2006 (2) TMI 289 - HC - Companies Law

Summary

Issues Involved:
1. Legality and jurisdiction of the notice under section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act).
2. Classification of the Special Over Draft Facility (SOD) as a Non-Performing Asset (NPA).
3. Maintainability of the writ petition against a private bank under Article 226 of the Constitution of India.

Detailed Analysis:

1. Legality and Jurisdiction of the Notice under Section 13(2) of the Act:
The petitioner, father-in-law of the proprietor of the second respondent concern, contested the notice issued by the first respondent bank under section 13(2) of the Act, arguing that the action was illegal and without jurisdiction. The petitioner claimed that the Act did not apply to the recovery proceedings related to the SOD availed by the second respondent. The court examined the notice and found that the second respondent had defaulted on the loan repayment, leading to the issuance of the notice under section 13(2) and subsequent action under section 13(4) of the Act. The court concluded that the first respondent bank did not act illegally in issuing the notice.

2. Classification of the Special Over Draft Facility (SOD) as a Non-Performing Asset (NPA):
The petitioner argued that the first respondent had not classified the SOD facility as an NPA according to the Reserve Bank of India's norms. The court referred to section 2(6) of the Act and the prudential norms outlined in the Reserve Bank's Master Circular, which define an NPA as an asset where interest and/or principal instalments remain overdue for more than 90 days. The court noted that the second respondent had not repaid any amount or instalment since availing the loan on 11-9-2003, thus justifying the classification of the SOD as an NPA. The court determined that the first respondent's actions were in accordance with the Act and the prudential norms.

3. Maintainability of the Writ Petition Against a Private Bank:
The court addressed the issue of whether a writ petition under Article 226 of the Constitution of India was maintainable against the first respondent, a private bank. The court cited precedents, including the Supreme Court's judgment in Federal Bank Limited v. Sagar Thomas, which held that private banks, despite being regulated by the Reserve Bank of India, do not perform public functions or duties and are not considered "State" under Article 12 of the Constitution. Consequently, a writ petition against such entities is not maintainable. The court concluded that the first respondent, being a private bank, did not discharge public functions and therefore, the writ petition was not maintainable.

Conclusion:
The court dismissed the writ petition, holding that the notice under section 13(2) of the Act was legally and jurisdictionally valid, the SOD facility was correctly classified as an NPA, and the writ petition against the private bank was not maintainable. The petitioner was advised to seek recourse through an appeal under section 17 of the Act before the competent authority.