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IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD
UJJAL BHUYAN, CHILLAKUR SUMALATHA, JJ.
M/s. Tandra Impex Pvt. Ltd. & another - Petitioners
Versus
Punjab National Bank & another - Respondents
W.P. No. 23268 of 2020
Decided On : 03-03-2022
NPA Classification - Loan Account - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) - Section 13(2) - Summary: The court considered the classification of the loan account as NPA and the demand notice issued under Section 13(2) of the SARFAESI Act. It emphasized the legislative intent to prevent judicial or quasi-judicial intervention at the stage of issuance of demand notice, and dismissed the writ petition as premature.
Fact of the Case:
The petitioners sought to quash the respondent's decision classifying their loan account as NPA and the demand notice issued under Section 13(2) of the SARFAESI Act. The petitioners defaulted in repayment due to the COVID-19 pandemic and subsequent lockdown. The court had granted interim stay on the demand notice.
Finding of the Court:
The court dismissed the writ petition as premature, emphasizing that no interference is called for at a stage prior to the secured creditor taking action under Section 13(4) of the SARFAESI Act. It highlighted the legislative intent to prevent judicial or quasi-judicial intervention at the stage of issuance of demand notice.
Issues: The issues revolved around the classification of the loan account as NPA and the demand notice issued under Section 13(2) of the SARFAESI Act, and the judicial review of the secured creditor's decision.
Ratio Decidendi: The court emphasized 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, and dismissed the writ petition as premature.
Final Decision: The writ petition was dismissed as premature, and the interim order passed earlier was vacated. No costs were awarded.
ORDER :
Ujjal Bhuyan, J.
Heard Mr. V. Murali Manohar, learned counsel for the petitioners and Mr. Muddu Vijay, learned counsel for the respondent.
2. By filing this writ petition under Article 226 of the Constitution of India, petitioners seek quashing of the decision of the respondent dated 31.03.2020 classifying the loan account of the petitioners as Non-Performing Asset (NPA) and further seek quashing of demand notice dated 31.07.2020 issued by the respondent under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (briefly referred to hereinafter as the ‘SARFAESI Act’).
3. It is stated that first petitioner is a company of which petitioner No.2 is a Director. Petitioner No.1 is a Micro, Small and Medium Enterprise (MSME) carrying on business of trading in stone and granite blocks. Petitioner No.1 had availed cash credit facilities from the respondent in September, 2019. Repayments were made in the form of installments and the last installment was paid on 29.02.2020. However, because of the outbreak of COVID-2019 pandemic and the resultant lock down, petitioner No.1 defaulted in repayment. Consequently, respondent classified the loan account of the petitioners as NPA on 31.03.2020 followed by issuance of the demand notice dated 31.07.2020 under Section 13(2) of the SARFAESI Act.
4. It was at that stage that the present writ petition came to be filed seeking the reliefs as indicated above. This Court by order dated 31.12.2020 had issued notice and granted stay. Relevant portion of the order dated 31.12.2020 reads as under :
A perusal of notice dated 31.07.2020 issued under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, goes to show that the account of petitioners was classified as NPA on 31.03.2020, which prima facie, appears to be against the guidelines issued by the Reserve Bank of India and also the specific assertion that the 1st petitioner has paid the last installment for a sum of Rs.9 lakhs on 29.02.2020.
In view of the above, there shall be interim stay for a period of four weeks.
Issue notice to the respondent.
Learned counsel for the petitioners is permitted to take out personal notice to the respondent by registered post with acknowledgment due and file proof of service.
List on 22.01.2021.”
5. From the above, it is seen that the impugned challenge has been made on the ground that respondent had not considered guidelines of the Reserve Bank of India (RBI) dated 01.11.2012 and 17.03.2016 while classifying the loan account of the petitioners as NPA. That apart, respondent had not considered the impact of the pandemic and the lock down on functioning of MSME sector and in this connection, would like to place reliance on guidelines of RBI dated 06.08.2020 regarding re-structuring of advances.
6. Respondent has filed counter affidavit wherein it is stated that cash credit limit of Rs.10 crores availed of by the petitioners from the respondent was last renewed on 27.03.2019. Denying that petitioners had paid the last installment on 29.02.2020, it is stated that interest charges for the period from 31.10.2019 to 29.02.2020 was for an amount of Rs.56.54 lakhs. Against the aforesaid amount, petitioners had deposited only a sum of Rs.24.55 lakhs. Account of the petitioners was continuously running overdue and irregular since September, 2019. Sanction limit of the account got lapsed on 26.03.2020. Therefore, the account of the petitioners was declared as NPA on 27.03.2020 looking into the previous irregularities as well as the o
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.
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.
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.
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.
The SARFAESI Act prevails over the MSME Act, and the classification of accounts as NPA is not justiciable at the stage of objection rejection under Section 13(3A).
The classification of loan accounts as NPAs and the subsequent actions taken by the bank are not justiciable at the writ stage, and the petitioners should avail the remedy under Section 17 of the SAR....
The statutory scheme of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Act, 2002) does not provide for a legal remedy until the Section 13(4....
Point of Law - Section 13 of the SARFAESI Act deals with enforcement of security interest. Sub-section (2) provides for issuance of notice by the secured creditor to the borrower for discharge of lia....
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