2023 (1) TMI 1423 - HC - Indian Laws

Bank's rejection of loan restructuring application after borrower's wife died during pandemic held unreasonable, SARFAESI notice quashed

Calcutta HC quashed SARFAESI notice issued by bank after finding the bank's rejection of loan restructuring application unreasonable. Petitioner's wife ... Maintainability of the writ petition under the SARFAESI Act - Non-consideration of viability plan by the respondent Bank - Compliance with the RBI Circular R.F. 2.0 for restructuring MSME loans - HELD THAT:- The allegations of the respondent Bank that the rejection of disbursement of further credit facilities to the petitioner no. 1 on 9.11.2021 was on the ground of non-perfection of security interest is sufficiently belied by the facts before the Court. The petitioner's wife passed away on 11.10.2020 during the Pandemic and the petitioner no. 1 applied for the loan in July 2021. The petitioner no. 2 thereafter filed appropriate proceedings before the Court in New Delhi under the Guardian and Wards Act, 1890 which was allowed on 11.7.2022. This was done at the direction of the respondent Bank and for the purpose of perfecting the security interest since the Flat in Delhi, which was given as security for the restructuring, was in the name of the petitioner no. 2 and his wife. In any event, the petitioner no. 2's son attained majority on 8.8.2022 and the petitioners can therefore take appropriate steps in respect of the Delhi Flat to clear the loans. The stand of the respondent Bank is patently unreasonable. The conclusions of the Court are strengthened by a broader view of both the parties being benefited if the respondent Bank permits the petitioners to service their loans which the petitioners are admittedly in a position to do in the changed circumstances. This Court is unable to comprehend as to why the respondent Bank would invoke proceedings where the respondent Bank would not only have to engage in adversarial proceedings but also wait for a considerable time before the loan accounts of the petitioners are clear or settled or closed. The facts and the materials placed before the Court persuade the Court to hold that the respondent no. 1 Bank precipitated the events culminating in the issue of the impugned Notice under the SARFAESI Act without proper application of mind and due exercise of discretion. Appeal allowed by a declaration that the impugned Notice dated 27.4.2022 is liable to be quashed restraining the respondents from proceeding in accordance with the said impugned Notice as also the letter dated 30.11.2021. Issues Involved:1. Maintainability of the writ petition under the SARFAESI Act.2. Compliance with the RBI Circular R.F. 2.0 for restructuring MSME loans.3. Entitlement to the Emergency Credit Line Guarantee Scheme (ECLGS) Loan.4. Legality of classifying the petitioners' accounts as Non-Performing Assets (NPA).Issue-wise Detailed Analysis:1. Maintainability of the Writ Petition:The respondent Bank argued that the petitioners should approach the Debts Recovery Tribunal (DRT) instead of filing a writ petition, as the notice was issued under the SARFAESI Act. The Court held that the writ petition was maintainable because the notice in question was issued under section 13(2) of the SARFAESI Act, and not under section 13(4), which would have necessitated approaching the DRT. The Court distinguished the present case from precedents cited by the Bank, which involved section 13(4) notices, and emphasized that the cause of action arose from the Bank's failure to restructure loans as per the RBI Circular R.F. 2.0, rather than the SARFAESI action itself.2. Compliance with RBI Circular R.F. 2.0:The Court found that the petitioners were eligible for restructuring under R.F. 2.0, as they satisfied all the stipulated conditions, including being an MSME with 'standard assets' as of 31.3.2021. The Bank's failure to consider the restructuring applications was contrary to the RBI Circular's intent, which aimed to alleviate Covid-19-related financial stress for MSMEs. The Court noted that the petitioners had invoked R.F. 2.0 within the prescribed timeframe, and the Bank was obligated to consider their applications in line with the RBI's statutory mandate.3. Entitlement to the ECLGS Loan:The petitioners claimed entitlement to the ECLGS Loan, which was initially assured by the Bank. However, the Bank rejected the application due to 'non-perfection of security interest' involving a minor. The Court found this reasoning unreasonable, as the petitioners had taken steps to perfect the security interest by obtaining guardianship over the minor's interest. The Court directed the Bank to reconsider the petitioners' eligibility for the ECLGS Loan, considering the changed circumstances.4. Legality of Classifying Accounts as NPA:The Court observed that the petitioners' loan accounts were declared NPAs despite being 'standard assets' as of 31.3.2021. The declaration of NPAs occurred after the petitioners had made several representations for restructuring, which the Bank failed to consider. The Court concluded that the Bank's actions were inconsistent with the objectives of R.F. 2.0 and lacked proper application of discretion. Consequently, the impugned notice under section 13(2) of the SARFAESI Act was deemed liable to be quashed.Conclusion:The Court allowed the writ petition, quashing the impugned notice dated 27.4.2022, and restrained the respondents from proceeding based on the notice and a related letter dated 30.11.2021. The Bank was directed to reassess the restructuring of the petitioners' loans under R.F. 2.0 and consider the ECLGS Loan eligibility in light of the current circumstances. The Bank was instructed to complete this process within ten weeks from the date of the judgment.