The Supreme Court today set aside a Gujarat High Court order that prohibited banks from transferring debts, including non-performing assets, to one another.
A three-judge bench headed by Chief Justice S H Kapadia held that the transfer of debts between banks is legal and the Banking Services Regulation Act allows this activity.
"There is nothing to prohibit under the banking regulation act... We set aside the judgement of the High Court," the bench said.
The apex court judgement came in response to a clutch of petitions filed by major banks, including ICICI Bank, Kotak Mahindra Bank and StanChart, challenging the Gujarat High Court judgement.
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 Regulation Act did not allow for trading in debt.
Had it not been overturned, the high court judgement 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 them.
