Case: Kotak Mahindra Bank Limited Vs. Trupti Sanjay Mehta &amp; Others

Amendment Act No.1 of 2013 with effect from 15/01/2013 and it permits the Securitisation Company or Reconstruction Company an acquisition of financial assets under sub-section (1) which deals with acquisition of financial assets and any Bank or Financial Institution can substitute its name in any pending suit, appeal or other proceedings before the DRT or Appellate Tribunal etc. Chapter-III deals with enforcement of security interest and section 13(2) and (4) makes it clear that a borrower who fails to discharge his liability in full within a period prescribed in sub-section (2), again, against such a borrower, a secured creditor can take recourse to recover his secured debt. Consequently, therefore, only against such a borrower the debt which is defined under section 2(f) can be enforced under Section 13.Taking into consideration the scheme of the Act, Objects and Reasons and various provisions of the SARFAESI Act, we have no hesitation in holding that the debt which is assigned to a Bank or Financial Institution by Non-banking Financial Institution is not covered within the definition of the term borrower and therefore cannot be enforced under Section 13 of the said Act. The submission made by Ms. Rajani Iyer, the learned Senior Counsel appearing on behalf of the Petitioner, therefore, cannot be accepted and we concur with the view taken by the DRT and DRAT.23. Ms Rajani Iyer, the learned Senior Counsel appearing on behalf of the Petitioner has relied on the judgment of the Apex Court in ICICI Bank vs. APS Star Industries Ltd.(2010) 10 SCC 1 ). Relying on the said judgment, she submitted that the Apex Court has considered, whether assignments were permissible banking activity and whether assignments from a Bank, Financial Institution or NBFC to a Bank, Financial Institution and NBFC is legal and valid. She submitted that the Apex Court, while relying on the guidelines issued by the Reserve Bank of India, upheld the guidelines and further held that assignment from/to NBFC and Financial Institution was valid and legal. She further submitted that City Financial Consumer Finance Ltd. is NBFC and the assignment from NBFC to present Petitioner is permitted under the RBI guidelines. She further submitted that the debt therefore in the hands of the Bank is a secured debt within the meaning of section 2(ze) and 2(zf) of the SARFAESI Act and the Petitioner was entitled to enforce the secured asset under the provisions of the SARFAESI Act.24. In our view, the said submission is without any substance. Perusal of the said judgment and order in ICICI Bank vs. APS Star Industries Ltd. (2010) 10 SCC 1 ) reveals that the Apex Court was called upon to consider a question as to whether assignment of debts between Non-banking Financial Institutions and Banks was a permissible banking business. While deciding the said issue, the Apex Court, relying on RBI policy, held that it was a permissible banking business. In the said case, the question which fell for consideration and which had been reproduced in para 2 of the said judgment was as under:-Whether inter se transfer of nonperforming assets (NPA, for short) by the banks is illegal under the Banking Regulation Act, 1949 (the BR Act, 1949, for short) as held by the Gujarat High Court in the impugned judgmentAnswering the said question, after relying on RBI directives, the Apex Court held that guidelines issued by RBI dated 13/07/2005 have statutory force and are not ultra vires the BR Act, 1949 and it therefore held that assignment of debts of NBFC by one Bank to another Bank is permissible under 1949 Act and not violative of section 130 of the Transfer of Property Act, 1882. In our view, taking into consideration the facts of the said case, the issue which fell for consideration before the Apex Court therefore was entirely different. The issue which falls for consideration before this Court in this case is : whether the Bank to whom a debt has been assigned by the Non-Banking Financial Corporation (NBFC) is entitled to adopt proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 This issue being completely distinct and different from the issue decided by the Apex Court in ICICI Bank vs. APS Star Industries Ltd.(2010) 10 SCC 1 ), in our iew, ratio of the said judgment will certainly not apply to the facts of the present case. For the same reasons, guidelines issued by RBI dated 13/07/2005 also cannot be relied upon for answering the question raised in this Petition.25. Reliance was also placed by the learned Senior Counsel appearing on behalf of the Petitioner on the judgment of the Delhi High Court in Kotak Mahindra Bank Ltd. vs. Stiefel Und Schuh India ltd. & Ors (ILR (2009) V Delhi 12). In the said case, original lender was NBFC viz. SBI Home Finance which filed proceedings in the Civil Court for recovery of a mortgaged debt. However, during the pendency of the suit, the debt was assigned to a Bank viz. the State Bank of India, which, in turn, assigned it to Kotak Mahindra Bank Ltd. After assignment, Kotak Mahindra Bank Ltd. applied for transfer of proceedings from Civil Court to DRT on the ground that subsequent assignee Kotak Mahindra Bank Ltd. was a Bank under RDDB & FI Act, 1993. The learned Single Judge dismissed the application for transferring it to DRT. Appeal Court, however, reversed the decision and held that remedies available in the DRT were permitted to Kotak Mahindra Bank and therefore proceedings in the Civil Court were expressly barred.26. In our view, it is not possible to accept the view taken by the Delhi High Court. Secondly, Delhi High Court was not required to consider the issue as to whether a debt which is assigned by a Non-banking Financial Institution to a Bank or Reconstruction Company could be enforced under the SARFAESI Act and, therefore, ratio of the said judgment, in any case, will not apply to the facts of the present case.

