CAV JUDGMENT
1. The applicant has taken out Judge's Summons with a prayer that the applicant be permitted to be substituted for and in place of IFCI Limited as the secured creditor of the company in liquidation.
2. Heard learned advocate Mr. Navin K. Pahwa with learned advocate Mr. Pratik Y. Jasani for the applicant, learned advocate Mr. R.M Desai for respondent No. 1 - Official Liquidator, learned advocate Mr. B.T Rao for respondent No. 4 and learned advocate Mr. Chinmay Gandhi for respondent No. 5.
3. Learned advocate Mr. Pahwa appearing for the applicant submitted that IFCI Limited had provided certain financial facilities to M/s. Mahendra Petrochemicals Limited, the company in liquidation, which are secured by the company in liquidation against all the movable and immovable assets of the company in liquidation. IFCI Limited was the first charge holder. The aforesaid company defaulted in making the payment of the dues in respect of the financial facilities granted by IFCI Limited. Said company was ordered to be wound up by an order dated 19.04.2010 passed by this Court in Company Petition No. 150 of 1996. It is the case of the applicant that IFCI Limited assigned the debt due to them from the company in liquidation arising out of the facilities by executing deed of assignment on 28.07.2010 in favour of the applicant. By way of the said deed, IFCI Limited assigned all their rights, title, interest and benefits in respect of the claim against the aforesaid company in liquidation together with all the security interest therein in favour of the applicant. Learned advocate Mr. Pahwa referred to the relevant clause of the said deed of assignment. He further contended that the said deed is duly registered with the office of Sub Registrar, Kalol - Gandhinagar. The same is adequately stamped with the payment of stamp duty as per the Bombay Stamp Act. As per the said deed of assignment, total outstanding dues of the company in liquidation in favour of IFCI Limited was Rs. 162 crores as on June 2010. Learned advocate referred to the communication dated 23.01.2012 from IFCI to the Official Liquidator, copy of the same was sent to the applicant wherein it has been stated that IFCI has assigned its debts by executing the deed of assignment in favour of the applicant and therefore the Official Liquidator may substitute the applicant with IFCI Limited as secured creditor. Learned advocate further referred to the purshish dated 21.11.2011 filed by IFCI before D.R.T, Ahmedabad in Original Application No. 452 of 2000 and submitted that in the said purshish also IFCI has reaffirmed that the dues are assigned in favour of the applicant. Learned advocate therefore submitted that applicant has become the secured creditor of the company in liquidation and all the rights of IFCI Limited in relation to the financial facilities extended to the company in liquidation and the underlying security interest therein vests in the applicant. Thus, the applicant is required to be substituted in place of IFCI Limited insofar as the company in liquidation and the security interest in the assets of the company in liquidation are concerned. Applicant therefore a necessary party to be substituted in place of IFCI Limited.
4. Learned advocate Mr. Pahwa for the applicant submitted that under the provisions of Section 130 of the Transfer of Property Act, assignment is permissible and therefore when IFCI has assigned its debt to the applicant though it is not a banking company, such assignment is permissible in the eye of law. Learned advocate has placed reliance on the decision of the Hon'ble Supreme Court in case of ICICI Bank Limited v. Official Liquidator of APS Star Industries Limited [(2010) 10 SCC 1] and more particularly the observations made in para 48 and 49 of the said case, which reads as under:
“48. In Khardah Company Ltd. v. Raymon & Co. (India) Private Ltd. reported in (1963) 3 S.C.R 183 the Supreme Court has held that the law on the subject of assignment of a contract is well settled. An assignment of a contract might result by transfer either of the rights or by transfer of obligations thereunder. There is a well recognized distinction between the two classes of assignments. As a rule, obligations under a contract cannot be assigned except with the consent of the promisee, and when such consent is given, it is really a novation resulting in substitution of liabilities. That, rights under a contract are always assignable unless the contract is personal in its nature or unless the rights are incapable of assignment, either under the law or under an agreement between the parties. A benefit under the contract can always be assigned. That, there is, in law, a clear distinction between assignment of rights under a contract by a party who has performed his obligation thereunder and an assignment of a claim for compensation which one party has against the other for breach of contract.
49. In the case of Camdex International Ltd. v. Bank of Zambia reported in (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.”
