2024 (7) TMI 451 - HC - Indian Laws

Bank can classify expired credit facilities as NPA after 180 days without renewal despite unutilized sanctioned limits

Bhanu Properties Ltd. & Anr. Versus Reserve Bank of India & Ors.

Calcutta HC dismissed petition challenging NPA classification and SARFAESI Act proceedings. Credit facility expired December 31, 2022, without renewal ... Classification of the petitioners’ account as Non Performing Asset (NPA) - Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 - HELD THAT:-Admittedly, the credit facility was last renewed on September 29, 2022 and was valid up to December 31, 2022, after which the same was not renewed. The period of 180 days expired on June 29, 2023. Thus, under Clause 4.2.4(c) of the RBI Circular dated April 1, 2023, the account was fit to be declared NPA since the regular/ad hoc credit limits were not reviewed or renewed within 180 days from the due date of ad hoc sanction. In the present case, the credit facility was valid up to December 31, 2022. Thus, thereafter, the sanctioned limit dropped to zero. The amount outstanding from then onwards became due and payable in the absence of any renewal to the credit facility irrespective of the fact that the sanctioned limit was not crossed. The outstanding balance of the petitioners remained less than the sanctioned limit and the credits were not enough to cover the interest debited during the previous 90 days period. After the lapse of the credit facility on December 31, 2022, the outstanding balance constantly remained below the credit facility. The notice under Section 13(2) of the SARFAESI Act dated September 11, 2023 clearly mentions the date of classification of the petitioners’ account as NPA to be June 30, 2023. Such a notice is not required to contain elaborate or detailed reasons for the classification of NPA, the same not being a judicial or quasi-judicial order - Since the NPA classification has been upheld above, the subsequent steps taken under Section 13, sub-sections (2) and (4) of the SARFAESI Act were also justified. The challenge to the NPA classification as well as the issuance of the notice under Section 13(2) of the SARFAESI Act and further consequential measures under Section 13 (4) fails. Petition dismissed. Issues:1. Challenge to classification of account as Non Performing Asset (NPA) on June 30, 2023.2. Challenge to Notice under Section 13(2) of the SARFAESI Act, 2002 dated September 11, 2023.Issue 1: Classification of Account as NPA on June 30, 2023:The petitioners contested the NPA classification, arguing that their credit limit was never exceeded, and the credit facility was recalled before the classification date. They claimed the bank's reliance on RBI Circulars was misplaced as they were issued post the NPA classification. The petitioners also alleged the bank levied unauthorized interests. The bank justified the NPA classification under RBI Circulars stating the account was not renewed within 180 days of the last renewal, leading to the NPA declaration on June 30, 2023. The court upheld the NPA classification, emphasizing the bank acted within RBI guidelines.Issue 2: Notice under Section 13(2) of the SARFAESI Act, 2002:The petitioners challenged the notice under Section 13(2), contending it lacked detailed reasons for the NPA classification. The bank argued the notice was procedural and justified under Section 13(2) due to the upheld NPA classification. The court found the notice valid, given the justified NPA classification, and dismissed the challenge. Subsequent actions under Section 13(4) were deemed justified post the upheld NPA classification.The court dismissed the writ petition challenging the NPA classification and Section 13(2) notice, with no costs awarded. The petitioners were advised to approach the Debts Recovery Tribunal under Section 17 of the SARFAESI Act if desired. An interim order of protection post-judgment was refused to maintain consistency with the dismissal decision.