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Declaration of the accounts as NPA should be decided by the DRT - Madras HC


Cynthia K.Theleepan and Ors v. The Reserve Bank of India and IndusInd Bank Ltd. Writ Appeal Nos.454 to 456 of 2020 & C.M.P.Nos.7021, 7022 & 7024 of 2020 The present case was argued before The Hon'ble Mr. A.P.Sahi, The Chief Justice

And The Hon'ble Mr. Justice Senthilkumar Ramamoorthy. The present case deals with three appeals which are filed in respect of the declaration of the loan accounts of the respective Appellant as a non-performing asset by the Respondent bank . In each of the cases, writ petitions were filed by the respective Appellant for a Writ of Mandamus to direct the RBI to enquire into the complaints dated 27.05.2019 and 28.05.2019 with regard to the classification of the respective loan account as a NPA.

The main issue was :

Whether the classification of the loan as non-performing asset is valid or not?

The learned council for petitioners argued that according to the Master Circular dated 01.07.2015 of the RBI and pointed out that a loan account can be classified as a NPA only if there is default in paying interest or an installment of the principal for a period of more than 90 days. In the case at hand, he submitted that the loan accounts were classified as NPA although neither principal nor interest was overdue for a period of more than 90 days. He further submitted that the appellants immediately objected to the said classification of their accounts as NPA by communication dated 08.05.2018. He relied upon Sudhir Shantilal Mehta vs.Central Bureau of Investigation [(2009) 8 SCC 1],T

The learned councils for respondents submitted that these were group accounts. The said group accounts were declared as NPA in May 2018. Thereafter, a notice under Section 13(2) of the SARFAESI Act was issued by the Bank in November 2018 and measures were taken under Section 13(4) of the SARFAESI Act thereafter. He further submitted that there is no moratorium period as regards LRD facilities and that the moratorium is only for infrastructure loans. He also pointed out that the loan accounts were assigned to an asset reconstruction company after they were declared as NPA.

“Thus, it is clear that the DRT is empowered under Section 17 of the SARFAESI Act to decide all questions relating to the exercise of power under Section 13, which power is founded on and available only after declaring the accounts as NPA. In these circumstances, we are of the view that the question as to whether the declaration of the Appellants' accounts as NPA is valid or not is a question that should be decided by the DRT in the pending proceedings.”(Para 9)

The Court reasoned that that the DRT is empowered under Section 17 of the SARFAESI Act to decide all questions relating to the exercise of power under Section 13, which power is founded on and available only after declaring the accounts as NPA. In these circumstances, we are of the view that the question as to whether the declaration of the Appellants' accounts as NPA is valid or not is a question that should be decided by the DRT in the pending proceedings.


Thus it was held that, "the were decisions taken by a private bank with regard to the servicing of its loan account and a determination of these issues involves disputed questions of fact. In these facts and circumstances, we are of the view that the decision of the learned single Judge to decline to exercise jurisdiction cannot be faulted with".

The writ appeal was dismissed.

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