2008 (1) TMI 962 - HC - Indian Laws

Summary

Issues Involved:
1. Validity of notices u/s 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
2. Classification of the borrower's account as a Non-Performing Asset (NPA).
3. Compliance with Section 13(3A) of the Act.
4. Maintainability of the writ petition in the presence of an alternative remedy u/s 17 of the Act.

Summary:

1. Validity of Notices u/s 13(2) and 13(4):
The petitioners challenged the notices dated 16.12.2006 and 26.4.2007 issued u/s 13(2) and 13(4) of the Act, claiming non-compliance with mandatory prerequisites. The petitioners, as sureties, alleged they were unaware of the borrower's default until the bank officials visited their property on 7.11.2006. They contended that no notice was served on them as required by the Act. The court noted that the petitioners had deposited significant amounts towards the outstanding dues and questioned the validity of the notices for non-compliance with statutory requirements.

2. Classification of Borrower's Account as NPA:
The petitioners disputed the classification of the borrower's account as NPA, arguing that the deposits made should prevent such classification. The respondent bank maintained that the account had been classified as NPA since 31.3.2005 due to the borrower's closure of business activities and lack of prime security. The court observed that the borrower's account had remained in excess of the sanctioned limit for over 90 days, justifying its classification as NPA under the norms.

3. Compliance with Section 13(3A):
The petitioners argued that their representation dated 14.2.2007 was not disposed of as required by Section 13(3A) of the Act. The court found that the bank had failed to communicate the reasons for rejecting the representation within the stipulated time. The court emphasized the importance of compliance with Section 13(3A) to ensure fairness and transparency in the dealings of financial institutions with borrowers.

4. Maintainability of Writ Petition:
The respondent bank challenged the maintainability of the writ petition, citing the availability of an alternative remedy u/s 17 of the Act. The court, however, held that the issues raised were of considerable moment and the impugned notice, if enforced, would have serious adverse consequences for the petitioners. The court decided to entertain the writ petition, noting that non-compliance with statutory provisions and principles of natural justice warranted scrutiny.

Conclusion:
The court set aside the notice dated 26.4.2007 for non-compliance with Section 13(3A) of the Act. It directed the respondent bank to take an appropriate decision on the petitioners' representation dated 14.2.2007 and communicate the same within a week. The petition was partly allowed with no costs.