The classification of loan accounts as NPAs must adhere to established guidelines, and acceptance of payments by the bank can support claims for renewal of credit facilities.

JUDGMENT

W.P.(C) No.14703 of 2025 is taken as the lead case, and the documents in the said case are being referred to in the judgment.

2. The petitioner had availed a Kissan Cash Credit limit (KCC) of Rs.30,00,000/- from the 3^rd respondent Bank through Ext.P1 on 25.09.2017. Ext.P1 stipulates that the Crop Loan Limit (KCC) has been assessed for 5 years, with a 10% increase in the assessed limit for the first year, and a 10% increase in the limit for the second, third, fourth, and fifth years and the same will undergo a change in case of a change in the Scale of Finance (SoF), area under cultivation, or change in cropping pattern/variety/method. It is specifically stated that the KCC limit is valid for 5 years, subject to annual review. In the other writ petitions also, the petitioners had availed similar loans for Rs. 30,00,000/-.

3. The petitioners are aggrieved by the classification of the account as Non-Performing Assets (NPA), alleging that the same violates the Master Circular issued by the Reserve Bank of India on 1^st April, 2025. Specific reference is made in Clause 2.2 of the said Circular, which deals with the treatment of accounts as NPAs:-

“2.2 Treatment of Accounts as NPAs:

2.2.1 Record of Recovery:

(i)The treatment of an asset as NPA should be based on the record of recovery. Banks should not treat an advance as NPA merely due to existence of some deficiencies which are temporary in nature such as non-availability of adequate drawing power, balance outstanding exceeding the limit, non-submission of stock statements and the non-renewal of the limits on the due date, etc. Where there is a threat of loss, or the recoverability of the advances is in doubt, the asset should be treated as NPA.

(ii) A credit facility should be treated as NPA as per norms given in paragraph

2.1 above. However, where entire overdues pertaining to all the credit facilities availed by a borrower from a given bank have Baan regularised by repayment through genuine sources (not by sanction of additional facilities or transfer of funds between accounts), the accounts may be upgraded to 'standard' asset category. In such cases, it should, however, be ensured that the accounts remain in order subsequently and a solitary credit entry made in an account on or before the balance sheet date which extinguishes the overdue amount of interest or installment of principal is not reckoned as the sole criteria for treatment of the account as a standard.”

4. The learned counsel for the petitioners contends that the KCC limits were renewed, and the same is seen from the entry in the statement of account, which shows payment of stamp charges for renewal. It is also pointed out that the interest was paid and accepted by the Bank, even after the expiry of the original sanction of the facility. Thus, contending that the classification of the account as NPA is against the Master Circular , the Writ Petitions are filed.

5. A statement has been filed on behalf of the respondent inter alia Bank contending that there was no renewal after the 5 years, and despite reminders being sent to the petitioners, the KCC accounts were not renewed. It is also submitted that, though the period of the facility ended in 2022, the accounts were classified as NPA only in 2024.

6. In view of the above contentions, this Court had passed the following order on 7^th July, 2025:-

In all these writ petitions, the contention raised by the learned counsel for the petitioners is that the bank has no right to declare the loan account as NPA, as the same is against the Master Circular issued by the Reserve Bank of India on 01.04.2025.

2. The learned counsel for the respondent ba