5. It is further submitted that there is no bar of transfer of debt at a lower price. He submitted that the account of the company in liquidation was declared as NPA by IFCI and therefore the applicant has agreed to pay Rs. 58 lakhs and thereby IFCI has assigned the debts in Rs. 58 lakhs in favour of the applicant. Such transaction cannot be termed as an illegal transaction. Learned advocate for the applicant admitted that the applicant is not banking company and not having banking licence but the transaction of assignment between IFCI and the applicant is a contractual transaction not dealing with banking transaction and hence the same is permissible. He submitted that this application is only for substitution and therefore at this stage the contentions taken by the respondents cannot be entertained. Learned advocate has placed reliance upon the oral judgment dated 11/12.08.2014 rendered by this Court in Company Application No. 126 of 2014 and more particularly the observations made in para 31 which reads as under:
“31. The Court hasten to add here that the issues with regard to requirement of registration of charge in light of Section 125 and 135 of the Companies Act is not to be addressed at this stage as it expressly kept open to all the parties to argue as and when it becomes opportune and appropriate, as today while dealing with the application the Court is to decide the prayers for substitution and participation of the assignee in the sale proceedings. Therefore, without touching upon that aspect at this stage, the Court is inclined to accept the prayers as made in the application. Accepting of the application and prayers would not amount to pronouncing upon other issues and parties will be at absolute liberty to canvass all the grounds available to them as and when the stage requires. At this stage, if the application is not allowed, then it will create an impasse which would defeat the very purpose of SARFAESI Act and, therefore, it is found to be most appropriate by this Court that the application with its present prayers is required to be allowed with aforesaid safeguards and reservation to all.”
6. Learned advocate thereafter submitted that the charge was registered under Section 125 of the Companies Act with the Registrar of Companies by IFCI and therefore it is not necessary for the applicant to register the charge pursuant to the deed of assignment. Learned advocate has placed reliance upon the order dated 22.04.2014 passed by the High Court of Andhra Pradesh in Company Application No. 411 of 2014.
In the said order, the High Court of A.P Has observed as under:
“Section 135 adumbrates that whenever the terms or conditions or the extent or operation of any charge registered under Part V are or is modified, it shall be the duty of the Company to send to the Registrar the particulars of such modification, and the provisions of this Part as to registration of a charge shall apply to such modification of the charge.
As noted above, it is the admitted case that the provisions of Section 125 of the Act have been complied with by the banks in whose favour, the charge of the assets of the respondent - company was created. However, it does not appear that the applicant, in whose favour the charge of assets of the respondent - company is assigned, has sent the particulars of the assignment to the ROC and got the same registered. On a close reading of Section 135 of the Act, I am unable to accept the submission of the learned Counsel for the petitioner and the Official Liquidator that a deed of assignment falls within the provisions of Section 135 of the Act. The said provision takes within its sweep the modification pertaining to terms or conditions of the charge or the extent or operation of any charge. It is no one's case that any of the terms or conditions of the charge or extent or operation of charge are modified. All that is done is that the banks, which held the charges and which are registered, have transferred their interests to the applicant. If the parliament intended that such transfer or assignment is required to be registered with the ROC once again, nothing would have been prevented it from using the words ‘transfer’ or ‘assignment’ in the said provisions. Absence of these words would indicate that once a charge is registered with the ROC, a subsequent assignment need not be once again registered. The reason for this is not far to seek. The main purpose of registration of charge with the ROC is to prevent the Companies from indulging in creation of fake charges with intent to defraud the shareholders and creditors of the company. Once the charge is registered, it would hardly make any difference whether such charge is held by X, Y or Z. That seems to be the obvious reason why no provision is made for registration of assignment.
The learned Counsel contended that in some cases the assignment has also been registered. Merely because such a practice was followed, the same would not expand the scope of the extant statutory provision.”
