The discretion of the bank to declare a debt as a non-performing asset must be exercised judicially, and the bank must strictly follow the directions or guidelines issued by the Reserve Bank of India.

D. MURUGESAN, J.

1. Both the writ petitioners are the companies doing business in manufacture and export of readymade garments. The petitioner in W.P.No.5313 of 2010, viz. M/s.Signal Apparels Pvt. Ltd., commenced its production in the year 2002 and started availing credit facilities from Canara Bank, Tiruppur, the first respondent. According to the petitioner, it has good track record of banking with the first respondent-bank from 2002 till May, 2009. To the surprise of the petitioner, the respondent-bank, by its recall notice dated 312. 2009, informed the petitioner that the liability mentioned therein in their accounts were outstanding without any progress and therefore, the company was advised to clear the liabilities in full with up-to-date interest within fifteen days from the date of the said notice. The petitioner was further informed that in the event it failed to clear the liabilities on or before 15.01.2010, the respondent-bank would initiate appropriate steps for recovery including legal measures. Even before the time for payment, viz., 15.01.2010, was expired, the respondent-bank issued notice dated 04.01.2010 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, which is being challenged in this writ petition.

2. The petitioner in W.P.No.5314 of 2010, M/s.Signal Export, Tiruppur, commenced its production in the year 2007 and it began to avail credit facilities from the very same first respondent-bank and it also had good track record of banking till May 2009. The petitioner was issued with a recall notice dated 312. 2009 by the respondent-bank wherein the company had been directed to clear the liabilities on or before 15.01.2010. Even before the expiry of the time, the respondent-bank issued the impugned notice dated 04.01.2010 under Section 13(2) of the SARFAESI Act.

3. On receipt of the notices dated 04.01.2010, both the companies submitted their representations dated 02.03.2010 to the respondent-bank. M/s.Signal Apparels Pvt. Ltd., in their representation, has stated that even after the receipt of the recall notice dated 312. 2009, they had proposed to pay a sum of Rs.20 lakhs on or before 26.03.2010, a further payment of Rs.135 lakhs on or before 31.08.2010 and the balance payment in full and final settlement on or before 312. 2010. Similarly, M/s.Signal Export, in their representation, has stated that they proposed to settle a sum of Rs.5 lakhs on or before 8th March, 2010, a further sum of Rs.10 lakhs on or before 26.03.2010, a sum of Rs.15 lakhs on or before 31.08.2010 and the balance amount in full and final settlement on or before 31st December, 2010. In those representations, both the companies had specifically stated that they maintain their banking relationship by keeping a good track record and the enhanced limits sanctioned earlier were also renewed and extended from time to time. In spite of that, the respondent-bank had issued the impugned notices. In these circumstances, the companies had approached this Court questioning the notices issued under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred as the Act) as contrary to law on the grounds that the respondent-bank should not have invoked the default clause by issuing notice under Section 13(2), that the Reserve Bank guidelines to identify an account as a non-performing asset should have been followed and the petitioners should have been informed prior to the accounts being treated as non-performing assets.

4. We have heard Mr.R.Gowthama Narayanan, learned counsel appearing for the petitioners and Mr.V.Adhivarahan, learned counsel appearing for the first respondent-bank.

5. Both the writ petitions raise a substantial question of importance as to how an account in respect of a debt could be treated as a Non-Performing Asset (NPA) and the procedure to be adopted by the