2009 (9) TMI 1027 - HC - Companies Law

Court orders bank to reconsider objections on NPA classification under SARFAESI Act

Sravan Dall Mill P. Limited rep. by its Managing Director Versus Central Bank of India rep. by its Chief Manager, Corporate Finance Branch and Anr.

The court found the petitioner's writ petition maintainable under Article 226 due to the serious consequences of classifying the account as a ... - Issues Involved:1. Maintainability of the writ petition under Article 226 challenging the notice under Section 13(2) of the SARFAESI Act.2. Justification of the respondent bank in classifying the petitioner's account as a Non-Performing Asset (NPA) under the Prudential Norms of the Reserve Bank of India (RBI).Issue-Wise Detailed Analysis:1. Maintainability of the Writ Petition under Article 226:The court addressed whether the petitioner could challenge the notice under Section 13(2) of the SARFAESI Act through a writ petition. The court noted that the invocation of jurisdiction under the SARFAESI Act is contingent upon the classification of the account as an NPA. Section 13(2) of the SARFAESI Act stipulates that a secured creditor can issue a notice demanding repayment if the borrower's account is classified as an NPA. The classification must be in accordance with RBI guidelines. The court emphasized that the classification of an account as an NPA leads to serious consequences, including the invocation of the SARFAESI Act, and thus, judicial review under Article 226 is permissible. The court also referenced Section 13(3A) of the SARFAESI Act, which mandates that the secured creditor must communicate reasons for non-acceptance of the borrower's objections to the notice under Section 13(2). Since measures under Section 13(4) had not been taken, the borrower could not seek relief under Section 17 of the SARFAESI Act, making judicial review the only available remedy.2. Justification of the Respondent Bank in Classifying the Petitioner's Account as NPA:The petitioner argued that the classification of its account as an NPA was unjustified and not in accordance with the Prudential Norms issued by the RBI. The petitioner highlighted that the account was regular in repayments and any default was due to temporary cash constraints. The petitioner also contended that the subsequent payments made should have led to the upgradation of the account from NPA status. The court examined the Prudential Norms, which define an NPA as an account where the interest or principal remains overdue for more than 90 days. The court noted that the respondent bank's reply to the petitioner's objections lacked detailed reasoning and did not demonstrate the application of mind regarding the classification of the account as NPA. The court emphasized that the bank must provide a reasoned order considering the borrower's objections and the Prudential Norms. The court referenced the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India, which underscored the need for meaningful consideration of objections and communication of reasons for non-acceptance.Conclusion:The court concluded that the petitioner's writ petition was maintainable under Article 226, as the classification of the account as NPA and the subsequent invocation of the SARFAESI Act had serious consequences. The court found that the respondent bank had not adequately considered the petitioner's objections in line with the Prudential Norms and the guidelines issued by the RBI. The court directed the respondent bank to reconsider the petitioner's objections and provide a reasoned order. The petitioner was allowed to file supplementary objections, and the respondent bank was instructed to communicate its decision within six weeks. The writ petition was disposed of without costs.