Court's decision (1 = petition accepted / positive for appellant, 0 = rejected / negative): 0

Reasoning from the judgment:
0[ds]17. In our view, submissions made by Ms. Rajani Iyer, the learned Senior Counsel appearing on behalf of the Petitioner cannot be accepted and the question framed in para 3 of this judgment will have to be answered in the negative for the followingour view, therefore, though the term debt as defined under the RDDBFI Act and SARFAESI Act includes the words or assigned such assignment therefore in view of the definition of the term borrower in section 2(f) would have to be restricted to a debt of borrower which is assigned to a Bank by a Financial Institution or viceinto consideration the scheme of the Act, Objects and Reasons and various provisions of the SARFAESI Act, we have no hesitation in holding that the debt which is assigned to a Bank or Financial Institution byIn our view, the said submission is without any substance. Perusal of the said judgment and order in ICICI Bank vs. APS Star Industries Ltd. (2010) 10 SCC 1  ) reveals that the Apex Court was called upon to consider a question as to whether assignment of debts betweenFinancial Institutions and Banks was a permissible banking business. While deciding the said issue, the Apex Court, relying on RBI policy, held that it was a permissible bankingthe said question, after relying on RBI directives, the Apex Court held that guidelines issued by RBI dated 13/07/2005 have statutory force and are not ultra vires the BR Act, 1949 and it therefore held that assignment of debts of NBFC by one Bank to another Bank is permissible under 1949 Act and not violative of section 130 of the Transfer of Property Act, 1882. In our view, taking into consideration the facts of the said case, the issue which fell for consideration before the Apex Court therefore was entirely different. The issue which falls for consideration before this Court in this case is : whether the Bank to whom a debt has been assigned by theFinancial Corporation (NBFC) is entitled to adopt proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest, Act, 2002 This issue being completely distinct and different from the issue decided by the Apex Court in ICICI Bank vs. APS Star Industries Ltd.(2010) 10 SCC 1  ), in our iew, ratio of the said judgment will certainly not apply to the facts of the present case. For the same reasons, guidelines issued by RBI dated 13/07/2005 also cannot be relied upon for answering the question raised in this Petition.25. Reliance was also placed by the learned Senior Counsel appearing on behalf of the Petitioner on the judgment of the Delhi High Court in Kotak Mahindra Bank Ltd. vs. Stiefel Und Schuh India ltd.Ors (ILR (2009) V Delhi 12). In the said case, original lender was NBFC viz. SBI Home Finance which filed proceedings in the Civil Court for recovery of a mortgaged debt. However, during the pendency of the suit, the debt was assigned to a Bank viz. the State Bank of India, which, in turn, assigned it to Kotak Mahindra Bank Ltd. After assignment, Kotak Mahindra Bank Ltd. applied for transfer of proceedings from Civil Court to DRT on the ground that subsequent assigneeKotak Mahindra Bank Ltd. was a Bank under RDDBFI Act, 1993. The learned Single Judge dismissed the application for transferring it to DRT. Appeal Court, however, reversed the decision and held that remedies available in the DRT were permitted to Kotak Mahindra Bank and therefore proceedings in the Civil Court were expressly barred.26. In our view, it is not possible to accept the view taken by the Delhi High Court. Secondly, Delhi High Court was not required to consider the issue as to whether a debt which is assigned by aFinancial Institution to a Bank or Reconstruction Company could be enforced under the SARFAESI Act and, therefore, ratio of the said judgment, in any case, will not apply to the facts of the present case.