Bombay High Court Observes Unlawful Loan Transfer in Savannah Lifestyle Case: “Minutes of Order Not a Consent Order”
Kiran Raj
The Bombay High Court has issued a judgment regarding the legal validity of a loan transfer involving Savannah Lifestyle Private Limited and Shaila Clubs, addressing concerns over the “Minutes of Order” mechanism. The Court observed that “an order passed in terms of the ‘Minutes of Order’ is an order in invitum, not a consent order” and is therefore “appealable and may be reviewed”. The Bench comprising Justice Sandeep V. Marne examined whether the transfer of a non-performing asset (NPA) was legally permissible under the Reserve Bank of India (RBI) Directives and whether all affected parties had been adequately represented in the proceedings.
The Court set aside the agreement, holding that the loan transfer from the liquidated bank to Savannah Lifestyle Private Limited was “not lawful within the meaning of Order XXIII Rule 3 of the Code of Civil Procedure, 1908” and that the “compromise affected the interests of Shaila Clubs, which was not a signatory to the agreement”.
The case arose from a financial dispute involving Shaila Clubs & Resorts Private Limited (Shaila Clubs), which had taken loans from a bank that later entered liquidation. As the sole remaining mortgagee of the club premises in Bandra, Mumbai, the bank initiated recovery proceedings under Section 101 of the Maharashtra Co-operative Societies Act, 1960. The Additional Chief Metropolitan Magistrate granted possession of the properties to the bank in an order dated October 22, 2018.
In subsequent proceedings, Savannah Lifestyle, which had entered into a conducting agreement with Shaila Clubs to operate the premises, challenged the possession order through a writ petition before the Bombay High Court. While these proceedings were ongoing, the bank and Savannah entered into an arrangement under a one-time settlement (OTS) scheme. Under this arrangement, Savannah paid Rs. 3.37 crores to settle the loan of Shaila Clubs and, in return, acquired the right to recover the full outstanding loan amount of Rs. 8.97 crores by dealing with the mortgaged assets of Shaila Clubs.
The “Minutes of Order” reflecting this agreement were submitted in the writ petition and subsequently recorded in an order dated October 21, 2022. This led to objections from the liquidator and Shaila Clubs, arguing that Savannah was not an eligible transferee under the RBI Directives and that the transaction was executed without proper legal authority.
The Court examined the legality of the transaction and the procedural propriety of disposing of the case based on “Minutes of Order.” It observed that under the RBI (Transfer of Loan Exposures) Directions, 2021, “it was impermissible for the bank to transfer the loan of Shaila Clubs to any entity other than those enumerated in Clause 3 of the Directives”. The Court further noted that “Savannah was not an eligible transferee under these guidelines” and that such transactions were prohibited to prevent the transfer of NPAs to unregulated entities.
The Bench also addressed concerns regarding procedural fairness, stating that “a court must first examine whether it will be lawful to pass an order in terms of the ‘Minutes of Order’” and “whether third parties will be affected by the order”. In this case, the compromise affected the interests of Shaila Clubs, which was not a party to the agreement, raising concerns about due process.
The judgment cited the Supreme Court’s observations in Ajay Ishwar Ghute v. Meher K. Patel, which criticized the practice of disposing of cases through “Minutes of Order” without ensuring that all affected parties were duly heard. The Court emphasized that while parties may reach an agreement, the Court must ensure that such agreements are “lawful and do not violate statutory directives”.
Additionally, the Court noted the implications of the transaction on insolvency proceedings, as Savannah had initiated Corporate Insolvency Resolution Process (CIRP) against Shaila Clubs based on its newly acquired creditor status. The Court remarked that “Savannah is actually eyeing to secure ownership of the property under its management as a mere Conductor by paying a sum of Rs. 3.37 crores in Shaila Clubs’ loan account”. It was held that such an arrangement circumvented RBI’s policy objectives, which aim to regulate loan transfers and prevent undue advantages to private entities.
In its final orders, the Court set aside the order dated October 21, 2022, stating that “if the compromise is itself unlawful, the seal of this Court put on such compromise must be removed so that no party is permitted to rely on the same in any collateral proceedings”. The Court directed that the matter be restored to its original position, requiring the parties to proceed with adjudication on merits rather than through an unlawful settlement.
The Court further stated that “the Registrar has power to extend the period of liquidation, and if necessary, the liquidator may submit a report seeking additional time”. This observation was in response to the contention that the liquidation period of the bank had ended, thereby affecting the locus of the liquidator to challenge the settlement.
The Court also directed that “the dispute concerning the validity of the loan transfer should be resolved in the appropriate legal forum, including proceedings before the National Company Law Tribunal (NCLT)”.
Advocates Representing the Parties
For the Liquidator and Shaila Clubs: Mr. Darius Khambata, Senior Advocate, with Ms. Smita Patil, Advocate.
For Savannah Lifestyle Private Limited: Dr. Virendra Tulzapurkar, Senior Advocate, with Mr. Vishal Nankani, Advocate.
For the Bank: Mr. Janak Dwarkadas, Senior Advocate, with Ms. Megha Joshi, Advocate.
Case Title: Savannah Lifestyle Private Limited & Others v. Shaila Clubs & Others
Neutral Citation Number: 2025:BHC-AS:11430.
Case Number: Writ Petition No. 11610 of 2022
Bench: Justice Sandeep V. Marne
[Read/Download order]
