2019 Supreme(P&H) 1395

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH
AJAY KUMAR MITTAL, MANJARI NEHRU KAUL, JJ.
Amar Alloys Pvt Limited (Regd) - Appellant
Versus
State Bank Of India - Respondent
Civil Writ Petition No. 16490 of 2018
Decided On : 17-05-2019

SARFAESI--Non-Performing Assets--Bank is required to issue notice and provide opportunity to rectify the loan account to the borrower before declaring its account as NPA--In absence of such notice/opportunity all consequential actions taken by bank are liable to be set aside
SARFAESI--Non-Performing Assets--An account which has some temporary deficiencies should not be classified as NPA
SARFAESI--Mere issuance of notice under S.13(2) does not confer right to borrower to approach Civil Court or DRT

Headnote:

(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, S.13(2)--Non-Performing Assets--Notice--Bank is required to issue notice and provide opportunity to rectify the loan account to the borrower before declaring its account as NPA--Demand notice and further proceedings under S.13 to be initiated thereafter--In absence of such notice/opportunity all consequential actions taken by bank are liable to be set aside--Not done in present case--Directed accordingly. (Para 24)

(B) Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, S.13 and S.17--Right of Borrower--Mere issuance of notice under S.13(2) does not confer right to borrower to approach Civil Court or DRT--It is only after non acceptance of representation/objection under S.13(3A) and action is taken by secured creditor under S.13(4) right occurs to the borrower aggrieved by any of the measure under S.13(4) to take recourse to the remedies under S.17 of the Act. (Para 9)

(C) Natural Justice--Principles of natural justice are required to be followed when a quasi judicial body engages in determining disputes between the parties or administrative action is taken which involves civil consequences.

(D) Banking Regulation Act, 1949, S.35-A--Non Performing Asset--Declaration of--The decision of the Bank before classifying an asset as NPA should be based on the record of recovery--An account which has some temporary deficiencies like non availability of adequate disbursing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non submission of stock statements and non-renewal of limits on the due date etc., should not be classified as NPA--Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002, S.13. (Para 20)

(E) Banking Regulation Act, 1949, S.35-A--Non Performing Asset--Declaration of--Loan account was running smoothly--Suddenly, the Bank informed the borrower that its account has been declared as NPA by the Statutory auditor and was directed to deposit the entire outstanding--Reasons given was that company was incurring loss from its core activity for which the Bank had financed; the petitioner company was misusing the capital advanced to earn interests which was not directly related to the manufacturing activity of the company--The petitioner was not afforded any opportunity before reducing the disbursing power and declaring the account as NPA--Further, as per clauses 4.2.4 and 4.2.5 of the Master Circular dated 01.07.2015 issued by the RBI, the petitioner could remove the temporary deficiencies in the maintenance of account as standard and to upgrade the account so as to be out of NPA--In absence of notice before declaring loan as NPA all consequential action set aside. (Para 23)

(F) Banking Regulation Act, 1949--Cash Credit Limit--Alteration in loan facility--Change in drawing power--Before altering or reducing the disbursing power given to the borrower by the Bank, notice is required to be given--Held; due opportunity of hearing and explaining the factual position along with documentary proof is required to be given to the borrower to support his claim. (Para 10)

(G) Banking Regulation Act, 1949, S.35-A--Non Performing Asset--Declaration of--NPA account can be upgraded into standard account--Held; where the borrower expresses willingness for regularizing the loan account by discharging the arrears of interest and principal, the Bank/financial institutions are obligated to accept the same as per mandate expressed in the Master Circular dated 01.07.2015 issued by the Reserve Bank of India in exercise of powers under the 1949 Act and declare the account to be 'Standard' account. (Para 20)

(H) Banking and Regulation Act, 1949, S.35-A--Non Performing Asset--Declaration of--Up gradation to Standard Account--To have an account upgraded from an NPA to a standard account, it is not necessary that the entire amounts due from the borrower to a creditor are paid in full--It is sufficient if the amounts due at the material time towards principal and interest are paid. (Para 22)

This is clear from the opening words of the first sentence of Clause 4.2.5 of the Master Circular - "If arrears of interest and principal are paid by the borrower .... .... ...". These words clearly indicate that payment of the amounts due at a particular point of time towards interest and principal is sufficient for the account not to be treated any longer as an NPA and to have the same classified as a standard account. If it were otherwise, the clause would have been worded entirely differently. It would have required the borrower to pay all the dues of the lender. Indeed, in that event, there would be no question of reclassifying the account from an NPA to a standard account for upon repayment the account would stand closed. Clause 4.2.5 contemplates the continuation of the accounts and not the closure thereof."