SC sets aside order banning transfer of debt between banks

The Supreme Court on Thursday set aside a Gujarat High Court order that prohibited banks from transferring debts, including non-performing assets (NPAs), to among each other.

A three-judge bench headed by Chief Justice S H Kapadia held that the transfer of debts between banks was legal and was allowed under the Banking Services Regulation Act. “There is nothing to prohibit under the banking regulation Act. We set aside the judgment of the high court,” the bench said.

The apex court judgement came in response to a clutch of petitions filed by some major banks, including ICICI Bank, Kotak Mahindra Bank and StanChart, challenging the Gujarat High Court judgment. The case relates to the transfer of a basket of NPAs by ICICI Bank to Kotak Mahindra Bank, along with underlying security interest. One of the borrowers, APS Star Industries, objected to the transfer and the matter landed in court.

A division bench of the Gujarat High Court held that the Banking Services Regulation Act did not allow trading in debt. Had it not been overturned, the high court judgment would have serious implications for the nascent securitisation business, which relates to buying of a pool of debts by one bank from another and trading in these.