2021 (1) TMI 1142 - HC - Companies Law

Applicability of Clause 2.1.2 (i) or Clause 2.1.3 of RBI Master Circular dated July 1 2015 - cash credit facility given to the petitioner classified as Non-Performing Asset (NPA) - Section 13(2) of the SARFAESI Act 2002 and Section 13(4) of the 2002 Act - HELD THAT - It is clear that the concerned bank has a discretion with regard to marking an account as NPA upon the account running overdue for 90 days. Clause 2.1.3 has to be read with the other provisions of the Master Circular. The RBI Circular bearing DOR No. BP.BC.34/21.04.048/2019-20 dated February 11 2020 provides for restructuring of advances in the MSME (Micro Small and Medium Enterprises) sector. Such provision for one-time restructuring of existing loans to MSMEs only pertain to those classified as standard which the account of the petitioner no.1 ceased to be from February 29 2020 onwards. Moreover Clause (i) thereof provides that the aggregate exposure including non-fund based facilities of banks and NBFCs to the borrower cannot exceed Rs. 25 crore as on January 1 2020 for an MSME to be eligible for such restructuring. The petitioners as per the annexures of the writ petition itself had exceeded the Rs. 25 crore limit on November 30 2019 itself thus rendering the petitioners ineligible for getting the benefit of the scheme contemplated by the Circular. The petitioners have failed to prove any mala fides or arbitrariness on the part the respondents. The RBI Circulars cited by the petitioners are not attracted since the account of the petitioner no.1 lost its status as a standard account after February 28 2020 when the same was classified as NPA. That apart such classification on February 28 2020 could not be said to be an arbitrary exercise beyond the pale of discretion of the bank and the respondent-authorities. Thus there is no scope of finding fault with the legitimate exercise of discretion on the part of the respondents in the present case. The acts/omissions complained of in the writ petition do not merit interference by the writ court - Appeal dismissed.

Summary

Issues Involved:
1. Classification of the petitioner's account as Non-Performing Asset (NPA).
2. Applicability of RBI Circulars for relief during the pandemic.
3. Legitimacy of the bank's actions under the SARFAESI Act.
4. Availability and appropriateness of alternative remedies.

Detailed Analysis:

1. Classification of the Petitioner's Account as Non-Performing Asset (NPA):
The petitioners argued that their account was prematurely classified as NPA on February 28, 2020, despite being a standard account as of March 1, 2020. They relied on the RBI Master Circular dated July 1, 2015, which stipulates that an account should be classified as NPA if overdue for more than 90 days. The petitioners contended that the bank's classification was an afterthought to deny them relief under subsequent RBI Circulars. However, the respondents justified the classification, stating that the account had been overdue since November 30, 2019, and the classification process was completed on March 1, 2020, due to system delays. The court found no mala fides or bias in the bank's actions and accepted the technical delay explanation.

2. Applicability of RBI Circulars for Relief During the Pandemic:
The petitioners claimed that their One-Time Settlement (OTS) proposal should be considered under the RBI Circulars issued in response to the pandemic. They cited various circulars, including those dated February 11, 2020, and March 27, 2020, which provided for a moratorium and restructuring of loans. However, the court noted that the OTS proposal did not materialize into an accepted scheme. Additionally, the petitioners' account exceeded the Rs. 25 crore limit for restructuring eligibility under the February 11, 2020 Circular. The court concluded that the petitioners were not entitled to the benefits of the RBI Circulars, as their account was not a standard account after February 28, 2020.

3. Legitimacy of the Bank's Actions under the SARFAESI Act:
The respondents initiated proceedings under Sections 13(2) and 13(4) of the SARFAESI Act, 2002. The petitioners argued that the bank's actions were arbitrary and aimed at depriving them of relief under the RBI Circulars. The court found that the bank had followed the procedural requirements and provided sufficient justification for its actions. The court emphasized that the classification of the petitioners' account as NPA was in accordance with the RBI guidelines and not arbitrary.

4. Availability and Appropriateness of Alternative Remedies:
The respondents argued that the petitioners had an equally efficacious remedy available before the tribunal under the SARFAESI Act. Citing precedents like United Bank of India vs. Satyawati Tondon and Authorized Officer, State Bank of Travancore vs. Mathew K.C., the court reiterated that discretionary jurisdiction under Article 226 should be exercised judiciously and not when alternative remedies are available. The court held that the petitioners should seek redress through the tribunal rather than the writ court.

Conclusion:
The court dismissed the writ petition, concluding that the petitioners failed to establish any mala fides or arbitrariness in the bank's actions. The classification of the account as NPA was justified, and the petitioners were not entitled to relief under the RBI Circulars. The court also emphasized the availability of alternative remedies under the SARFAESI Act, reinforcing the principle of judicial restraint in exercising discretionary jurisdiction under Article 226.