TMI Blog2015 (5) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by the parties, we first take up the plea of alternative remedy. The respondent-Bank has relied upon a decision of the Supreme Court in United Bank of India Vs. Satyawati Tondon and others [2010 (7) TMI 829 - SUPREME COURT ]. No doubt the petitioners has a remedy of filing an application under Section 17(1) of the Act. However, the jurisdiction of the High Court under Article 226 of the Constitution of India is not ousted merely because an appeal is provided under Section 17 of the Act. The power under Article 226 of the Constitution is wide and for the exercise of such power there is no restriction except the territorial restriction. However, the exercise of the writ jurisdiction is discretionary. Ordinarily, the Court does not entertain the matter where the petitioners have an alternative remedy. In Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and others, [1998 (10) TMI 510 - SUPREME COURT] wherein this Court has held that there are three clear-cut circumstances wherein a writ petition would be maintainable even in a contractual matter. Firstly, if the action of the respondent is illegal and without jurisdiction, secondly, if the principles of natural justice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dit weakness that jeopardies the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected, meaning thereby that if the borrower corrects the deficiency then the substandard asset would be upgraded to a standard account 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, we are of the view that the initial action taken by the Bank classifying the petitioners' account as NPA was wholly invalid, illegal and against the guidelines issued by the RBI, which has the force of law and which is binding upon the Bank. We furth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on a year to year basis. While sanctioning the cash credit limit, the stocks of gold and diamond jewellery were hypothecated. A collateral security in the nature of half western portion of freehold residential/commercial property measuring 934.315 sq. yards situate at plot no.G/4, Civil Station, Allahabad having a market value of ₹ 698.91 lakhs was also given. It is alleged that after previous permission from the Bank, a Memorandum of Understanding dated 20.09.2011 was arrived at 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 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Act) demanding a sum of ₹ 5,58,59,198.04 alleging that the petitioners had committed a default in payment of principal, interest and other monies and that the operation and conducting of the account had become irregular and that the account of the petitioners had been classified by the Bank as a Non-Performing Asset (NPA). By the said notice, the respondent-Bank gave notice 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 petitioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... own in October, 2014, which again exceeded the limit soon thereafter but was brought down in January, 2015. The learned counsel submitted that the irregularity was only a temporary deficiency, which was cured but the action of the respondents in proceeding with the recovery was patently harsh quite apart that it was also arbitrary. The learned counsel subsequently submitted that the respondent-Bank committed an error in rejecting the objection of the petitioners and further committed an error in issuing the notice under Section 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 sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y because an appeal is provided under Section 17 of the Act. The power under Article 226 of the Constitution is wide and for the exercise of such power there is no restriction except the territorial restriction. However, the exercise of the writ jurisdiction is discretionary. Ordinarily, the Court does not entertain the matter where the petitioners have an alternative remedy. In Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and others, (1998) 8 SCC 1, the Supreme Court held as under: 14.The power to issue prerogative writs under Article 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the High Court should still exercise its jurisdiction where the writ petition sought enforcement of any of the fundamental rights or where there was a failure of the principles of natural justice or where the orders or proceedings were wholly without jurisdiction or where the vires of an Act was challenged. In the light of the aforesaid decisions, we are of the opinion that at present moment only a notice under Section 13(4) of the Act has been initiated. No action on it had been taken by the respondents and, therefore, at this stage the petitioners cannot 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 guideline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ghts under sub-section(4) of Section 13 of the Act. From the aforesaid, it is clear that a notice can only be issued if a borrower commits default in the repayment of the security debt and his account in respect of such debt, is classified as NPA. Unless and until the account is declared as NPA, no notice under Section 13(2) of the Act could be issued, even if there is a default. Sub-section (3A) of Section 13 of the Act gives an opportunity for the borrower to make any representation or raise any objection to the said notice, which in turn is required to be considered and decided 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-Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments , banks should, classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. 2.1.4 In addition, an account may also be classified as NPA in terms of paragraph 4.2.4 of this Master Circular. Para 2.2 provides as to when an account should be treated out of order, which is extracted hereunder: 2.2 'Out of Order' status An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance 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 contin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which is classified as NPA contents of paragraphs 12.2 and 15.2 in the Part B of this circular will be applicable. From the aforesaid, it is clear that a substandard asset is one, which has remained NPA for a period less than or equal to 12 months. The guidelines provides that such asset will have well defined credit weakness that jeopardies the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected, meaning thereby that if the borrower corrects the deficiency then the substandard asset would be upgraded to a standard account 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 outs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he ground that the petitioners had overdrawn ₹ 8,97,371.04 in excess of the cash credit limit. We are of the opinion that the petitioners were required to pay this amount of ₹ 8,97,371.04 within ninety days from the end of the quarter i.e. till 31.03.2015. We also find that prior to 30.09.2014 the petitioners never exceeded the cash credit limit nor had defaulted in payment of the interest in WCDL account. The petitioners admittedly, exceeded the cash credit limit in the last quarter of 2014. Such deficiency would be classified as a temporary deficiency as per para 4.2.4 of the RBI guidelines, as the petitioners exceeded the cash credit limit temporarily. 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 deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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