Supreme Court to reconsider controversial ban on debt trading

The Supreme Court of India, through its order in the case of ICICI Bank Limited v Official Liquidators of M/s APS Star Industries Limited & Others, has temporarily allowed banks to trade in debts pending its final hearing of a special leave petition (SLP) on 14 April. The SLP was filed against a judgment made by Gujarat High Court on 12 January, which disallowed the trading in debts by banks. The case focused on ICICI, which executed a deed of assignment in favour of Kotak Mahindra Bank in which a basket of ICICI’s non-performing assets was assigned and transferred on an “as is where is” basis to Kotak Mahindra at a defined purchase price.

The Supreme Court is hearing from three banks: ICICI, Kotak Mahindra and Standard Chartered. It has also allowed the intervention of the Indian Banks Association and the Reserve Bank of India (RBI) as additional parties to the case. The eventual outcome of the SLP will be a “judgment in rem” (a judgment on the status of a particular subject, property or thing, as opposed to one pronounced on individuals). As such, the decision will apply not only to ICICI and Kotak Mahindra, but to all future transactions of this nature.

In an earlier hearing of the SLP on 9 February, the court directed that no steps should be taken by the banks to implement the impugned high court judgment.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.