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RAJASTHAN HIGH COURT BENCH AT JAIPUR
Sanjeev Prakash Sharma, J.
Shiv Shanti Tubesmart Private Limited & Ors. - Appellants
Versus
Punjab National Bank & Ors. - Respondents
S.B. Civil Writ Petition No. 7068/2021
Decided On : 10-08-2021
NPA - Directors' Liability - SARFAESI Act - Sections 13(2) - The court interpreted the provisions regarding the declaration of accounts as Non-Performing Assets (NPA) during the moratorium period, emphasizing that such declarations should not occur until after the specified dates and conditions were met.
Fact of the Case:
The petitioner, a director of a company, challenged the declaration of their accounts as NPA by a bank during the COVID-19 pandemic, arguing that a moratorium was in place preventing such actions.
Finding of the Court:
The court found that the bank could not declare the accounts as NPA during the moratorium period and that the relevant timelines for declaring NPA should be adjusted accordingly.
Issues: Whether the bank could declare the petitioners' accounts as NPA during the moratorium period and the applicability of the SARFAESI Act provisions in this context.
Ratio Decidendi: The court held that the declaration of accounts as NPA must adhere to the timelines established by the Supreme Court, particularly during the moratorium period.
Result: The court stayed the declaration of the petitioners' accounts as NPA until further orders.
JUDGMENT
Learned counsel relies on the interim order passed by this Court in SBCWP No.8186/2021 Navratan Fashions and Agencies Pvt. Ltd. v. Au Small Finance Bank Ltd & Anr. which reads as under:-
"Learned counsel for the petitioners submits that the Supreme Court in Small Scale Industrial Manufactures Association v. Union of India (UOI) & Ors., Writ Petition No.476/2020 along with connected matters, decided vide order dated 23.03.2021 has vacated the interim relief granted earlier not to declare the accounts of borrowers as NPA. While deciding the case on 23.03.2021, learned counsel submits that earlier in Gajendra Sharma v. Union of India & Anr., the Supreme Court vide its order dated 03.09.2020 directed that the accounts which were not declared NPA till 31.08.2020 shall not be declared NPA till further orders.
Learned counsel submits that the Supreme Court also granted Moratorium during Pandemic period from March 2020 upto 31.08.2020 and further on 10.09.2020 observed relating to charging of compound interest and credit rating/downgrading facility during Moratorium Period. Learned counsel submits that in view of earlier orders, the Bank could not have declared the accounts of the petitioners as NPA till passing of the order dated 23.03.2021 as there was a Moratorium. Even thereafter, the Supreme Court has now passed an order on 23.03.2021. It is submitted that the rule relating to NPA to declare NPA of the borrowers shall have effect from 23.03.2021 only and if the borrowers' accounts become NPA after 90 days then alone the Bank or the Financial Institution would declare the account as NPA as it had not declared the petitioners' accounts as NPA, immediately on the judgment having been passed on 23.03.2021. The financial institution could not have declared the petitioners' accounts as NPA on the next date nor proceedings under Section 13(2) of the SARFAESI Act could have been issued on the said basis. Learned counsel submits that the period from 01.03.2020 upto 31.08.2020 has to be excluded and as the petitioners' accounts were not declared NPA as on 31.08.2020, the subsequent period from 31.08.2020 upto 23.03.2021 has to be also unnecessarily excluded for the purpose of declaring the accounts as NPA and the period of 90 days has to be now counted from 23.03.2021.
The matter requires to be considered and examined.
Issue notice on the writ petition as well as stay application, returnable within four weeks. Notices be given 'dasti', as prayed.
In the meanwhile and till further orders, the effect and operation of order dated 27th March, 2021 shall remain stayed and the petitioners' accounts shall not be treated as NPA. The petitioners would be free to deposit the loan installments as being paid prior to March 2020."
Issue notice of the writ petition as well as stay application, returnable within six weeks.
In the meanwhile, and till further orders, the effect and operation of the pre- possession intimation notice dt. 12.07.2021 and notice dated 06.04.2021 under Section 13(2) of SARFAESI Act, 2002 shall remain stayed."
Issue notice of the writ petition as well as stay application, returnable within six weeks.
In the meanwhile and till further orders, the effect and operation of notice dated 22.04.2021 shall remain stayed.
The court established that accounts cannot be declared NPA during the moratorium period as per the Supreme Court's directives.
The impact of the Covid-19 pandemic, the interim orders of the Supreme Court, and the moratorium period influenced the court's decision to grant a stay on the declaration of NPA accounts.
The High Court should not adjudicate on the classification of NPA, and recovery proceedings should not be halted by exercising power under Article 226 of the Constitution of India.
Classification of an account as NPA under SARFAESI Act is not subject to judicial review and requires the borrower to seek recourse through statutory appeal under Section 17.
Borrowers have remedies under Section 13(3A) and Section 17 of the SARFAESI Act, 2002 to challenge NPA classification and appeal actions taken by the bank.
The court's discretionary jurisdiction under Article 226 is not absolute and should be exercised judiciously.
The legislative intent to prevent judicial or quasi-judicial intervention at the stage of issuance of demand notice under Section 13(2) of the SARFAESI Act.
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