SC gives conditional nod for bank debt deals

The Supreme Court today allowed debt assignor and assignee banks to represent secured creditors in the meetings of the asset sales committee. This interim arrangement will last until April 14, when the court will decide on the legality of trading in debts by banks.

The bench headed by Justice S H Kapadia passed this order — to see that secured debtors do not go unrepresented — when it took up the appeals of some private banks against the judgment of the Gujarat High Court striking down trading in debts by assignment. The court clarified that if the appeals are dismissed, all the banks’ transactions will be reversed within a period, which will be specified by the court.

“The order is without prejudice to the contentions of all parties. It shall also not be construed as acceptance of assignment of debts,” the order said.

The Reserve Bank of India and the Indian Banks’ Association have been allowed to intervene in the appeals moved by private banks.

According to the banks, assigning of debts is an accepted practice internationally. However, the high court last month ruled that the practice was not permissible under the Banking Regulation Act, 1949.

It held that the contracts of assigning debts were illegal and the assignee banks were not entitled to be substituted for original lenders (assignor bank) in proceedings related to sick companies pending before courts.