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2023 Supreme(Cal) 853
IN THE HIGH COURT AT CALCUTTA
SABYASACHI BHATTACHARYYA, J.
M/s. Olive Tree Retail Private Limited and Another – Petitioners
Versus
South India Bank Limited and Another – Respondents
WPA No. 16875 of 2023
Decided On : 17-08-2023
Advocate Appeared:
For the Petitioners: Deepan Kumar Sarkar, Ashika Daga, Arti Bhattacharya.
For the Respondents: Siddhartha Banerjee, Avishek Guha, Akansha Chopra.
Clause 4 of the RBI's Resolution Framework 2.0 permits a one-time review for borrowers who have availed of restructuring under previous circulars, and such review must be conducted on merits, taking into account the then-prevailing business conditions and other relevant factors.
Headnote:
SARFAESI ACT - NPA CLASSIFICATION - ONE-TIME REVIEW - RBI RESOLUTION FRAMEWORK 2.0 - INTERPRETATION AND APPLICATION: A small enterprise's request for a one-time rescheduling of loan under Clause 4 of RBI's Resolution Framework 2.0 cannot be rejected solely on the ground of previous restructuring under Clause 2. The Bank must consider the request on merits, taking into account the then-prevailing business conditions and other relevant factors.
Fact of the Case:
The petitioner, a small enterprise, sought a one-time rescheduling of its loan from the respondent bank, which was rejected on the ground that the petitioner had already availed of a previous restructuring. The petitioner challenged the rejection, arguing that Clause 4 of the RBI's Resolution Framework 2.0 permits a one-time review even for borrowers who have availed of restructuring under previous circulars.
Finding of the Court:
The court held that Clause 4 of the Resolution Framework 2.0 stands on an independent footing and permits a one-time review irrespective of whether the borrower has availed of Clause 2 benefits previously. The court found that the Bank had erred in rejecting the petitioner's request solely on the ground of previous restructuring, without considering the merits of the request and the then-prevailing business conditions.
Issues: 1. Whether Clause 4 of the RBI's Resolution Framework 2.0 permits a one-time review for borrowers who have availed of restructuring under previous circulars. 2. Whether the Bank's rejection of the petitioner's request for one-time rescheduling was justified.
Ratio Decidendi: 1. Clause 4 of the Resolution Framework 2.0 must be read in conjunction with Clause 2 and not in isolation. 2. Clause 4 permits a one-time review even for borrowers who have availed of restructuring under previous circulars, without any bar. 3. The Bank's rejection of the petitioner's request for one-time rescheduling solely on the ground of previous restructuring, without considering the merits of the request and the then-prevailing business conditions, was erroneous and contrary to the provisions of Clause 4.
Final Decision: The court quashed the Bank's rejection of the petitioner's one-time review request and directed the Bank to reconsider the request afresh, adhering to the factors stipulated in Clause 4 of the Resolution Framework 2.0 and the observations made in the order. The court also kept the NPA classification of the petitioner's account on hold, subject to the Bank's decision on the review request.
JUDGMENT :
SABYASACHI BHATTACHARYYA, J.
1. The petitioner no. 1-Company carries on the business of manufacturing and retailing of apparel and handloom and handicraft of West Bengal and is a small enterprise within the meaning of the Micro, Small and Medium Enterprises Development Act, 2006 (MSME).
2. The petitioner had taken various loans from the respondent no. 1-Bank and serviced those till a considerable time into the Pandemic.
3. Subsequently, the petitioner also obtained a restructuring of loans from the respondent no. 1-Bank.
4. Thereafter, allegedly being in financial doldrums due to downturn of trade and demonetization, the petitioner no. 1 approached the Bank for a further one-time rescheduling, not amounting to restructure.
5. The same was not allowed and the petitioners’ accounts were classified as NPA (Non-Performing Asset) on November 29, 2021, which was informed to the petitioners by a communication dated November 30, 2021.
6. Pursuant to such classification, a notice under Section 13(2) of the SARFAESI Act, 2002 was issued on April 27, 2022 to the petitioners.
7. The petitioners approached this Court in a writ petition which was decided on January 19, 2023, setting aside the notice under Section 13(2) as well as restraining the respondent-Bank from acting upon its communication of NPA classification dated November 30, 2021. The respondent no. 1-Bank was directed to reconsider the petitioners’ request for one-time rescheduling of the loan.
8. Thereafter the request was rejected again by the respondent no. 1- Bank on April 10, 2023. It is alleged by the petitioners that the sole ground of rejection was that the petitioner had already availed of a previous restructuring of loan, which ground was specifically negated and turned down by the co-ordinate Bench in its order dated January 19, 2023. Hence, it is argued that the said rejection is contrary to the previous order of the learned Single Judge.
9. On May 10, 2023, a fresh notice was issued under Section 13(2), which prompted the petitioner to move the present writ petition, challenging the fresh notice under Section 13(2) as well as the rejection of the petitioners’ request for rescheduling the loan.
10. Learned counsel for the petitioner contends that the purpose of rescheduling as contemplated in the Reserve Bank of India Circulars is to give a second chance to the small scale industries to repay their loans. It is argued that in the event a rescheduling is granted, it would enure to the benefit of both the petitioners, who can revive their business and repay the loans, and the Bank, which will, otherwise, have to undergo a lengthy process to recover the dues.
11. The petitioners, it is submitted, agreeable to sell their Delhi flat for the purpose of repaying the loan. However, such request has been turned down by the respondent no. 1-Bank, disabling the petitioners from repaying their loan.
12. It is argued that the rejection of the request for one-time review is contrary to Clause 4 of the Resolution Framework 2.0 issued by the RBI, on which the petitioner relies. Clause 4 clearly envisages that, irrespective of having obtained a prior restructuring, an applicant is entitled to apply for a one-time review under Clause 4.
13. Clause 2 of the Framework, it is argued, is to be read in conjunction with Clause 4, which has not been done by the respondent-Bank.
14. It is further argued that the learned Single Judge, while passing the order dated January 19, 2023, had, in effect, set aside the NPA classification of the petitioners’ account. As such, the entire exercise of rejection of the petitioners’ request for review as well as the issuance of Section 13(2) notice afresh is bad in law.
15. Learned counsel for the respondent no. 1-Bank refutes the argument that the learned Single Judge, vide Order dated January 19, 2023, had set aside the NPA classification.
16. It is submitted that, by the said order, only the communication of the NPA classification by the letter dated November
