2021 (9) TMI 1459 - HC - Indian Laws

Court quashes bank's cancellation of restructuring, directs implementation of sanction letter.

The Court allowed the petition, quashing the respondent-Bank's actions to cancel the restructuring sanction letter and the subsequent notice under the ... Restructuring of financial assistance to MSME sector - Seeking direction to Respondent to implement the Restructuring Package already granted by the Respondent to the Petitioner No.1 - seeking direction to Respondent not to take any further action under the Securitisation Act and to maintain Status Quo in the matter against the Petitioners and the Properties in question. It is the case of the petitioners that though the respondent-Bank issued the sanctioned letter for restructuring on 30th March, 2021 as per the notice issued under Section 13(2) of the SARFAESI Act, the account was classified as NPA account as on 27th February, 2021. HELD THAT:- Having heard the learned advocates for the respective parties and considering the material on record as well as the provisions of the SARFAECI Act, it appears that the respondent-Bank has issued the sanctioned letter dated 30th March, 2021 permitting the restructuring of the existing facility provided to the petitioner No.1. As per the circular issued by the Reserved Bank of India on 6th August, 2020 which provides for restructuring of advances to MSME sector stipulates that the restructuring of the borrower account is required to be implemented by March 31, 2021 - On perusal of the Circular, it is clear that the respondent-Bank has issued the sanctioned leter on 30th March, 2021 which is prior to the last date i.e. March 31, 2021. The interpritation of the respondent-Bank therefore is not legal and tenable by interpriting the circular that the restructuring of the borrower account is to be implemented by March 31, 2021 means all the formalities are required to be completed by March 31, 2021. Once respondent-Bank has issued the sanction letter of March 30, 2021, it would mean that the restructuring of the borrower acount is implemented subject to the fulfilment of the terms and conditions of the sanction letter. It is apparent from the contents of the letter dated 06.07.2021, the respondent-Bank has not stated as to which of the terms and conditions as per the sanction letter of the restructuring is not fulfilled by the petitioners - In view of the facts and taking into consideration the fact about the issuance of the sanction letter dated 30th March, 2021 as well as considering the RBI circular dated 6th August, 2020, it cannot be said that the restructuring of the borrower account is not implemented by March 31, 2021. The impugned action of respondent-Bank to cancel the sanction letter dated 30th March, 2021 as well as the letter dated 6th July, 2021 informing the petitioners about such cancellation are hereby quashed and set aside - petition allowed. Issues Involved:1. Implementation of the Restructuring Package.2. Legality of the measures initiated under the SARFAESI Act.3. Compliance with the RBI circular dated 6th August 2020.4. Petitioners' compliance with the terms of the restructuring sanction letter.5. Availability of alternative remedies.Detailed Analysis:1. Implementation of the Restructuring Package:The petitioners sought a writ of mandamus to direct the respondent to implement the Restructuring Package granted on 30th March 2021. The petitioners argued that the respondent-Bank unilaterally canceled the restructuring proposal due to the non-execution of a guarantee deed by one of the guarantors by 31st March 2021. The Court found that the restructuring was sanctioned on 30th March 2021, and the petitioners had complied with most formalities except the guarantee deed. The Court held that the restructuring was implemented by the issuance of the sanction letter, subject to fulfilling its terms.2. Legality of the Measures Initiated under the SARFAESI Act:The respondent-Bank issued a notice under Section 13(2) of the SARFAESI Act on 16th April 2021, classifying the petitioners' account as NPA effective from 27th February 2021. The Court observed that the Bank acted with undue haste and did not provide the petitioners an opportunity to replace the guarantor or comply with the requirements. The Court quashed the Bank's action to cancel the restructuring sanction letter and the subsequent notice under the SARFAESI Act.3. Compliance with the RBI Circular Dated 6th August 2020:The RBI circular required the restructuring of borrower accounts to be implemented by 31st March 2021. The Court interpreted that the issuance of the sanction letter on 30th March 2021 constituted implementation within the stipulated time. The Court found the respondent-Bank's interpretation—that all formalities had to be completed by 31st March 2021—untenable.4. Petitioners' Compliance with the Terms of the Restructuring Sanction Letter:The petitioners argued that they had complied with all formalities except the guarantee deed, which they were willing to provide. The Court noted that the petitioners had deposited significant amounts towards the restructuring and were willing to comply with the remaining terms. The Court held that the Bank's cancellation of the restructuring sanction letter was unjustified.5. Availability of Alternative Remedies:The respondent-Bank contended that the petitioners had alternative remedies, such as approaching the Debt Recovery Tribunal. However, the Court held that the issue pertained to the interpretation of the RBI circular and the Bank's actions, which warranted the exercise of jurisdiction under Article 226.Conclusion:The Court allowed the petition, quashing the respondent-Bank's actions to cancel the restructuring sanction letter and the subsequent notice under the SARFAESI Act. The sanction letter dated 30th March 2021 was held to be in operation, and the parties were directed to implement it at the earliest. The Court emphasized that the Bank's interpretation of the RBI circular was incorrect and that the restructuring was implemented by the issuance of the sanction letter.