Mere incorporation of additional corporate guarantee does not restructure NPA in adherence with RBI Prudential Norms: Calcutta High Court

The restructuring of non- performing assets (NPA) cannot be gone through with the mere assurance of additional corporate guarantee. The bench consisting of Sabyasachi Bhattacharya J. of the Calcutta High Court ruled that any minor modification does not alter the terms and conditions of the original sanction sufficient to obliterate the defaults already committed by the borrower in the matter of Metro Niketan Private Limited and another Vs. ICICI Bank Limited and others [W.P.O. No. 91 of 2021].

The set of facts stemmed from a sanction for credit facility in favour of the petitioner for an amount of Rs. 200 lakh by the respondent no.1-Bank. On November 22, 2018, there was a modification/renewal of the Sanction Letter dated June 8, 2010, which, inter alia, scaled down the existing limit of Rs.9.90 crore to a proposed limit of Rs.6.25 crore. Again On February 23, 2019, a letter was issued by the Bank for modification of the Sanction Letter dated November 22, 2018 for the limited purpose of including a corporate guarantee given by the Metro Niketan Private Limited. However, on September 19, 2020, the Bank issued to the petitioner and to its guaranteers and mortgagors/ corporate guarantors notices under Section 13(2) of the SARFAESI Act, 2002, to which the borrower issued an objection under Section 13(3A) on November 20, 2020. Finally, on January 13, 2021, a possession notice under Rule 8(1) of the Security Interest (Enforcement) Rules, 2020, read with Section 13(4) of the SARFAESI Act, was issued by the respondent Bank for taking symbolic possession of the secured property.

In the present case, it was argued that the classification of the petitioners’ account as NPA ought to have been in accordance with the RBI Prudential Norms. Since such provisions were violated in classifying the loan account as NPA, the consequential action taken by the Bank under the 2002 Act were invalid

The court was of the opinion that a post facto challenge to the genesis of the Bank’s actions before the writ court cannot, by itself, be a justification of the maintainability of the writ petition, after measures have already been taken under the 2002 Act. The court further asserted that the limited scope of exploration in the present writ petitions was hinged around the question whether the bank had authority to classify the loan account-in-question as NPA at the relevant juncture.

As per the Master Circular of the RBI pertaining to Prudential Norms on Income Recognition, on a reading of the Clause 2.2 stipulates that an account should be treated as ‘out of order’ if the outstanding balance remains continuously in excess of the sanctioned limited/drawing power for 90 days. Clause 2.3 defines ‘overdue’ as any amount due to the Bank under any credit facility, if not paid on the due date fixed by the Bank. Hence, loan account of the borrower qualified for being classified as NPA on the date of such classification, which is February 24, 2019, in view of the payable amounts remaining overdue/out of order for over 90 days. Hence, there was no fault on the part of the ICICI Bank in classifying the account as NPA at that point of time.

The court thus rendered the judgment that “The present writ petitions are, ex facie, attempts to bypass the regular remedy available under Section 17 of the 2002 Act in the garb of a challenge to the root of such action post facto measures being taken under Section 13. Hence, let alone making out any exceptional case of arbitrariness, miscarriage of justice or violation of any Fundamental Right or principle of Natural Justice, the actions taken by the Bank, from classifying the loan account as NPA to taking measures under Sections 13(2) and 13(4) of the 2002 Act, were all above board and well within the authority of the Bank. Hence, there is no merit in the present writ petitions.”

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