2016 (6) TMI 1 - HC - Indian Laws

Writ petition dismissed in SARFAESI Act case, bank's actions upheld. Compliance with RBI guidelines emphasized.

The court dismissed the writ petition, ruling in favor of the respondent bank. It found the notices issued under Section 13(2) of the SARFAESI Act to be ... Accounts of the writ petitioner not NPAs - SARFAESI Act - Held that:- It is the settled law that the secured creditor has obligation to communicate the reasons for non-acceptance of the representation or the objection of the borrower. In the instant case, in reply dated 07.01.2016 (Annexure 6 to the petition), the secured creditor has given sufficient reasons for not accepting the objections of the borrower. There is no violation of statutory provisions so as to quash the notice of the respondent bank in exercise of extra ordinary jurisdiction. It does not appear that the secured creditor has arbitrarily classified the accounts of the borrower company as NPA. The respondent bank, no doubt, is required to protect the loan, which it had sanctioned but, at the same time, the respondent bank should adopt a practical and pragmatic approach for which the RBI has framed guidelines which are binding upon them and which are required to be followed meticulously. The bank has not acted against the petitioner contrary to the guidelines issue by RBI. This Court, accordingly, concludes the matter and refuses to entertain the writ petition on the ground that there is nothing on record wherefrom one can come to a definite conclusion that the accounts of the writ petitioner were not NPAs as on the date of issuance of the notice under Section 13(2) of the Act. Issues Involved:1. Quashing of notices issued under Section 13(2) of the SARFAESI Act, 2002.2. Classification of the petitioner's account as a Non-Performing Asset (NPA).3. Compliance with RBI guidelines by the respondent bank.4. Adequacy of the respondent bank's response to the petitioner's objections/representations.5. Availability of alternative remedies under the SARFAESI Act.Issue-wise Detailed Analysis:1. Quashing of Notices Issued Under Section 13(2) of the SARFAESI Act, 2002:The petitioner sought to quash the notices dated 2.1.2016 and 6.1.2016 issued under Section 13(2) of the SARFAESI Act, 2002. The petitioner argued that the respondent bank had waived these notices by demanding the entire outstanding dues within 15 days in a subsequent reply notice dated 07.01.2016. The court found that the notices were valid and that the bank had provided sufficient reasons for issuing them.2. Classification of the Petitioner's Account as a Non-Performing Asset (NPA):The petitioner contended that the respondent bank wrongly classified its account as an NPA, violating RBI guidelines. The court noted that the bank had declared the account as NPA due to non-payment of dues and that the date of NPA mentioned in different notices was immaterial. The court emphasized that the declaration of NPA status was crucial, not the specific date, even if there was a slight discrepancy.3. Compliance with RBI Guidelines by the Respondent Bank:The petitioner argued that the respondent bank violated RBI guidelines, specifically clause 2.1.3, which requires banks to classify an account as NPA only if interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. The court acknowledged this guideline but concluded that the bank had acted within its rights, as the petitioner had not followed the terms and conditions of the hypothecation agreement. The court also noted that the RBI guidelines are executive instructions without statutory backing.4. Adequacy of the Respondent Bank's Response to the Petitioner's Objections/Representations:The petitioner claimed that the respondent bank dismissed its objections/representations summarily without considering substantial arguments. The court referred to the Supreme Court's decision in Mardia Chemicals Ltd. v. Union of India, which emphasized that banks must provide meaningful consideration of objections raised by borrowers. The court found that the respondent bank had given sufficient reasons for not accepting the petitioner's objections in its reply dated 07.01.2016.5. Availability of Alternative Remedies Under the SARFAESI Act:The court highlighted that the petitioner had an alternative remedy of filing an appeal under Section 17 of the SARFAESI Act. The court cited previous judgments, including M/s Amba Devi Paper Mills Ltd. v. State Bank of India and M/s K. R. S. Latex (India) Pvt. Ltd. v. The Federal Bank Ltd., which supported the view that alternative remedies should be exhausted before invoking the court's extraordinary jurisdiction. The court concluded that the petitioner had not demonstrated sufficient grounds to bypass the alternative remedy.Conclusion:The court dismissed the writ petition, finding no violation of statutory provisions by the respondent bank and no arbitrary classification of the petitioner's account as NPA. The court emphasized that the petitioner should have availed the alternative remedy under Section 17 of the SARFAESI Act.