9911796707
TMI Blog2015 (5) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... with Millan Developers for building a commercial property on the land situate at Allahabad which was duly registered on 20.09.2011. On 19.03.2012, the petitioners sought renewal of the cash credit limit for the financial year 2012-13. Another application on 18.06.2012 followed by an application dated 17.11.2012 was moved for conversion of part of cash credit limit to a term loan. It is alleged that the Bank was not happy with the builders agreement and insisted that a tripartite agreement should be executed. Accordingly, a tripartite agreement dated 08.03.2013 was executed between the petitioners, respondent-Bank and the builder, in which it was clearly indicated that the Bank will have the first and paramount charge on the entire property even after its reconstruction. In spite of this agreement, the cash credit limit was not renewed in the financial year 2013-14 and, accordingly, the petitioners made another application for renewal of the cash credit limit for the financial year 2012-13. By a letter dated 09.03.2013, the Bank approved Rs. 350.00 lakhs towards the cash credit facility and Rs. 200.00 lakhs towards Working Capital Demand Loan (hereinafter referred to as WCDL). Acco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to the petitioners to pay the aforesaid amount within a period of sixty days. On receipt of the aforesaid notice, the petitioners submitted its objection by letter dated 27.02.2015 contending that the overdrawn amount in the cash credit limit has been paid and that the amount is now within the cash credit limits and, therefore, the account has been regularised. The petitioners requested the Bank to withdraw its order passed under Section 13(2) of the Act as well as the order by which their account was classified as NPA. The respondent-Bank, after considering the objection of the petitioners, rejected the same by an order dated 07.03.2015 alleging that the petitioners never adhered to the terms and conditions of the cash credit facility and the same was unsatisfactory. The respondent-Bank contended that the cash credit facility account had become irregular as on 31.12.2014 and subsequent deposit after 31.12.2014 could not regularise the account. The respondent-Bank contended that the classification of the petitioners' account as NPA was in conformity with the relevant guidelines issued by the Reserve Bank of India (hereinafter referred to as the RBI) and that the account wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion 13(4) of the Act. The learned counsel also submitted that the action of the respondents in proceeding to recover the amount from the collateral security was wholly arbitrary when the amount was secured by the primary security of the hypothecation of the stocks, namely, gold and jewellery. The respondents without touching the primary security had proceeded to recover the amount from the collateral security, which was wholly arbitrary. On the other hand, Sri Srivastava, the learned counsel for the respondent-Bank contended that the petitioners has an efficacious alternative remedy by filing an application under Section 17 of the Act. The learned counsel submitted that the account of the petitioners had become irregular for more than ninety days and as per the RBI guidelines the petitioners' cash credit account was rightly classified as a NPA. The learned counsel submitted that since the account was classified as a NPA, a valid notice under Section 13(2) of the Act was issued. The objection raised by the petitioners, being untenable was rejected and thereafter a notice under Section 13(4) of the Act was issued. The learned counsel further submitted that any deposit made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for "any other purpose." 15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot avail the remedy of an appeal under Section 17 of the Act. It is only when an action is taken under Section 13(4) of the Act the cause of action arises for the petitioners to file an appeal under Section 17 of the Act. In any case, we are of the opinion that considering the facts and circumstances that has been brought on record, we find that the action of the respondents in declaring the petitioners' account as a NPA was arbitrary and in violation of RBI guidelines. We also find that there are no disputed questions of fact, which needs to be adjudicated and the entire matter can be decided on the basis of the guidelines framed by the RBI. Consequently, we are of the opinion that it is a fit case in the given circumstances where appropriate direction should be issued to the respondents. Hence, the preliminary objection raised by the learned counsel for the respondent-Bank is rejected. From a perusal of the notice issued under Section 13(2) of the Act, we find that the petitioners' account has been classified as NPA. At this stage, it may be pointed out that there was no default in the petitioners' WCDL account. The interest is being paid and according to the pet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the secured creditor. Sub-section (4) of Section 13 of the Act provides the secured creditor to adopt any of the measures for recovery of the secured debt. Default has been defined under Section 2(j) of the Act. For facility, the said provision is extracted hereunder: "(j) "default" means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as non-performing asset in the books of account of the secured creditor." Similarly, NPA has been defined in sub-Section 2(o), which is as under: "(o) "non-performing asset" means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard-- (a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body; (b) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'." From the aforesaid as per para 2.1.2(ii) if an account remains out of order as per para 2.2 in respect of cash credit, it would be treated as NPA. Para 2.2 provides that an account would be treated as out of order if the outstanding balance remains continuously in excess of the sanctioned limit or where the outstanding balance in the account is less than the sanctioned limit/drawing power and there are no credit continuously for ninety days or credits are not enough to cover the interest debited during the same period . If any of the contingencies are existing, the account will be treated out of order. Para 2.1.3 provides if the interest due and charged during any quarter is not serviced fully within ninety days from the end of the quarter then the account will be classified as NPA. The RBI guidelines has categorised the NPAs in para 4 as "Substandard Assets", "Doubt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt as per para 4.2.5 of the RBI guidelines, which provides that if arrears of interest and principal is paid by the borrower, the account would no longer be treated as non-performing and would be classified as a standard account. In this regard, the Court further finds from a reading of para 4.2.4 of the guidelines that the classification of an account as NPA must be done by Bank based on the record of recovery and that the Bank could not classify an account as NPA merely due to the existence of some deficiencies which are temporary in nature such as balance outstanding exceeding the limit temporarily. In the light of the aforesaid provisions in the RBI guidelines, we have to judge the stand of the respondent-Bank in declaring the petitioners' account as NPA, which is, that the cash credit limit was overdrawn by Rs. 8,97,371.04 as on 31.12.2014 and that the outstanding balance remained continuously in excess of the sanctioned limit continuously for ninety days without there being any credit in the said account. The respondent-Bank has filed the statement of account, which shows that on 30.09.2014 the petitioners had exceeded the cash credit limit by Rs. 4.53 lakhs, which came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rily. Paragraph 4.2.4 clearly indicates that the Bank should not classify the account as NPA only at the instance of such deficiency which was temporary in nature. We also find that the overdrawn amount in cash credit account was cured and the deficiency was removed in January, 2015. This is reflected in the petitioners' reply to the notice under Section 13(2) of the Act. The Bank acknowledges the removal of the deficiency while rejecting the petitioners' reply under Section 13(2) contending that subsequent deposit made by the petitioners could not cure the deficiency nor such deposit could allow the Bank to recall its order classifying the petitioners' account as NPA. In our opinion, such stand adopted by the Bank was violative of para 4.2.4 of the RBI guidelines. On the other hand, we are of the opinion that the petitioners' account should have been upgraded again as "standard account" as per paragraph 4.2.5 of the RBI guidelines after the deficiency was cured. The action of the respondent-Bank in rejecting the petitioners' objection was per se arbitrary and illegal. In the light of the aforesaid, we are of the view that the initial action taken by the Bank c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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