Unlawful Compromise: A compromise under Order XXIII Rule 3 of the CPC must be lawful. The assignment of Shaila Clubs' loan to Savannah was unlawful as it violated RBI Directives, which prohibit the transfer of NPAs to ineligible transferees. The compromise affected the rights of Shaila Clubs, which was not a party to the Minutes of Order, and thus could not be considered lawful. (Paras 35-37, 51-53)

Locus Standi of Liquidator: The Liquidator had the authority to file the application, as no formal order had been passed by the Registrar under Section 109 of the MCS Act, and the liquidation proceedings had not been formally terminated. (Paras 59-62)

Minutes of Order Practice: The practice of disposing of cases based on Minutes of Order is not a consent order but an order in invitum. The Court must ensure that such orders are lawful and do not affect the rights of third parties. (Paras 54-57)

The High Court recalled the order dated 21 October 2022, holding that the compromise was unlawful as it violated RBI Directives and affected the rights of Shaila Clubs, which was not a party to the compromise. The Court held that the Liquidator had the authority to file the application, as no formal order had been passed by the Registrar under Section 109 of the MCS Act. The Court allowed the Review Petition filed by Shaila Clubs and its suspended director, and restored Writ Petition No. 11610 of 2022 for further hearing.

Major Acts:

1. Banking Regulation Act, 1949 – Sections 21 and 35A – Power of RBI to issue binding directives on banking companies.

2. Maharashtra Co-operative Societies Act, 1960 (MCS Act) – Section 109 – Termination of liquidation proceedings.

3. Code of Civil Procedure, 1908 (CPC) – Order XXIII Rule 3 – Compromise of suit must be lawful.

4. Insolvency and Bankruptcy Code, 2016 (IBC) – Section 7 – Initiation of Corporate Insolvency Resolution Process (CIRP).

Subjects:

• Loan Assignment – Transfer of loan exposure under RBI Directives.

• Unlawful Compromise – Violation of RBI guidelines in loan transfer.

• Minutes of Order – Practice of Bombay High Court in disposing of cases based on written agreements.

• Liquidation Proceedings – Termination under Section 109 of MCS Act.

• Permitted Transferees – Entities eligible to receive loan transfers under RBI Directives.

Facts:

1. Nature of the Litigation:

   • The case involved a dispute over the assignment of a loan from Vasantdada Shetkari Sahakari Bank Ltd. (under liquidation) to Savannah Lifestyle Pvt. Ltd. (Savannah). The Official Liquidator sought recall of an order dated 21 October 2022, which was based on a compromise (Minutes of Order) between the Bank and Savannah. The compromise allowed Savannah to take over the loan account of Shaila Clubs & Resorts Pvt. Ltd. (Shaila Clubs) by paying Rs. 3.37 crores, despite the loan being classified as a Non-Performing Asset (NPA).

2. Who is Asking the Court and for What Remedy?

   • The Official Liquidator filed an Interim Application (IA No. 13400 of 2024) seeking recall of the order dated 21 October 2022, arguing that the compromise was unlawful as it violated RBI Directives.

   • Amit Prabhakar Kore, a suspended director of Shaila Clubs, filed a Review Petition (No. 85 of 2024) seeking review of the same order, contending that the compromise affected Shaila Clubs' rights without its consent.

3. Reason for Filing the Case:

   • The compromise allowed Savannah to take over Shaila Clubs' loan account, which was classified as an NPA, and to recover the outstanding amount from Shaila Clubs. The Liquidator and Shaila Clubs argued that the compromise was unlawful as it violated RBI Directives, which prohibit the transfer of NPAs to ineligible transferees like Savannah.

4. What Has Already Been Decided Until Now?

   • The High Court had disposed of Writ Petition No. 11610 of 2022 based on the Minutes of Order dated 20 October 2022, which recorded the compromise between the Bank and Savannah. However, the Liquidator and Shaila Clubs later challenged the compromise, leading to the present applications and review petitions.

Issues:

1. Whether the compromise recorded in the Minutes of Order dated 20 October 2022 was lawful, especially in light of RBI Directives under the Banking Regulation Act, 1949?

2. Whether the Official Liquidator had the locus standi to file the Interim Application after the deemed termination of liquidation proceedings under Section 109 of the MCS Act?

3. Whether the order dated 21 October 2022, based on the Minutes of Order, should be recalled due to its impact on Shaila Clubs, which was not a party to the compromise?

Submissions/Arguments:

1. Official Liquidator’s Arguments:

   • The compromise was unlawful as it violated RBI Directives, which prohibit the transfer of NPAs to ineligible transferees like Savannah.

   • The Minutes of Order were filed in unrelated proceedings and affected the rights of Shaila Clubs, which was not a party to the compromise.

   • The Liquidator had the authority to file the application despite the deemed termination of liquidation proceedings, as no formal order had been passed by the Registrar under Section 109 of the MCS Act.

2. Savannah’s Arguments:

   • The compromise was lawful as the Liquidator had taken an independent commercial decision to settle the loan account under the One Time Settlement (OTS) scheme.

   • The RBI Directives did not apply to the transaction as the loan was not classified as a stressed asset.

   • The Liquidator lacked locus standi to file the application after the deemed termination of liquidation proceedings.

3. Shaila Clubs’ Arguments:

   • The compromise affected its rights as it was not a party to the Minutes of Order.

   • The assignment of the loan to Savannah was unlawful and violated RBI Directives.