EDITORS NOTE: see Supreme Court Order
Securitisation and Reconstruction of Financial Assets and Enforcement of Security interest Act, 2002 Sections 17 and 13(3) – writ – maintainability of – Alternative remedy under the sarfaesi Act, 2002 – Admittedly, no proceeding under Section 13(4) of the Act has been initiated by the Bank till date – Unless such measures are initiated, the petitioner cannot avail the remedy under Section 17 of the Act. [Para 48]
banking – Interest – Charging of – Charging of interest by a Bank from a borrower must be in a transparent manner and when the same is challenged, the Bank cannot give a vague reply saying it acted according to it's internal norms and guidelines without placing them on record – It has to file a statement of account showing details and giving particulars of debit entries, and if debit entry relates to interest, it is obligated to set out also the rate of, and the period for which, the interest has been charged – If it does not choose to reveal the basis on which it was charging a particular rate of interest, and does not rebut the material placed on record by the petitioner/borrower, an adverse inference has to be drawn against it that it is acting arbitrarily and whimsically and in violation of Article 14 of the Constitution of India.. [Para 51, 52]
Banking Regulation Act, 1949 Sections 21 and 35A – Overcharging of interest by Bank – From 16.11.2017, on the direction of the Banking Ombudsman given on 09.11.2017, the interest rate was shifted to the MCLR system, and the effective rate of interest was made 11.05% – Bank informed the petitioner that the Base Rate was 10.75% as on 01.04.2016, but later, the Base Rate was shown as 9.6% on 01.04.2016, and the effective rate was increased to 12.1% for the period 01.04.2016 to 31.03.2017 – The petitioner alleged that a higher rate of interest was being charged, even though the Base Lending Rate remained constant at 10.75% – The Bank's denial of this allegation in its reply does not appear to be bonafide – The petitioner is a MSME Unit, and the Bank has not explained on what basis a higher rate of interest at 16% can be levied on it since it is an MSME – The Bank admitted in letter dt.16.11.2017 that it had converted the petitioner's CC limit to the MSME category – It had also reversed the penal interest charges and refunded 1,75,869.39 ps for the last 3 years, which amounts to an admission that it was charging interest not permissible for it to charge as per law. [Para 57 to 62]
Banking Regulation Act, 1949 Sections 21 and 35A – npa – Non Performing Asset – As per the Master Circular dt. 01.07.2015 issued by the rbi dealing with the Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, “an asset would become as NPA only if interest and/or installment of Principal remain overdue for a period of more than 90 days in respect of the term loan.” (Clause 2.1.2), and in regard to the CC Limit, “an account would be treated as ‘out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power for 90 days.” (Clause 2.2.) – When the sanction to the petitioner of the CC limit was 30 Lakhs, and as per the statement, it was not overdrawn and remained below 30 Lakhs, respondent-Bank has not explained how in violation of the Master Circular it had classified the loan account of the petitioner as NPA. [Para 66 and 67]
Banking Regulation Act, 1949 Sections 21 and 35A – RBI circulars – Circulars of the RBI are binding on the Bank under Section 21 and 35A of the Banking Regulations Act, 1949. [Para 68]
Banking – NPA – Clause 4.2.5 of the RBI Master Circular dt.01.07.2015 states that “if arrears of interest and principal are paid by the borrower in the case of loan accounts classified as NPAs, the account should no longer be treated as non performing and may be classified as ‘standard' accounts.” – Rs. 8 Lakhs was paid after the loan account of the petitioner is declared as NPA on 28.08.2019, and after the notice under Section 13(2) of the SARFAESI Act, 2002 was issued on 16.09.2019. – When such substantial payment of 8 Lakhs was received by the Bank between 16.09.2019 and 05.08.2020, amounting to 8 Lakhs, how it can retain the loan account of the petitioner as NPA even thereafter, and even file an OA on 29.08.2020 – A further sum of 10 Lakhs before 21.12.2020 as per the directions given by this Court on 19.11.2020, and if this amount is added to 8 Lakhs already paid, it would indicate that more than substantial payments have been received by the Bank from the petitioner – The silence of bank on these aspects suggests that it has no answer to the contentions raised by the petitioner, and that it has acted malafide, and had wrongly classified the loan account of the petitioner as NPA on 28.08.2019, and commenced proceedings under the SARFAESI Act, 2002 by issuing notice under Section 13(2) on 16.09.2019, which action cannot be sustained – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002. [Para 69 to 75]
