Non-performing asset classification under SARFAESI upheld as valid, with no excessive delegation or constitutional violation found.

Section 2(1)(o) of the SARFAESI Act, 2002, which defines a non-performing asset by reference to regulatory asset-classification norms, was upheld as a valid framework. The Court held that Parliament had laid down the policy and core statutory scheme, while the RBI was confined to operational details of classification; this was not excessive delegation. Applying the presumption of constitutionality, it found no arbitrariness or uncanalised discretion in the classification mechanism, and accepted that different regulatory treatment for financial institutions had a rational nexus with asset recovery and banking discipline. The RBI circular dated 1 July 2013 was also held consistent with the statutory definition and valid under Articles 14 and 19(1)(g).

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Issues: Whether Section 2(1)(o) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and the Reserve Bank of India circular dated 1 July 2013 were unconstitutional as violating Articles 14 and 19(1)(g) of the Constitution of India, and whether the provision involved excessive delegation of legislative power.

Analysis: The challenged provision defines non-performing asset by reference to classification as sub-standard, doubtful or loss asset under the regulatory guidelines applicable to the concerned bank or financial institution. The Court held that the legislature had laid down the policy and the statutory framework, while the regulator was only authorised to work out the operational details of asset classification. The RBI norms were treated as consistent with the statutory definition and as governing when an account would be classified as non-performing. Applying the presumption of constitutionality, the Court found no material to show that the classification was arbitrary or that banks were left with uncanalised discretion. The Court also held that the differentiation between regulatory regimes for different financial institutions had a rational nexus with the object of asset recovery and banking discipline.

Conclusion: Section 2(1)(o) of the Act and the RBI circular were held to be valid and not violative of Articles 14 or 19(1)(g); the plea of excessive delegation was rejected.

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