9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2024 (11) TMI 707 - HC - Indian LawsClassification of the account of the borrower as NPA - Was the account of the borrower NPA as on the date of classification of the same? - Is the transfer of the financial asset by the State Bank of India (SBI) to the Asset Reconstruction Company (ARC) valid? - What reliefs are the parties entitled to? - HELD THAT - The date on which the account should be considered as NPA or not for a sale under Section 5 of the Act of 2002, in the facts and circumstances of the present case, would be the date of publication of the web notice and need not be pinned to the date of NPA mentioned in the notice under Section 13 (2) - the action of SBI in putting up the financial assets for sale and ultimately assigning the same in favour of the ARC cannot be faulted. It did not violate any binding Directions of RBI in doing so. In the facts and circumstances of the present case, the borrower did not reply to the notice under Section 13 (2) of the Act of 2002 dated July 8, 2022. Section 13 (3-A) of the Act of 2002 has obliged the secured creditor to consider the representation or objection of a borrower to a notice under Section 13 (2) of the Act of 2002 and if the secured creditor concludes that such representation or objection is not acceptable, to communicate within 15 days of the receipt of such representation or objection the reason for non-acceptance of the representation or objection of the borrower - Unlike a civil suit filed under Order 37 of the Code of Civil Procedure, 1908, or a suit filed for compensation on account of storage, which does not statutorily empower the recipient of a demand notice to respond to and the issuer of such demand notice to deal with the response within a specified time, a notice under Section 13 (2) of the Act of 2002 can be responded to by the borrower and the secured creditor who has issued such notice is obliged to inform the reasons as to non-acceptance or non-tenability of the objection within the specified period of 15 days from the date of receipt of the response. Not responding to a notice under Section 13 (2) of the Act of 2002 raises a rebuttable assumption that the borrower has accepted the default in repayment of secured debt and the classification of the account as NPA. This presumption being rebuttable, the borrower can do so by making a representation or raising an objection under Section 13 (3-A) of the Act of 2002. The borrower who has not responded under Section 13 (3-A) can nonetheless rebut the presumption in a proceeding under Section 17 of the Act of 2002. When a measure under Section 13(4) is taken. A measure under Section 13(4) can be taken only after a notice under Section 13(2) has been issued and a response given by the lender to a reply of the borrower under Section 13(3-A) of the Act of 2002. The borrower has to rebut the presumption that the account was not NPA after the secured creditor has issued a notice under Section 13 (2) of the Act of 2002, for it to succeed in any action taken by the Bank or financial institution under the Act of 2002. In the facts and circumstances of the present case, SBI has proceeded under Section 5 of the Act of 2002 and not under Section 13(4) thereof. In any event, the borrower has failed to discharge the burden of proof rebutting the presumption that the account became NPA on the date of the web notice which is February 10, 2023. The account of the borrower was classified as a Non-Performing Asset (NPA) on the relevant date - the transfer of the financial asset by the State Bank of India (SBI) to the Asset Reconstruction Company (ARC) is valid - the impugned judgement and order dated October 5, 2023 set aside - appeal allowed.
Issues Involved:
i. Was the account of the borrower classified as a Non-Performing Asset (NPA) on the relevant date? ii. Is the transfer of the financial asset by the State Bank of India (SBI) to the Asset Reconstruction Company (ARC) valid? iii. What reliefs are the parties entitled to? Issue-wise Detailed Analysis: i. Classification of the Borrower's Account as NPA: The borrower had availed both fund-based and non-fund-based credit facilities from SBI. The account was classified as NPA on October 16, 2020. SBI argued that the borrower's account became irregular on January 17, 2020, and subsequently an NPA due to defaults in repayment obligations. The borrower contended that the classification was against RBI guidelines, particularly given the moratorium during the COVID-19 pandemic. However, the court noted that the borrower's cash credit account was overdrawn beyond the sanctioned limit for over 60 days, classifying it as a Special Mention Account (SMA) and subsequently as an NPA. The borrower's failure to regularize the account and the absence of evidence to counter the classification led the court to affirm the NPA status as of October 16, 2020. ii. Validity of the Transfer of Financial Asset: The court examined whether SBI's transfer of the borrower's financial asset to ARC was in compliance with RBI guidelines. SBI issued a web notice on February 10, 2023, for the sale of the financial asset, which was challenged by the borrower. The court found that the account was classified as NPA well before the notice, and thus, the transfer complied with the RBI's Master Directions on the transfer of loan exposures. The borrower failed to prove that the classification or the transfer violated any binding RBI directions or statutory provisions. Consequently, the court upheld the validity of the transfer under Section 5 of the SARFAESI Act, 2002. iii. Reliefs Entitled to the Parties: The court concluded that SBI acted within its rights under the SARFAESI Act and RBI guidelines in classifying the account as NPA and transferring it to ARC. The borrower did not establish any legal grounds to challenge the classification or the transfer. Therefore, the court allowed the appeals filed by SBI and ARC, setting aside the impugned judgment and dismissing the writ petition filed by the borrower. The court did not grant any relief to the borrower and ordered no costs against any party. Conclusion: The court's decision affirmed the classification of the borrower's account as NPA and validated the transfer of the financial asset by SBI to ARC, dismissing the borrower's challenges. The appeals by SBI and ARC were allowed, and the earlier judgment was set aside, with no costs imposed.
|
