1. Borrower challenged the classification of loan accounts as non-performing assets and the subsequent assignment of debts by the lender to an asset reconstruction company. (Para 3 , 4 , 5 , 6 , 10 , 11 , 12 )
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2026 Supreme(SC) 1287
SUPREME COURT OF INDIA
SURYA KANT, CJI., JOYMALYA BAGCHI, V. MOHANA, JJ.
Atibir Industries Co. Ltd. – Appellant
Versus
State Bank of India & Anr. – Respondents
Civil Appeal Nos. 13916-13917 of 2026 @ SLP (C) Nos. 21029-30 of 2024
Decided On : 26-10-2026
Advocates appeared:
For the Appellant(s) : Mr. Narender Hooda, Sr. Adv. Mr. Arijit Bardhan, Adv. Mr. Amit Kumar Singh, Adv. Ms. Rashmi Singh- 2132, AOR Ms. Archana, Adv.
For the Respondent(s): Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Kunal Vajani, Adv. Mr. Kartikey Bhatt, Adv. Mr. Tanish Arora, Adv. Mr. Siddharth Seem, Adv. Mr. Samar Veer, Adv. Mr. Kunal Mimani- 2753, AOR Mr. Sanjay Kapur- 1202, AOR Mr. Surya Prakash, Adv. Mr. Kartikey Kaushik, Adv. Ms. Shristi Kundu, Adv. Ms. Shubhra Kapur, Adv. Mr. Anuraj Mishra, Adv.
For the Appellant(s) : Mr. Narender Hooda, Sr. Adv. Mr. Arijit Bardhan, Adv. Mr. Amit Kumar Singh, Adv. Ms. Rashmi Singh- 2132, AOR Ms. Archana, Adv.
For the Respondent(s): Dr. Abhishek Manu Singhvi, Sr. Adv. Mr. Kunal Vajani, Adv. Mr. Kartikey Bhatt, Adv. Mr. Tanish Arora, Adv. Mr. Siddharth Seem, Adv. Mr. Samar Veer, Adv. Mr. Kunal Mimani- 2753, AOR Mr. Sanjay Kapur- 1202, AOR Mr. Surya Prakash, Adv. Mr. Kartikey Kaushik, Adv. Ms. Shristi Kundu, Adv. Ms. Shubhra Kapur, Adv. Mr. Anuraj Mishra, Adv.
The Supreme Court exercised its equitable jurisdiction to determine a final settlement amount for a disputed debt assignment, balancing the necessity of saving a running industry with the assignee's right to a reasonable return on investment, regardless of disputed NPA classifications.
Headnote:(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Sections 5, 13(2) and 13(4) - Insolvency and Bankruptcy Code, 2016 - Section 7 - Recovery of Debts and Bankruptcy Act, 1993 - Section 19 - Classification of account as Non-Performing Asset (NPA) -Effect of RBI moratorium circulars during pandemic - Validity of assignment of debt to asset reconstruction company - A bank can simultaneously initiate proceedings before the debts recovery tribunal, the national company law tribunal, and under the SARFAESI Act; withdrawal of an application pending before the debts recovery tribunal is not a pre-condition for taking recourse to the SARFAESI Act (Para 24) - A bank, as the owner of the debt, can transfer its asset via assignment, and such transfer generally does not affect the rights or interest of the borrower (Para 25).
(B) Equity and Settlement - Balancing interests of parties to save a running industry - Determination of reasonable return on investment for the assignee - Where the validity of NPA classification is disputed and the assignment process is under cloud due to funding by a business competitor, the court may exercise its equitable jurisdiction to fix a final settlement amount to bring an end to long-standing litigation and ensure the survival of the industrial unit (Paras 40, 42, 43).
Facts of the case:
A borrower challenged the retrospective classification of its loan account as an NPA and the subsequent assignment of the debt by the respondent bank to an asset reconstruction company. The borrower contended that the classification was premature as it ignored RBI moratorium circulars issued during the pandemic. It further alleged that the assignment was orchestrated by a business competitor. While the single judge had set aside the NPA classification and assignment, the division bench reversed this decision. In the appeal, the court appointed a former judge to determine the additional liability payable by the borrower over and above a sum of Rs.250 crores already tendered.
Findings of Court:
The court noted that the classification of the account as NPA was done retrospectively and ignored the moratorium period. The conduct of the bank in rejecting one-time settlement offers while quickly assigning the debt to an entity funded by a competitor was viewed critically. However, in the interest of justice and equity, and to protect the livelihood of employees of the running industry, the court decided to balance the interests by awarding a reasonable return to the assignee on the investment made.
Issues: The main issues were whether the NPA classification was contrary to RBI guidelines, whether the assignment of the debt was valid, and the determination of the actual amount payable by the borrower to the assignee to settle all claims.
Ratio Decidendi: In peculiar circumstances where a running industry is at stake and legal issues regarding the validity of NPA classification and assignment are disputed, the court can act as a court of equity to determine a lump sum final settlement. This balances the borrower's need to continue operations and the assignee's right to a reasonable return on the acquisition value of the debt.
Result: Appeals disposed of with directions to the appellant to pay a further sum of Rs.125 crores to the respondent assignee within 12 weeks as a full and final settlement of all claims.