7. Learned advocate Mr. Pahwa has, therefore, submitted that the present application be allowed.
8. On the other hand, learned advocate Mr. B.T Rao appearing for respondent No. 4 - Bank of Baroda mainly submitted that the present application is not maintainable in summary proceedings of this Court. When there is a disputed question of fact, Company Court cannot examine the correctness of the document and the same has to be proved by leading evidence in the competent Civil Court. IFCI and the applicant entered into transaction. Similarly, applicant also entered into an agreement with company in liquidation with the sole intention of defrauding the rights of the secured creditors and the bank. Therefore, it is in violation of provisions of Section 531 and 536 of the Companies Act. Learned advocate pointed out that winding up proceedings has already been commenced with regard to the company in liquidation in the year 1996. However, the final order was passed on 19.04.2010 Before that the company in liquidation was before BIFR. Learned advocate further pointed out that MOU was also entered into between the applicant and the company in liquidation on 01.04.2004 Thereafter deed of assignment was also executed between the applicant and IFCI Limited in July 2010. Learned advocate further pointed out that the present applicant challenged the order of winding up passed by the learned Company Judge by filing O.J Appeal No. 42 of 2010. However, in the said proceedings the applicant has not produced the deed of assignment. It is further pointed out that the Company Application No. 238 of 2010 was filed by the applicant with a prayer that the Official Liquidator be directed not to taken possession of the properties of the company in liquidation which is ordered to be wound up on 19.04.2010 and permit the applicant to carry on the business and the production. Learned advocate Mr. Rao, thereafter, submitted that another application being Company Application No. 345 of 2011 was also preferred by the applicant with a prayer that the transaction by company in liquidation with the applicant by Memorandum of Understanding dated 01.01.2004 be validated under the provisions of Section 536(2) of the Companies Act. The said application has been filed on 28.04.2011 However, in both the aforesaid applications, the applicant has never mentioned before this Court about the deed of assignment dated 28.07.2010 nor the same was produced before this Court in the aforesaid proceedings.
9. Learned advocate Mr. Rao thereafter submitted that IFCI has no right to assign the debts because the respondent No. 4 - Bank of Baroda, IFCI and Punjab National Bank have initiated the proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter refereed to as the ‘SARFAESI Act’) and one property situated at village Sari, Taluka Sanand, District Ahmedabad has been sold and financial assistance was provided by all the aforesaid three banks/financial institutions on the two units of the company in liquidation. Out of two units, one unit is sold. Therefore, there is no question of settlement qua the second unit because common charge has been created for both the units. Thus, there cannot be bifurcation of the charges. Hence, the act of assignment by IFCI qua second unit i.e Mahendra Petrochemicals Limited, Chhatral Unit is without authority of law and Bank of Baroda has never agreed for the same. He, therefore, submitted that the deed of assignment executed between the applicant and IFCI is not valid and proper and also against the provisions of law.
10. Learned advocate Mr. Rao then submitted that the so-called agreement dated 01.04.2004 entered into between the applicant and the company in liquidation was never produced on record at any point of time by advocate of the company under liquidation pointing out that in view of the said MOU, the possession has been handed over to a third party. This Court has passed an order of winding up on 19.04.2010 Thereafter the public advertisement was also published in the concerned newspaper. The applicant has not produced any documents on record such as minutes of the meeting, resolution of board, when the possession is given, etc. Therefore, the so-called document by which the company in liquidation has illegally transferred the possession of the assets of the company in liquidation to the present applicant is nothing but an attempt to defraud the respondent No. 4 - Bank being the secured creditor of the company in liquidation.
11. Learned advocate Mr. Rao, thereafter, referred the communications between the respondent No. 4 Bank and the present applicant. By communication dated 16.02.2010, the applicant approached the respondent No. 4 Bank by which offer was made to make the payment of 10% amount to the respondent No. 4 Bank. However, the said offer was rejected by the respondent No. 4 by communication dated 22.02.2010 By communication dated 21.04.2010, IFCI has written a letter to Bank of Baroda wherein the IFCI has admitted that they have entered into one time settlement with the promoters/the company in July 2008 for settlement of dues in respect of Chhatral Unit of the company in liquidation for payment of Rs. 58 lakhs payable in five installments between July to November 2008 along with 13% interest as full and final settlement.
12. Learned advocate further submitted that settlement was modified in September 2008 on receipt of full payment as per one time settlement and the debt would be assigned in favour of the present applicant. The promoter of the company did not honour the said settlement, whereas, the present applicant has come forward to pay the settlement amounts. When the respondent No. 4 came to know about the same on receipt of the letter, the respondent No. 4 addressed a letter dated 19.05.2010 and objected for the same. It was pointed out that the Bank of Baroda is having stake in the matter and they are not ready and willing to the settlement offer made by the applicant and requested to improve the offer. However, the respondent No. 4 has not accepted the offer of the applicant and therefore ‘No Objection Certificate’ as requested by the applicant, was not given.
