narendra.s.p (Chief Manager(Law)) 04 April 2012

Npa accounts relief of writ against sarfaesi action

Once a demand notice under SARFAESI Act is issued by the Bank, the amount mentioned in the Demand Notice is required to be paid in full.

Here the question that would arise is:

Is there a remedy for the borrower to file a Writ Petition seeking direction on the Bank to desist from initiating further action under SARFAESI if borrower pays the overdue interest and principal amount?

VIEWS

As per RBI Circular on Prudential Norms: RBI/2011-12/66 DBOD.No.BP.BC.12 /21.04.048/2011-12 July 1, 2011 in terms of paragraph 4.2.5

“Upgradation of loan accounts classified as NPAs: 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”.

The Honourable Supreme Court has opined that: [at paragraph 40]

"If in terms of the guidelines issued by the Reserve Bank of India a right is created in a borrower, we see no reason as to why a writ of mandamus could not be issued........."

Citation(s): 2010 AIR 218 : 2009 (11 ) SCR 803 : 2009 (8 ) SCC 257

The judgment of the Honorable Supreme Court is attached.

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3 Replies

Nadeem Qureshi (Advocate/ nadeemqureshi1@gmail.com) 06 April 2012

Dear Querist I agree with Judgement

Nadeem Qureshi (Advocate/ nadeemqureshi1@gmail.com) 06 April 2012

basically, HC said that when a alternate reamdy is avaliable in DRT, u/s 17 of the SARFAESI ACT why the HC interfere.

c.p.s. ramachary (1500) 08 April 2012

Supreme Court in a catina of judgments held that, when alternative remedy is available writ jurisdiction cannot be invoked. However some High Courts have held that, in certain circumstances writ jurisdiction can be exercised for non-availability of alternative remedy.

A.P.High Court in Sarvan Dall Mill (P) Ltd. vs. Central Bank of India : 2010 (1) ALT 321 (D.B.) held that, judicial review under Art.226 is the only remedy available in certain circumstances such as wrong classification of accounts contrary to RBI Guidelines for which no remedy is available and the borrower has to face unsavory action until his right to invoke Sec.17 arises. In Stan Commodities Pvt. Ltd. vs. Punjab and Sind Bank : AIR 2009 Jharkand 14 the bank failed to communicate reply u/sec. 13(3A) to the objections raised particularly on classification of accounts wherein it was seriously contended that the classification of borrower’s account was contrary to RBI Guidelines. Sec.13 (3A) was inserted in the Act by amendment dated 11.11.2004 after the land mark judgment of Supreme Court in Mardia Chemicals case and action was being taken by the bank defeating the said provision of the Act. In such cases borrower can invoke writ jurisdiction as jurisdiction Recovery Tribunal is not available. Therefore according to some High Courts this is self imposed restriction and borrower can seek for writ juridiction under above stated circumstances