Unlawful loan assignment under RBI transfer directions led the HC to recall a compromise order despite delay objections.

A compromise recorded by the HC could not stand because it effectively assigned a borrower's NPA loan, securities and mortgage rights to a private entity that was not a permitted transferee under the RBI (Transfer of Loan Exposure) Directions, 2021. The arrangement was therefore inconsistent with the binding regulatory framework and also prejudiced a non-signatory whose assets could be proceeded against on the basis of the assigned loan. Objections based on delay were rejected because an unlawful compromise could still be recalled, and the challenge was not defeated by locus objections to the Liquidator where the order itself was otherwise unsustainable. The order recording the compromise was liable to be recalled.

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Issues: Whether the order recording the Minutes of Order could stand when the underlying arrangement amounted to an unlawful transfer of a bank loan to an ineligible transferee under the binding RBI loan transfer directions, and whether the order was liable to be recalled despite objections based on delay and locus.

Analysis: The compromise recorded by the Court was not a mere private settlement of the writ petition. Its effect was to assign the borrower's loan, together with securities and mortgage rights, to Savannah, a private entity not falling within the class of permitted transferees under the Reserve Bank of India (Transfer of Loan Exposure) Directions, 2021 issued under the Banking Regulation Act, 1949. Since the borrower's account was an NPA, the directions applied, and the assignment was contrary to the binding regulatory framework. The arrangement also directly affected the rights of Shaila Clubs, which was not a signatory to the Minutes of Order, yet the compromise enabled Savannah to proceed against its assets on the strength of the assigned loan.

The objection that the compromise could not be disturbed because of delay was rejected. Once the Court found the compromise to be unlawful, mere delay could not bar recall or review. The technical objection regarding the Liquidator's locus was also not accepted as a ground to sustain the impugned order, because the order was otherwise liable to be recalled on the review petition filed by Shaila Clubs and its suspended director.

Conclusion: The compromise was unlawful and the order recording it was liable to be recalled.

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