13. Learned advocate Mr. Rao thereafter submitted that the company in liquidation approached the BIFR under Section 15 of the Sick Industrial Companies (Special Provision) Act, 1985 by filing a Reference No. 385 of 2000. Thus, the reference was pending from 2000 before BIFR and therefore when the reference was pending and the Scheme was under preparation, the company cannot transfer its assets without obtaining NOC from BIFR. Thus, the document prepared on 01.04.2004, which is also not registered document, is prepared with a sole intention to grab the property of the company without obtaining prior permission from BIFR as well as without obtaining NOC from the secured creditors or from this Court.
14. Learned advocate Mr. Rao further submitted that Reference No. 385 of 2000 has been abated on 17.01.2008 Therefore, the secured creditors have already initiated proceedings under Section 13(4) of SARFAESI Act for recovery of the dues against the secured assets. It is contended that the question of assignment of debt does not arise because measures have been taken. He further submitted that IFCI has settled the amount with the company in liquidation for 58 lakhs. Therefore, once the OTS is approved in terms of the settlement, question of assignment of debt does not arise. After the settlement with borrower by IFCI, the question of assignment in favour of the present applicant does not arise and the said deed is nothing but an attempt to defraud the other secured creditors. Learned advocate further contended that the assignment has to be in terms of the provisions of the SARFAESI Act. Thus, the IFCI has acted without authority of law and in illegal manner. At this stage, learned advocate further submitted that settlement was sanctioned by IFCI in July 2008 for Rs. 58 lakhs and on payment of the amount as per OTS to the IFCI, there is no question of assignment of debt in favour of the applicant and therefore the present application is required to be dismissed.
15. Learned advocate Mr. Rao thereafter submitted that the company who wants to acquire any debt of any financial institution or banking company or a bank has to be registered under the SARFAESI Act. In the present case the applicant company is neither a bank nor financial institution and also not registered under Section 5 of the SARFAESI Act. Thus, the IFCI could not have assigned the debt in favour of the present applicant. He further contended that when the proceedings have been initiated under Section 13(4) of the SARFAESI Act, the IFCI can assign the debt to the company which is registered under the provisions of the SARFAESI Act. Therefore the present applicant which is not a financial institution, banking company or the bank and not registered under the provisions of the SARFAESI Act could not make an application for substitution of its name in any pending suit, appeal or other proceedings referred to in Section 5(5) of the SARFAESI Act. The applicant is not the Asset Management Company or Reconstruction company which is registered under the provisions of the SARFAESI Act. Learned advocate referred to and relied upon various definition provided under the SARFAESI Act in support of his submission.
16. Learned advocate Mr. Rao thereafter submitted that the applicant has not come with clean hands before this Court. During the different proceedings filed by the applicant before this Court it was never disclosed that how the applicant came into the possession of the assets of the company in liquidation and about the so-called MOU dated 01.04.2004 He, therefore, submitted that the said agreement itself is hit by provisions of Section 531 of the Companies Act and it is nothing but a fraudulent transfer. He referred to and relied on the provisions of Section 531 and 536 of the Companies Act.
17. Learned advocate Mr. Rao thereafter submitted that the applicant has not registered the charge as per Section 125 or 135 of the Companies Act before the Registrar of Companies and therefore the applicant is not having any right pursuant to the deed of assignment.
18. Learned advocate Mr. Rao has relied upon the provisions of Section 23 of the Contract Act, which reads as under:
“23. What considerations and objects are lawful and what not.- The consideration or object of an agreement is lawful, unless-it is forbidden by law; or is of such a nature that, if permitted, it would defeat the provisions of any law; or is fraudulent; or
involves or implies, injury to the person or property of another, or
the Court regards it as immoral, or opposed to public policy.
In each of these cases, the consideration or object of an agreement is said to be unlawful.
Every agreement of which the object or consideration is unlawful is void.”
