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) stage is reached, and the borrower must avail the remedy under Section 17 of the Act, 2002. The classification of an account as NPA and the measures taken by banks/financial institutions under the Act, 2002 are not justiciable in a writ petition under Article 226 of the Constitution of India.

ORDER:

[P. Naveen Rao, J.]

1. Heard Sri Raja Sripathi Rao, learned counsel appearing for Sri V.Murali Manohar learned counsel for petitioner and Sri Many Gecil Thomas learned counsel for third respondent bank.

2. Petitioner is a Micro, Small and Medium Enterprise (MSME) unit. It has availed credit facility from Syndicate Bank, which was later merged with Canara Bank and defaulted in repayment. The third respondent bank declared the loan account of petitioner as a non-performing asset (NPA) and has taken recourse to measures prescribed by the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short, ‘Act, 2002’) to recover the loan. It has issued demand notices on 3.5.2021, 16.7.2021, 18.10.2021 and 15.2.2022 under Section 13(2) of the Act, 2002. It has issued possession notice on 4.5.2022. On 6.8.2022 third respondent bank issued sale notice proposing to conduct e-auction of the secured assets on 9.9.2022 fixing the reserve price as Rs. 20.04 crores. After issuance of sale notice, there was correspondence to settle the loan account for One Time Settlement (OTS). It appears, after due deliberations, petitioner submitted fresh OTS proposal for Rs. 23.55 crores vide letter dated 16.8.2022 and vide letter dated 22.8.2022 requested the respondent bank to recall the sale notice dated 6.8.2022. Alleging that no further action in the matter is taken by the bank but proceeding to conduct e-auction, this writ petition is filed. Petitioner sought omnibus prayer touching upon account being declared as NPA, rejection of OTS, not extending the benefit of GECL/ECGL, violation of Reserve Bank of India (RBI) guidelines and conducting e-auction to sell secured assets.

3. Extensive submissions are made by learned counsel for petitioner and learned counsel for third respondent bank touching upon various aspects of reliefs sought in the writ petition. However, against measures initiated by the third respondent bank under Act, 2002, leading to conducting e-auction to sell secured assets, Section 17 of the Act, 2002 provides remedy before the Debts Recovery Tribunal. As Court noticed that this writ petition is filed directly under Article 226 of the Constitution of India without availing the remedy under Section 17 of the Act, 2002, the submissions of learned counsel are considered on the aspect of maintainability of the writ petition only.

4. Learned counsel for petitioner vehemently contended that the third respondent bank erroneously classified the petitioner’s account as NPA. It is an MSME unit. Having regard to spread of Covid-19 virus impacting over all business and development activity, petitioner’s activity also affected. Adding to this problem, several bills were pending with the Government causing hardship in meeting the loan commitments. He would submit that RBI guidelines required the third respondent bank to apply moratorium on interest on cash credit limits particularly to MSME units but the same was not extended. It has not extended additional loan facilities as required by Covid-19 protocols and its own norms. He would submit that as per RBI guidelines, he has a right to seek enforcement of these measures and if these measures were properly applied the petitioner account could not have been declared as NPA. He would submit that prayers A and B cannot be adjudicated by the Debts Recovery Tribunal and therefore he has no other efficacious remedy except to invoke the extra ordinary jurisdiction of this Court. He would submit that under Section 17 of the Act, 2002, the Tribunal can only go into the aspect whether the bank/financial institution has complied with the mandatory requirements of the Act, 2002 and therefore cannot go into the decision to declare the petitioner’s account as NPA. He would submit that petitioner’s account was standard account as on 31.3.2021 and therefore it cannot be classified as NPA.

4.1. Learned counsel relied on following decisions:

Bank of Baroda and ot