The Madras High Court upholds the lenders' right to transfer assets without borrower consent.
The Single-Judge Bench of Justice M. Nagaprasanna of the Madras High Court upheld the lenders' right to transfer assets without borrower consent, emphasizing compliance with statutory provisions, and dismissed the petitioner's claims due to their lack of merit and the limited scope of judicial review in banking transactions.
The petitioner, a hospitality business, found themselves in a tough spot due to the COVID-19 pandemic's adverse effects on their industry. Seeking relief, they approached the court regarding their loan accounts with Piramal Enterprises Limited and Piramal Capital & Housing Finance Limited, which were later transferred to Omkara Assets Reconstruction Private Limited. The crux of their argument was the contested declaration of their accounts as Non-Performing Assets (NPAs) or stressed accounts, which they claimed didn't adhere to Reserve Bank of India (RBI) guidelines.
The petitioner argued that the loan assignment violated the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interests Act, 2002, as well as RBI Master Circulars. They contended that such transfers should only occur after the loans are officially declared NPAs, a step they asserted had been skipped in their case. Conversely, respondents countered that such assignments were within their rights and weren't subject to judicial review.
After thorough consideration of both sides' arguments and a detailed examination of relevant legal provisions, the court acknowledged the validity of the dispute between private entities. However, it emphasized the importance of ensuring compliance with the SARFAESI Act and RBI guidelines. The petitioner referenced specific sections of the SARFAESI Act and RBI Circulars to bolster their case, aiming to demonstrate that the loan assignment didn't align with statutory requirements.
The high court revisited the petitioner's plea, delving into the intricacies of banking regulations and statutory provisions. Noting that the accounts were indeed stressed but hadn't necessarily been declared NPAs, the court reiterated the Supreme Court's stance that lenders possess the right to transfer their assets, including debts, without seeking borrower consent, provided it doesn't breach any statutory provisions.
Furthermore, the court emphasized its reluctance to interfere in banking transactions unless there's a clear violation of statutory provisions. Citing a previous case, it underscored the limited scope of judicial review concerning banking decisions, affirming that such matters are typically best left to the discretion of lenders. Consequently, the court dismissed the petitioner's claims, finding them lacking in merit and reinforcing the principle of upholding statutory compliance in financial transactions.
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