ICICI Bank Ltd v. Official Liquidator of
APS Star Industries Ltd & Ors.

Background

The dispute arose from the assignment of debts owed by borrowers — including non-performing assets — from one bank to another bank. A question was raised as to whether a banking company could lawfully assign or transfer such debts to another bank under the Banking Regulation Act, 1949, or whether doing so amounted to an impermissible activity (in the nature of “trading in debts”) outside the permitted forms of banking business. The Gujarat High Court had taken the view that the inter se assignment of NPAs by banks was impermissible under the Banking Regulation Act. ICICI Bank carried the matter to the Supreme Court.

Issues

• Whether the inter se assignment or transfer of debts (including NPAs) between banks is permissible under the Banking Regulation Act, 1949.
• Whether such assignment amounts to impermissible “trading in debts” or an activity outside the permitted forms of banking business.
• Whether the consent of the borrower is required for an inter-bank assignment of a debt.

Judgment & Ratio

The Supreme Court (per S.H. Kapadia, CJI, Division Bench) held that the inter se assignment or transfer of debts — including non-performing assets — between banks is permissible and legal under the Banking Regulation Act, 1949. Reading the Act together with the forms of business set out in Section 6 and the restrictions in Section 21, the Court found that the transfer of a debt from one bank to another is a recognised incident of banking business and does not amount to impermissible “trading in debts”. The Court also held that the borrower’s consent is not required for such an inter-bank assignment, since the assignment changes the identity of the creditor without altering the borrower’s underlying liability. On these findings, the Supreme Court set aside the Gujarat High Court’s contrary view that had held the inter se assignment of NPAs by banks to be impermissible.

Significance for Banking & NPA Practice

This judgment is a foundational authority validating the secondary market in non-performing assets and the assignment of financial assets between banks. By confirming that banks may lawfully assign debts (including NPAs) to one another without the borrower’s consent, the decision underpins the routine sale and transfer of stressed-asset portfolios — including assignment to Asset Reconstruction Companies in the SARFAESI framework. For lenders managing distressed accounts, it provides settled authority that an inter-bank assignment of a debt is valid and that the assignee bank steps into the assignor’s shoes for the purpose of recovery. The decision should be read alongside Sections 6 and 21 of the Banking Regulation Act, 1949 and the assignment provisions relevant to transfers of financial assets to ARCs under the SARFAESI Act.

This case note is general legal information, not legal advice. The applicability of this judgment depends on the facts of each matter.