nor will the assignment be contrary to public policy simply because the assignee may make a profit on the transaction at the end of the day. If there was no prospect of a profit, Hobhouse LJ observed, commercial entities would never purchase debts.
Similarly, the following proposition in Chitty on Contracts, 27th edn. (1994) at para 19.027 is relevant to be noted.
It is also well established that a claim to a simple debt is assignable even if the debtor has refused to pay. The practice of assigning or 'selling' debts to debt collecting agencies and credit factors could hardly be carried on if the law were otherwise.
In view of the above exposition of law, we find that under the impugned Deed of Assignment only the Account Receivables in the books of ICICI Bank Ltd. has been transferred to Kotak Mahindra Bank Ltd. The obligations of ICICI Bank Ltd. towards its borrower(s) (customer) under the loan agreement secured by deed of hypothecation/mortgage have not been assigned by ICICI Bank Ltd. to the assignee Bank, namely, Kotak Mahindra Bank Ltd, Hence, it cannot be said that the impugned Deed "of Assignment is unsustainable in law. The obligations referred to in the impugned Deed of Assignment are the obligations, if any, of ICICI Bank Ltd. towards Kotak Mahindra Bank Ltd. (assignee) in the matter of transfer of NPAs. For example, 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 Assignor in regard to transfer or NPA then the assignee Bank can enforce such obligations vis-a-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 borrowers) who fails to repay. Lastly, it may be mentioned that the said SARFAESI Act, 2002 was enacted enabling specified SPV to buy the NPAs from Banks. However, from that it does not follow that Banks inter se cannot transfer their own assets. Hence the said SRFAESI Act, 2002 has no relevance in this case.
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.
Conclusion:
As stated above, by the impugned judgment, the Division Bench of the Gujarat High Court upheld the order of the Company Court only on one ground, namely, assignment of debts by the Banks inter se is an activity which is impermissible under the Banking Regulation Act, 1949. However, the Division Bench did not go into other issues which arose for determination before the Company Court, including applicability of the provisions of the Registration Act, 1908.
Paras 61 and 62 of the O.A. filed by State Bank of India run as follow:
However, despite availing various reliefs and concessions from time to time on behalf from the Applicant, the defendant No. 1 contrary to the terms and conditions of sanction did not regularize the said account(s) and defaulted in properly maintaining the said account(s) in addition to various other breaches and violations of the sanction of said limits. The defendant No, 1 further failed to maintain the financial discipline in regard to maintenance of the said accounts. As a result, due to periodic application of interest, the outstanding liability, due and payable by the defendant No. 1 in regard to the said limits started to swell. As such, in accordance with the recognized accounting procedure of the applicant and the instructions of the Reserve Bank of India, having statutory force, the said accounts of defendant No. 1 stood classified as non-performing assets w.e.f. December 31, 1998, whereafter, as directed by the Reserve Bank of India, the accrued interest is not required to be debited to the said accounts, though the Applicant is entitled to the recovery of the same under the law w.e.f. January 1, 1999.
As despite repeated requests and reminders from the applicant, the defendant No. 1 failed to make good the aforesaid defaults and breaches of the terms and conditions of sanction of said Limits, the applicant vide its advocate's legal notice dated December 16, 2000 called upon the defendant No. 1 in its capacity as the principal debtor and the defendant No. 2 in his capacity as guarantor for the defendant No. 1 and also along with the defendant Nos. 3 and 4 In his capacity as mortgagor, jointly and severally to make payment of the entire outstanding dues more specifically set out therein within 7 days from the date thereof failing which it was categorically pointed out that the applicant would be constrained to initiate appropriate legal proceedings against them, inter alia for recovery of outstanding dues and for enforcement of securities created in favour of the applicant at their cost and consequences. A copy of the legal notice dated December 16, 2000 from the advocates of the applicant is annexed hereto and marked as Annexure 'A-56'.
Although the appellants have denied all these allegations in their written statement, yet they have averred that joint meeting of the consortium of Financial Institutions and the Bank was held in October, 1999 wherein some decisions were taken. Again, a meeting of Working Capital also took place on 8.12.1999 and a few decisions were taken. The needful could not be done and, therefore, the company was forced to stop the plant because of the non-co-operation of State Bank of India. The company also claimed damages due to omissions and commissions committed by the respondent Bank.
The main question is that the learned Counsel for the appellants did not invite the attention of the Court that certain decisions were made which had binding force upon State Bank of India. The attention of the Court was not invited to such important documents, Moreover, if we go through and consider all these questions, the very purpose of dismissal of the appeal on merits vide order dated 9.9.2010 shall stand defeated, All these questions can be considered in the main appeal itself which stands dismissed for non-compliance of the order passed by the Court,
In view of the above discussion, the appeal has no merit and the same is dismissed. Copies of this order be furnished to the parties as per law and another copy be sent to the learned DRT.