Rajasthan High Court Upholds SBI’s Debt Assignment to Alchemist ARC Even Where NPA Classification Is Later Declared Invalid
Sanchayita Lahkar
The High Court of Judicature for Rajasthan at Jodhpur, Single Bench of Justice Rekha Borana, dismissed a writ petition challenging the State Bank of India’s assignment of debt to Alchemist Asset Reconstruction Company Ltd. The Court held that the bank’s right to transfer a loan remains unaffected even if the loan’s classification as a Non-Performing Asset is subsequently declared invalid. Emphasizing that the assignment could not be nullified on this ground, Justice Borana observed that the petition was wholly misconceived and warranted no interference, thereby upholding the legality of the assignment and declining all related reliefs sought by the petitioners.
The case arose from a term loan of Rs. 24 crores granted by State Bank of India (SBI) to Hotel Gaudavan Private Limited (HGPL) on January 4, 2008, later restructured in 2009. Following defaults in repayment, the loan was classified as a Non-Performing Asset (NPA) on June 28, 2010. Subsequently, SBI assigned the debt to Alchemist Asset Reconstruction Company Limited (AARC) through an assignment agreement dated March 20, 2014. Thereafter, AARC issued demand and possession notices under Sections 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
Hotel Gaudavan Pvt. Ltd. challenged these actions before the Debt Recovery Tribunal (DRT), Jaipur, which, in 2015, declared the NPA classification illegal. The Debt Recovery Appellate Tribunal (DRAT), Delhi, upheld the DRT’s decision. Despite this, possession of the secured assets was restored to AARC on the directions of the Delhi High Court, which subsequently maintained status quo and allowed AARC to issue a fresh notice under Section 13(2). AARC later initiated insolvency proceedings under Section 7 of the Insolvency and Bankruptcy Code (IBC), where a Resolution Professional was appointed.
The petitioners, who were guarantors of HGPL, filed the present writ petition challenging the assignment deed, contending that once the NPA classification was declared invalid, SBI’s subsequent transfer of debt was rendered illegal. They also sought investigation by the Central Bureau of Investigation (CBI) and restoration of the company’s ownership rights.
Justice Rekha Borana, after reviewing the records and submissions, noted that the issue of the validity of the assignment deed had already been raised and decided multiple times before various forums, including the NCLT, NCLAT, Delhi High Court, and the Supreme Court. The Court recorded that “the issue regarding validity of the assignment agreement has already been raised by HGPL more than six times before different Courts/forums and the same stood decided against it all the times.” The Court held that re-litigation of the same issue amounted to abuse of the process of law.
The Bench referred to the earlier finding of the National Company Law Tribunal (NCLT), which had examined the same contention and held: “Banks have the power to assign the debts due to it since debt is an asset in the hands of bank as a secured creditor or mortgagee or hypothecatee and that a bank can always transfer its asset and such transfer in no manner affects any right or interest of borrower.” The Court reproduced the NCLT’s reasoning that classification as NPA was not a precondition for assigning or transferring debt, stating that “for invoking the provisions of Section 13(2) of SARFAESI Act, NPA may be a criteria but in relation to unfolding the Corporate Insolvency Resolution Process as contemplated under the IBC, NPA classification is not a condition precedent.”
Further, Justice Borana observed: “The act of assigning the loan is a legal transaction separate from the Bank’s internal classification of that loan as NPA. The validity of assignment rests on the fact whether the Bank had the right to transfer the debt and not on the correctness of its NPA classification at the time of transfer.”
The Bench noted: “The steps that have to be taken under the Insolvency Code will continue unimpeded by any order of any other Court.”
The Bench stated: “The assignment cannot be invalidated because of the classification having been declared to be incorrect/invalid subsequently.” Consequently, the connected reliefs for restoration of rights and possession were also rejected.
On the prayer seeking a CBI investigation into the sale of financial assets, the Court noted that multiple First Information Reports (FIRs) had already been registered and adjudicated upon. The Court observed that the first FIR filed in 2015 had been closed after investigation, while the second FIR in 2017 had been quashed by the Supreme Court. A protest petition was pending in relation to the earlier closure report. Hence, the Court stated that “the present prayer for directing initiation of enquiry/investigation is also misconceived and cannot be entertained.”
Addressing the petitioners’ challenge to the Debts Recovery Tribunal’s order of May 18, 2022, and the recovery notice of January 8, 2024, Justice Borana held that an “alternative remedy definitely lies” and that the High Court could not interfere in view of the Supreme Court’s direction that insolvency proceedings “will continue unimpeded by any order of any other Court.”
The Court concluded that none of the reliefs were maintainable and dismissed the writ petition as “totally misconceived,” stating: “None of the reliefs as prayed for by the petitioners can be entertained by this Court and the writ petition being totally misconceived, does not deserve any interference and the same is hence, dismissed.” All stay petitions and pending applications were disposed of accordingly.
Advocates Representing the Parties:
For the Petitioners: Mr. Anil Kumar Singh with Mr. Abhyudai Singh
For the Respondents: Mr. Vikas Balia, Senior Advocate, assisted by Mr. Ashu Kansal and Mr. Abhishek Mehta
Case Title: Sh. Harendra Singh Rathore & Ors. vs. State Bank of India & Ors.
Neutral Citation: 2025: RJ-JD:42589
Case Number: S.B. Civil Writ Petition No. 1240/2024
Bench: Justice Rekha Borana
