SARFAESI NPA Classification: judicial review can lie at the Section 13(2) stage if the borrower challenges the account classification.

A borrower may invoke judicial review at the Section 13(2) stage of SARFAESI where the challenge goes to the very basis of the secured creditor's action, including the classification of the account as a non-performing asset. The creditor must show that NPA classification is based on objective RBI norms and must consider the borrower's objections by a reasoned decision; a bare assertion that the account was classified as NPA is insufficient. The framework does not support a rigid "once an NPA, always an NPA" approach, and subsequent payments may be relevant to upgradation. The creditor was therefore required to reconsider the objections afresh and communicate a reasoned decision.

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Issues: (i) Whether a writ petition is maintainable to challenge a notice issued under Section 13(2) of the SARFAESI Act when the borrower disputes the classification of the account as a non-performing asset and no measure under Section 13(4) has yet been taken. (ii) Whether the bank complied with the RBI prudential norms and the duty to consider the borrower's objections by a reasoned decision.

Issue (i): Whether a writ petition is maintainable to challenge a notice issued under Section 13(2) of the SARFAESI Act when the borrower disputes the classification of the account as a non-performing asset and no measure under Section 13(4) has yet been taken.

Analysis: The jurisdiction to issue notice under Section 13(2) arises only when the borrower's account is classified as a non-performing asset in accordance with the statutory definition and the RBI guidelines. Since the challenge went to the very foundation of the secured creditor's action, the borrower was not relegated to the remedy under Section 17 in the absence of measures under Section 13(4). The availability of internal consideration under the Act did not exclude judicial review where the classification itself was specifically questioned and the bank's reply did not disclose any meaningful examination of the objection.

Conclusion: The writ petition was maintainable, and the borrower could invoke judicial review at the stage of the Section 13(2) notice.

Issue (ii): Whether the bank complied with the RBI prudential norms and the duty to consider the borrower's objections by a reasoned decision.

Analysis: The prudential norms require classification of an account as NPA only on objective criteria and oblige the secured creditor to consider objections and communicate reasons for rejecting them. The bank's reply merely asserted that the account had been classified as NPA without explaining how the classification satisfied the applicable norms or why the borrower's objections were unacceptable. The Court also noted that subsequent payments could bear on upgradation of the account and that the "once an NPA, always an NPA" approach was impermissible in light of the RBI framework.

Conclusion: The bank had not shown due compliance with the RBI norms or with the obligation to pass a reasoned order on the borrower's objections.

Final Conclusion: The bank was directed to reconsider the borrower's objections afresh by a reasoned order and communicate its decision, leaving the borrower at liberty to pursue remedies thereafter.

Ratio Decidendi: Where the borrower specifically challenges the classification of its account as NPA, and the bank does not demonstrate meaningful application of mind to the objections under the RBI framework, judicial review is available at the Section 13(2) stage and the creditor must issue a reasoned decision on the objections.

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