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Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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AI Drafter - (New and Powerful) ✕ Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter.
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Issues: Whether the secured creditor was justified in classifying the borrowers' accounts as non-performing assets and issuing notice under section 13(2), and whether the impugned action was arbitrary for non-compliance with the Reserve Bank of India guidelines.
Analysis: Under section 13(2) of the SARFAESI Act, the bank's right to proceed arises only when there is a default and the account has been classified as a non-performing asset. The Court held that such classification is not to be made mechanically and must be in accordance with the Reserve Bank of India's asset classification guidelines, which require transparency and an internal decision-making process for resolving doubts in classification. The materials showed substantial overdue liabilities, prolonged non-payment, and absence of income from the accounts for the relevant period. The petitioners' assurances to make future payments did not alter the fact that the accounts had already crossed the threshold for classification as non-performing assets. The Court found no arbitrariness in the bank's decision.
Conclusion: The classification of the accounts as non-performing assets and the notice issued under section 13(2) were upheld, and the challenge failed.
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