19. Learned advocate Mr. Rao has placed reliance upon the order dated 04.03.2015 passed by this Court in case of IFCI Ltd. v. O.L of Gujarat Inject Ltd. (In Liqn) in Company Application No. 301 of 2012 and more particularly the observations made by this Court in para 18 to 20, which read as under:
“18. In other words, the decree recognized the dues of the applicant, however, recognizing the dues and the payability of it by decree is not the same as creation of charge by the decree. The decree vested in the judgment debtor a status of creditor and also right to recover the dues fructified thereunder, but when the charge over the properties upon which the dues were accepted, was not registered as contemplated under Section 125 of the Companies Act, for the purpose of enforcing such dues vis-à-vis the company in liquidation against the Official Liquidator, the judgment creditor has to be governed by the parameters and provisions under the Companies Act, 1956.
19. The charge created by mortgage transaction was not got registered under Section 125 as on the date of winding up. Therefore such unregistered charge so created was void against the Official Liquidator as per the said provision. The charge then created was one created in the realm of contract. The decree passed by the Debt Recovery Tribunal did not ‘create’ charge as such. True it is that it traveled into the four corners of the decree. The decree as passed only recognized the debt in respect of the charge not registered under the Section. However the debt becoming so payable would not rank in priority for its payment under the Companies Act, and would not be capable of being enforced as a secured debt of a secured creditor against the Official Liquidator. The applicant has to be taken as unsecured creditor.
20. In absence of registration, the element of security in the debt is made to deprive of its legal efficacy, that is to say the creditor would not be able to classify and project himself as a secured creditor before the official liquidator. The security created by virtue of mortgage is not wiped out but its enforcement against the Official Liquidator is voided. In other words, that notwithstanding the creation of charge by virtue of mortgage, since it was not registered on the date of winding up, though right to recover the debt is not extinguished, nor the debt is wiped out as such, but at the same time the creditor claiming on that basis would not be entitled to be ranked or to be categorized as secured creditor. He would stand as unsecured creditor, his debt would survive and subsist accordingly, and with such status.”
20. Learned counsel then has placed reliance upon the decision rendered by the Hon'ble Supreme Court in the case of ICICI Bank Limited (Supra) and more particularly para 44, 46, 51 and 52.
“44. Thus, in our view on reading the provisions of the BR Act, 1949 with the Guidelines of RBI issued from time to time in relation to Advances and Restructuring/Management of NPAs we are of the view that the BR Act, 1949 is a complete Code on banking and that dealing in NPAs inter se by the banks needs to be looked in the larger framework of “Re-structuring of banking System”. Thus, we need not go into the provisions of the said TP Act. In fact, it is the case of the borrower(s) that provisions of the said TP Act has no application. (See Written Submissions filed on 31.8.2010).
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 bank as a secured creditor or mortgagee or hypothecatee. The bank can always transfer its asset. Such transfer in no manner affects any right or interest of the borrower(s) (customer). Further, there is no prohibition in the BR Act, 1949 in the bank transferring its assets inter se. Even in the matter of assigning debts, it cannot be said that the banks are trading in debts, as held by the High Court(s). The assignor bank has never purchased the debt(s). It has advanced loans against security as part of its banking business. The account of a client in the books of the bank becomes Non Performing Asset when the client fails to repay. In assigning the debts with underlying security, the bank is only transferring its asset and is not acquiring any rights of its client(s). The bank transfers its asset for a particular agreed price and is no longer entitled to recover anything from the borrower(s). The moment ICICI Bank Ltd. transfers the debt with underlying security, the borrower(s) ceases to be the borrower(s) of the ICICI Bank Ltd. and becomes the borrower(s) of Kotak Mahindra Bank Ltd. (assignee).
51. 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 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 the NPAs from banks. However, from that it does not follow that 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.”