Legal Category Hierarchy
Table of Contents
2. Borrower contended NPA classification violated pandemic-related moratorium relief rules, while lenders argued the assignment was a commercial decision within their discretion despite pending insolvency/recovery proceedings. (Para 13 , 14 , 15 )
3. The Court observed that though the assignment was disputed, its powers as a court of equity mandated a balanced resolution to settle dues and preserve the business entity. (Para 40 , 41 , 43 )
4. Courts possess equitable powers to resolve debt disputes between borrowers and assignees by balancing interests and fixing reasonable compensation when statutory classification procedures are contested or ambiguous. (Para 42 , 43 , 44 )
5. Borrower directed to pay a specified additional sum as full and final settlement, with lenders required to release all securities and guarantees upon payment. (Para 44 , 45 )
6. Can a lender initiate recovery proceedings under the DRT Act, the IBC, and the SARFAESI Act simultaneously?
Yes. The remedy under the SARFAESI Act is an additional, concurrent remedy alongside the DRT Act and IBC proceedings. It is the lender's discretion to exercise these options, and withdrawing or staying one is not a pre-condition for initiating the others. (Para 24 )
7. Does a bank have the right to transfer or assign its non-performing financial assets to third parties?
Yes. A bank, as the owner of a debt, is legally entitled to transfer its asset for an agreed price. This act of assignment is a commercial transaction that does not alter the underlying liability or affect the borrower's fundamental rights, as the assignee assumes the status of the secured creditor. (Para 25 )
8. What is the threshold for challenging the validity of a debt assignment on the ground of a lack of valid NPA classification?
While RBI Master Circulars and pandemic moratorium rules govern the timing of NPA classification, the court may bypass technical disputes regarding the exact date of classification if doing so is necessary to balance equity and settle a prolonged multi-forum debt dispute between the parties. (Para 40 , 42 )
JUDGMENT
V. MOHANA, J.
1. Leave Granted.
2. The present Appeals arise out of a common judgment and order dated 25.07.2024 passed by the Division Bench of the Calcutta High Court in APO No.180 of 2023 and APOT No.393 of 2023 filed by the Respondents herein.
3. The Appellant, a borrower of the consortium of banks led by the Respondent No.1, had challenged the classification of its loan account as a Non-Performing Asset and its subsequent assignment by Respondent No.1 in favour of the Respondent No.2 which is an asset reconstruction company.
4. The Appellant is engaged in the business of manufacturing sponge iron, pig iron and allied products. It availed various credit facilities including cash credit, term loans and letters of credit from a consortium of banks led by Respondent No.1. The credit facilities were secured by hypothecation of the Appellant’s current assets, ranking pari passu with the other consortium banks and of its plant and machinery; by equitable mortgages, also ranking pari passu over its factory land and buildings and over leasehold factory land and commercial plots owned by two group companies; and by the personal guarantees of five of its promoters and the corporate guarantees of those two companies.
5. The Respondent No.1, by letters dated 18.01.2019 and 17.03.2020, informed the Appellant of the devolvement of bills under foreign and domestic letters of credit and requested the debtor to regularise its loan account and submit a cash budget covering at least until June, 2020. By letter dated 17.01.2020, the Appellant informed the Respondent No.1 of its inability to pay the dues and undertook to regularise the account by 22.01.2020. Thereafter, the Appellant submitted resolution plans to the Respondent No.1 including the revised plan dated 11.06.2020 in which it acknowledged that as against a sanctioned limit of Rs.155 crores, the outstanding cash credit was Rs.278.56 crores as on 31.03.2020 and which became Rs.302 crores as on 06.06.2020. The Appellant attributed its default to several factors including the COVID-19 pandemic, and relied upon three circulars dated 27.03.2020, 17.04.2020 and 23.05.2020 issued by the Reserve Bank of India (for short the “RBI”) under which the RBI extended the moratorium on repayment up to 31.08.2020. By a letter dated 15.09.2020, the Respondent No.1 revised the term loan repayment schedule, fixing the first instalment on 30.09.2020. The Appellant, thereafter, paid Rs.21,07,157/- on 01.11.2020 and Rs.80 lakhs on 11.12.2020.
6. By a letter dated 05.04.2021, Respondent No.1 informed the Appellant that its account had been irregular since 17.01.2020; that the Supreme Court vide judgment dated 23.03.2021 in Small Scale Industrial Manufacturers Association v. Union of India, (2021) 8 SCC 511 had lifted the blanket ban on classification of accounts as NPA; and that the account of the Appellant had been classified as NPA on 31.03.2021 with effect from 16.10.2020. The letter also sets out the dues of the Appellant as Rs.310.46 crores in the cash credit account and seven working capital loan accounts, Rs.16 crores in the term loan account and Rs.27.05 crores in four funded interest term loan accounts. The Respondent No.1 demanded that the Appellant should clear the overdues or submit a comprehensive resolution plan.
7. On 17.01.2022, the Respondent No.1 issued a recall notice demanding Rs.341 crores by way of principal along with accrued interest and other charges from the Appellant. The Respondent No.1 also approached the Debts Recovery Tribunal-I, Kolkata, by instituting OA No.260 of 2022 under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 to recover a sum of Rs.396,36,17,844.
8. In the meantime, the Respondent No.1 also filed a petition under Section 7 of the Insolvency and Bankruptcy Code, 2016 (for short the “IBC”) before the National Company Law Tribunal, Kolkata (for short the “NCLT”) seeking initiation of corporate insolvency resolution process against the Appellant (for sh
