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2014 (1) TMI 1639 - HC - Indian LawsConstitutional validity of Section 2(1)(o) of the SARFAESI Act and the RBI Circular dated 1st July 2013 - Violation of Article 14 - whether it is on the whims and fancies of the financial institutions to classify the assets as non-performing assets - Held that:- As a matter of fact a policy has been laid down by Reserve Bank of India providing guidelines in the matter for declaring an asset to be a non-performing asset known as “RBI's prudential norms on income recognition, asset classification and provisioning -- pertaining to advances‖ through a circular dated 30-8-2001 - The petitioner could not place any convincing material to show that Section 2(1)(o) of the Act and the RBI Circular dated 1st July 2013 are unreasonable, arbitrary or otherwise repugnant to the constitutional principle. Consequently, we are of the view that the petitioners are not able to rebut the presumption of constitutionality of Section 2(1)(o) of the SARFAESI Act and the RBI Circular in question. Section 2(1)(o) of the Act defines NPA as an asset or accountable receivable of a borrower, which has been classified by banks or financial institutions in terms of RBI guidelines as sub-standard, doubtful and loss asset. Clause 4.1 of the RBI guidelines classifies NPA into three categories - sub-standard, doubtful and loss asset. Once the account finds place in any of these categories, it becomes an NPA with respect to clause 2.1 of the RBI guidelines. Broadly speaking, the classification of assets into sub-standard, doubtful or loss asset is done taking into account the degree of well-defined credit weakness and extent of dependence on collateral securities for realisation of dues. The Legislature has left it to RBI to identify, define and classify different assets in accordance with current international best practices as well as the changing economic scenario of the country. We are of the opinion that the Legislature has clearly defined NPA under Section 2(1)(o) of the SARFAESI Act and the RBI guidelines are issued to improve quality of assets of the bank and to recover the public money speedily. There is no excessive delegation or scope for the banks to act upon basing on their whims and fancies, but they are governed by the guidelines issued by the RBI which under Section 21 of Banking Regulation Act 1949 is empowered to lay guidelines in the interest of banking policy relating to advances to be followed by the banking companies. It is settled law that in the matters of policy decisions of the Government in respect of economic matters, Courts cannot interfere unless such policy is contrary to the Constitution. Section 2(1)(o) of SARFAESI Act clearly defines NPA as an asset or an account which has been classified as a sub-standard, doubtful or loss asset. Consequently, the Indian Parliament while enacting SARFAESI Act has not delegated essential legislative function to the RBI / Financial Institution with regard to the concept of NPA. - impugned Circular issued by the RBI, which provides guidelines for determining NPAs, is in conformity with Section 2(1)(o) of the SARFAESI Act. Clause 2.1 of the RBI Circular is beneficial in nature inasmuch as even though a customer may be a defaulter on account of his failure to pay interest or repay principal in accordance with the contract, yet he would be classified as NPA only if the default continues beyond ninety days. There is no discretion vested with the Bank under Section 2(1)(o) of SARFAESI Act to pick and choose an account as an NPA at its own whim and fancy. In declaring an account as an NPA, the Banks have to act in accordance with the provisions of the Act and the various Circulars / Guidelines issued by the RBI. - Moreover, if the borrower is aggrieved by the action taken by the Banks under Sections 2(1)(o) and 13(4) of the SARFAESI Act, the same can be challenged before the Debt Recovery Tribunal under Section 17 of the SARFAESI Act. Consequently, Section 2(1)(o) of SARFAESI Act is neither unreasonable nor violative of Articles 14 and 19(1)(g) of the Constitution, as alleged by the petitioners. - Section 2(1)(o) of the SARFAESI Act and the RBI Circular dated 1st July 2013 are perfectly legal, valid and are not violative of Articles 14 and 19(1)(g) of the Constitution of India - Decided against Appellant.
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