By the Court.—Heard Sri Ajay Goyal, learned counsel for the petitioners and Sri Vinay Kumar Pandey, learned counsel for the respondent No. 1.

2. In view of the order proposed to be passed no notice is required to be issued to the respondent Nos. 2 and 3.

3. The above noted writ petition has been filed by the petitioners praying for quashing the possession notice dated 29.7.2017 issued by the respondent No. 2, under Section 13(4) read with Rule 8 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘SARFAESI Act, 2002’).

4. The petitioners have assailed the notice on the ground that the account of the petitioners has been wrongly classified as Non-Performing Asset (NPA) without following the RBI guidelines. No notice was issued by the respondent No. 2, before classifying their account as NPA. Second argument raised is that the proceedings regarding the same subject-matter of dispute is also pending before the arbitrator, respondent No. 3, in view of the agreement between the parties to that effect, therefore, proceedings under SARFAESI Act, 2002 are illegal.

5. The first submission of the counsel for the petitioners is that they were required to be given notice by the respondent No. 2 before classifying their account as NPA. The argument has been re-enforced by relying upon the judgment of this Court in the case of “Rita Bagga and others v. Union of India and others, 2015(5) ADJ 55”.

6. The learned counsel for the petitioners has not able to point out any paragraph of the aforesaid judgment which directs that the bank/financial institution is required to give prior notice to the borrowers, before classifying an account as, NPA. A perusal of the judgments cited at the bar shows that no such direction/observation is recorded therein.

7. The provisions of the SARFAESI Act, 2002 define Non-Performing Assets vide Section 1 (o), which are as follows :

(o) “non-performing asset” means an asset of account of a borrower, which has been classified by a bank or financial institution as sub-standard, [doubtful or loss asset,-

(a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body;

(b) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank];

8. In the case of “Mardia Chemicals Limited v. Union Bank of India, 2004 136 TAXMAN 360 SC”, a question was raised before the Supreme Court that the categorization of an asset as NPA was based on whims of the bank, in answer, the Supreme Court held:

“Next we come to the question as to whether it is on whims and fancies of the financial institution to classify the assets as non-performing assets, as canvassed before us. We find it not to be so. As a matter of fact, a policy has been laid down by the Reserve Bank of India providing guidelines in the matter for declaring an asset to be a non-performing asset known as “RBI’s prudential norms on income recognition, asset classification and provisions-pertaining to advances through a Circular dated August 30, 2001.”

Clearly, the Apex Court was influenced by the fact that the categorization of an asset as non-performing asset was based on the guidelines of the RBI.

9. The classification of the NPA as per the aforesaid meaning has to be in accordance with the directions or guidelines relating to the asset classification issued by the RBI. In this regard, RBI has issued a master circular known as “Master Circular-Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances”, which was revised on 1.7.2014. Certain provisions of these guidelines are extracted hereunder:

“Definitions:

2.1 Non Performing Assets

2.1.1 An asset, inclu