2024 Supreme(Online)(DEL) 18929
HIGH COURT OF DELHI
Mini Pushkarna, J
LALIT POLYPLAST PRIVATE LIMITED & ANR. – Appellant
Versus
BANK OF BARODA & ORS. – Respondent
W.P.(C) 4528/2024
Advocates:
PULKIT PRAKASH
The classification of accounts as Non-Performing Assets must adhere to the 90-day period mandated by RBI guidelines, and the jurisdiction of civil courts is excluded in matters under the DRT.
Headnote:(A) Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - Section 13(2) - Classification of accounts as Non-Performing Asset (NPA) - The petitioner contended that the account was declared NPA without waiting for the requisite 90 days period as mandated by the Reserve Bank of India’s Master Circular dated 08th May, 2023. The court noted that the account was classified as NPA on 15th December, 2021, and the petitioner had made payments that upgraded the account status, but it was later downgraded to NPA again on 18th October, 2022, within 48 days. The court emphasized that the classification of accounts must adhere to the RBI guidelines, which stipulate that an account can only be declared NPA after 90 days of non-payment. (Paras 4, 5, 9, 29)
(B) Jurisdiction of DRT - The court reiterated that the jurisdiction of civil courts is excluded in matters where the DRT or DRAT have jurisdiction. (Paras 32)
(C) Interim Relief - The court granted liberty to the petitioners to approach the respondent-bank with proposals for payment, which the bank is directed to consider on merits. (Paras 33, 34)
Facts of the case:
The petitioners challenged the DRT's order declaring their account as NPA before the expiry of the 90-day period, arguing that the account had been upgraded after payments were made.
Findings of Court:
The DRT's finding that the account was declared NPA after the requisite period was upheld, and the petitioners were allowed to propose a payment plan to the bank.
Issues: The main issues were whether the account was declared NPA before the expiry of the 90-day period and the jurisdiction of the DRT.
Ratio Decidendi: The court ruled that the classification of accounts must follow RBI guidelines, and the DRT's findings were supported by the evidence on record.
Result: Petition disposed of with directions.
ORDER
% 27.03.2024 CM APPL. 18582/2024, CM APPL. 18583/2024 (For Exemptions)
1. Exemptions allowed, subject to just exceptions.
2. Applications are disposed of.
W.P.(C) 4528/2024 & CM APPL. 18581/2024
3. The present petition has been filed by the petitioners impugning the interim order dated 16th February, 2024 passed by the learned Debt Recovery Tribunal-02, Delhi (“DRT”), in Securitization Application No.
42/2024 filed under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”).
4. Learned counsel appearing for the petitioner submits that the account of the petitioner has been declared as Non Performing Asset (“NPA”)
without waiting for the expiry of the requisite 90 days period in terms of the Master Circular-Income Recognition, Asset Classification and Provisioning and other related matters-UCBs dated 08th May, 2023 issued by the Reserve Bank of India (“RBI”).
5. Learned counsel appearing for the petitioner submits that an account will be declared as NPA only if payments are not made for a period of 90 days, after issuance of notice under Section 13(2) of the SARFAESI Act. It is submitted that in the interim period before the expiry of 90 days, the account is classified as Special Mention Account (“SMA”) in terms of the aforesaid Circular issued by the RBI.
6. Attention of this Court has been drawn to Clause 2.1.6 of the aforesaid Circular of the RBI dated 08th May, 2023, which is reproduced as under:-
“2.1.6 Classification as Special Mention Account (SMA) and Reporting of Large Exposures to Central Repository of Information on Large Credits (CRILC)-UCBs SMA is an account which is exhibiting signs of incipient stress resulting in the borrower defaulting in timely servicing of her debt obligations, though the account has not yet been classified as NPA. As early recognition of such accounts enables banks to initiate timely remedial actions to prevent their potential slippages into NPAs, all UCBs shall classify loans/advances accounts as SMA, as under:
SMA Sub-categories Basis for classification Principal of interest payment or any other amount wholly or partially overdue for SMA-0 Up to 30 days SMA-1 More than 30 days and up to 60 days SMA-2 More than 60 days and up to 90 days In case of revolving credit facilities like cash credit, the SMA sub- categories will be as follows:
SMA Sub-categories Basis for classification Outstanding balance remains continuously in excess of the sanctioned limit or drawing power, whichever is lower, for a period of SMA-1 More than 30 days and up to 60 days SMA-2 More than 60 days and up to 90 days (ii) The above-mentioned instructions on classification of borrower accounts into SMA categories are applicable for all loans, including retail loans, other that agricultural advances governed by crop season-based asset classification norms, irrespective of size of exposures.
(iii) Primary (Urban) Co-operative Banks (UCBs) having total assets of ₹500 crore and above shall report credit information, including classification of an account as Special Mention Account (SMA), on all borrowers having aggregate exposures of ₹5 crore and above with them to Central Repository of Information on Large Credits (CRILC) maintained by the Reserve Bank. Aggregate exposure shall include all fund-based and non-fund based exposure, including investment exposure on the borrower.
(iv) UCBs having total assets of ₹500 crore and above are required to submit CRILC Report on quarterly basis with effect from December 31, 2019. Detailed operating instructions have been issued vide circular DoS. OSMOS No.
4633/33.05.018/2019-20 dated January 16, 2020 on ‘Reporting of Large Exposures to Central Repository of Information on Large Credits (CRILC)-UCBs’ by the Department of Supervision, Reserve Bank of India. (v) UCBs should take utmost care about date accuracy and integrity while submitting the information/date on large credit to RBI, failing wh
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