21. Learned advocate Mr. R.M Desai appearing for the respondent No. 1 - Official Liquidator has mainly submitted that the applicant is not a bank or banking company or financial institution or securitization company or reconstruction company and therefore the assignment of debt by IFCI in favour of the applicant is not permissible in the eye of law and the applicant cannot take action under the SARFAESI Act as a secured creditor and applicant cannot be declared as a secured creditor. He further submitted that the decision rendered by the Hon'ble Supreme Court in the case of ICICI Bank Ltd. (Supra) is not helpful to the applicant because the issue before the Hon'ble Supreme Court was whether the inter-se transfer of non-performing assets by the banks is illegal under the Banking Regulation Act of 1949 as held by the Gujarat High Court in the impugned judgment? The Hon'ble Supreme Court has held that assignment by way of transfer of non-performing assets between the banks/financial institutions is permissible. In the present case, the applicant is not a bank or financial institution and therefore IFCI could not have assigned the debt in favour of the applicant. He further submitted that applicant or the IFCI has not taken any permission from the Reserve Bank of India. Learned advocate Mr. Desai thereafter referred to the communication dated 23.01.2012 addressed by Assistant General Manager of IFCI to the Official Liquidator. In the said communication it has been stated that dues have been settled by the present applicant by way of assignment of debts. He further submitted that dues of Rs. 12 crores were assigned in payment of Rs. 56 lakhs only and therefore the transaction between the IFCI and the applicant is doubtful. The applicant has not paid proper stamp duty under the provisions of the Stamp Act nor the charge is registered before the Registrar of Companies under the provisions of Section 125 and 135 of the Companies Act and therefore the deed of assignment executed between IFCI and the applicant is not a valid document. Learned advocate further submitted that the applicant is in illegal possession of the premises of the company in liquidation and therefore such assignment is not permissible. Learned advocate Mr. Desai, therefore, submitted that the applicant may not be permitted to be substituted for and in place of IFCI as secured creditor of the company in liquidation. Therefore, this application be dismissed.
22. I have considered the arguments canvassed on behalf of the learned advocate for the parties. I have also perused the documents produced on record.
23. The only question which is required to be considered in this application is as to whether the applicant can be permitted to be substituted for and in place of IFCI Limited as the secured creditor of the company in liquidation? For deciding this question, certain provisions of the SARFAESI Act are required to be considered:
24. “banking company” is defined under clause (d) of sub-section (1) of Section 2 of the SARFAESI Act, which reads as under:
“2. Definitions.- (1) in this Act, unless the context otherwise requires.-“(d)“banking company” shall have the meaning assigned to it in clause (c) of section 5 of the Banking Regulation Act, 1949 (10 of 1949);”
24.1 Clause (m) of sub-section (1) of Section 2 of the Act reads as under:
“(m) “financial institution” means.-(i) a public financial institution within the meaning of Section 4A of the Companies Act, 1956 (1 of 1956);
(ii) any institution specified by the Central Government under sub-clause (ii) of clause (h) of section 2 of the Recovery of Debts Due to Banks and Financial Institution Act, 1993 (51 of 1993);
(iii) The international Finance Corporation established under the International Finance Corporation (Status, Immunities and Privileges) Act, 1958 (42 of 1958);
(iv) any other institution or non-banking financial company as defined in clause (f) of section 45-I of the Reserve Bank of India Act, 1934 (2 of 1934), which the Central Government may, by notification, specify as financial institution for the purpose of this Act;”
24.2 Clause (v) of sub-section (1) of Section 2 of the Act reads as under:
“(v) “reconstruction company” means a company formed and registered under the Companies Act, 1956 (1 of 1956) for the purpose of asset reconstruction”
24.3 “securitization company” is defined in clause (za) of sub-section (1) of Section 2 of the Act as under:
“(za) securitization company” means any company formed and registered under the Companies Act, 1956 (1 of 1956) for the purpose of securitization.”
24.4 Section 5 of the Act provides that:
“5. Acquisition of rights or interest in financial assets.- (1) Notwithstanding anything contained in any agreement or any other law for the time being in force, any securitisation company or reconstruction company may acquire financial assets of any bank or financial institution-
(a) by issuing a debenture or bond or any other security in the nature of the debenture, for consideration agreed upon between such company and the bank or financial institution, incorporating therein such terms and conditions as may be agreed upon between them; or
(b) by entering into an agreement with such bank or financial institution for the transfer of such financial assets to such company on such terms and conditions as may be agreed upon between them.
(2) If the bank or financial institution is a lender in relation to any financial assets acquired under sub-section (1) by the securitisation company or the reconstruction company, such securitisation company or reconstruction company shall, on such acquisition, be deemed to be the lender and all the rights of such bank or financial institution shall vest in such company in relation to such financial assets.
(3) Unless otherwise expressly provided by this Act, all contracts, deeds, bonds, agreements, powers-of-attorney, grants of legal representation, permissions, approvals, consents or no-objections under any law or otherwise and other instruments of whatever nature which relate to the said financial asset and which are subsisting or having effect immediately before the acquisition of financial asset under sub-section (1) and to which the concerned bank or financial institution is a party or which are in favour of such bank or financial institution shall, after the acquisition of the financial assets, be of as full force and effect against or in favour of the securitisation company or reconstruction company, as the case may be, and may be enforced or acted upon as fully and effectually as if, in the place of the said bank or financial institution, securitisation company or reconstruction company, as the case may be, had been a party thereto or as if they had been issued in favour of the securitisation company or reconstruction company, as the case may be.
(4) If, on the date of acquisition of financial asset under sub-section (1), any suit, appeal or other proceeding of whatever nature relating to the said financial asset is pending by or against the bank or financial institution, save as provided in the third proviso to subsection (1) of section 15 of the Sick Industrial Companies (Special Provisions) Act, 1985 (1 of 1986) the same shall not abate, or be discontinued or be, in any way, prejudicially affected by reason of the acquisition of financial asset by the securitisation company or reconstruction company, as the case may be, but the suit, appeal or other proceeding may be continued, prosecuted and enforced by or against the securitisation company or reconstruction company, as the case may be.
[(5) On acquisition of financial assets under sub-section (1), the securitization company or reconstruction company, may with the consent of the originator, file an application before the Debts Recovery Tribunal or the Appellate Tribunal or any court or other Authority for the purpose of substitution of its name in any pending suit, appeal or other proceedings and on receipt of such application, such Debts Recovery Tribunal or the Appellate Tribunal or court or Authority shall pass orders for the substitution of the securitization company or reconstruction company in such pending suit, appeal or other proceedings.]”
25. Thus, in view of the aforesaid provisions contained in the SARFAESI Act, I am of the view that when the applicant company is not a bank or banking company or financial institution or securitization company or reconstruction company, the applicant cannot be permitted to be substituted in place of IFCI as secured creditor for the purpose of SARFAESI Act.
26. Contention of learned advocate Mr. Pahwa for the applicant is that assignment is permissible under Section 130 of the Transfer of Property Act and the said transaction can be termed as transfer of actionable claim. Section 130 of the Transfer of Property Act provides that:
“130. Transfer of actionable claims.-(1) The transfer of an actionable claim [whether with or without consideration] shall be effected only by the execution of an instrument in writing signed by the transferor or his duly authorised agent, [* * *] shall be complete and effectual upon the execution of such instruments, and thereupon all the rights and remedies of the transferor, whether by way of damages or otherwise, shall vest in the transferee, whether such notice of the transfer as is hereinafter provided be given or not:
Provided that every dealing with the debt or other actionable claim by the debtor or other person from or against whom the transferor would, but for such instrument of transfer as aforesaid, have been entitled to recover or enforce such debt or other actionable claim, shall (save where the debtor or other person is a party to the transfer or has received express notice thereof as hereinafter provided) be valid as against such transfer.
(2) The transferee of an actionable claim may, upon the execution of such instrument of transfer as aforesaid, sue or institute proceedings for the same in his own name without obtaining the transferor's consent to such suit or proceedings and without making him a party thereto.
Exception.- Nothing in this section applies to the transfer of a marine or fire policy of insurance d [or affects the provisions of section 38 of the Insurance Act, 1938].”
27. The aforesaid provisions of Section 130 of the Transfer of Property Act are not applicable to the facts of the present case as the IFCI has transferred the debts of the company in liquidation in favour of the applicant by deed of assignment and therefore the case of the applicant is that it may be permitted to proceed against the company in liquidation under the SARFAESI Act as secured creditor. The applicant is not entitled to get any benefit under the SARFAESI Act and cannot be termed as secured creditor. Hence the reliance placed by the learned advocate for the applicant on the provisions of Section 130 of the Transfer of Property Act, is misconceived.
28. Thus, this application is required to be dismissed only on this limited ground and therefore the other contentions raised by the learned advocates for the parties and the decisions relied on by the learned advocates for the parties are not discussed in detailed.
29. As discussed above, there are so many debatable issues raised by the learned advocates for the parties in this application. However, the present application is filed for the limited prayer and therefore it is not proper for this Court to decide all those issues at this stage. However, it is open for the parties to take all available contentions before the appropriate Court/Forum in appropriate proceedings.
30. In the result, the application is dismissed.
Notice discharged.