Dispute regarding account being correctly classified as NPA or not is factual.

1.  Respondent No. 1 Bank under section 13(3A) dismissed the representation filed by the appellants against the notice under section 13(2).

2.  In writ the appellants contended that the respondent bank had taken recourse to the provisions of the SARFAESI Act, without 'jurisdictional facts' obtaining in the matter.

3.  It was the argument of the appellants before the Single Judge that the mechanism under section 13 could not be triggered till such time as the loan account of the appellants with the respondent Bank was classified as a Non-Performing Asset (NPA) and which, in the facts and circumstances of the case it could not have been classified.

4.  The Single Judge, giving detailed reasons and analysing the loan account of the appellants with the respondent Bank, had not accepted the contention that the classification by the respondent Bank of the said loan account as NPA was faulty. It had further been held that the said pleas could be taken before the Debts Recovery Tribunal (DRT) in a proceeding under section 17.

5.  On appeal, the appellants contended that the High Courts of Andhra Pradesh and Jharkhand had held that a writ petition at the stage of section 13(3A) was maintainable, though a contrary view had been taken by the High Courts of Orissa, Madhya Pradesh and Chennai and that the Court needs to take a view on the matter.

HC held as under :

6.  For the reasons following, neither is there any need for reconsideration of the view taken inSigma Generators (P.) Ltd. v. Oriental Bank of Commerce [2015] 217 DLT 622 called for nor is there any merit in the arguments urged:

(A)  SARFAESI Act, as per its statement of objects and reasons, was enacted as a result of slow pace of recovery of defaulting loans under the existing legal framework and resultant mounting levels of NPAs of the banks and financial institutions and to fulfil the need for change in the legal system in respect of these areas and for facilitating securitisation of financial assets of banks and financial institutions by taking possession and sale thereof without the intervention of the Court.

(B)  When a new law is brought to fill the gaps in the earlier law on the subject, the Courts are not entitled to allow their vision and interpretation of the new law to be coloured by the principles evolved in the implementation and working of the old law and finding fault wherewith the new law was enacted. An interpretation which promotes the purpose underlying the Act needs to be preferred over that which defeats or impedes the same. 

(C)  SARFAESI Act, by section 13(2) thereof, empowers a secured creditor to, upon finding that the borrower has made a default in repayment of secured debt or any instalment thereof and that his account in respect of such a debt is classified as a NPA, require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice, failing which empowers the secured creditor to exercise all or any of the rights under sub-section (4) i.e. of taking possession of the secured assets and sale/transfer thereof etc.

(D)  Section 13(3) requires the notice to be issued under section 13(2) to contain the details of the amount payable and the secured assets intended to be enforced in the event of non-payment of secured debt by the borrower.

(E)  SARFAESI Act in its original form did not provide for any consideration by the secured creditor of the response, if any, made by the borrower to the notice under section 13(2).

(F)  The amendment with effect from 11-11-2004 of the SARFAESI Act was done and section 13(3A) was introduced providing that if the borrower makes any representation or raises any objection under section 13(2), the secured creditor shall consider such representation or objection and if the secured creditor does not find any merit therein he shall communicate so to the borrower within 15 days of receipt of such representation/objection. The proviso to section 13(3A) expressly provides that the rejection of the representations/objections or the reasons given therefor will not confer any right upon the borrower to prefer an application to the Debt Recovery Tribunal under section 17.

(G)  Supreme Court in Mardia Chemicals Ltd. v. Union of India [2014] 51 SCL 513 has expressly ruled that the scheme of SARFAESI Act does not envisage any remedy between the section 13(2) and 13(4) stage. The Supreme Court has further held that the borrower does not even have any right of hearing at the stage of section 13(3A). Once that is so, there can possibly be no right in favour of the borrower to seek judicial review of the decision of the creditor on the objections in the reply to the notice under section 13(2). The purpose of communicating the reasons for rejection of the objections, one re-iterates, as per Mardia Chemicals Ltd's case (supra), is only to furnish to the borrower the basis for the challenge under section 17 against the action at the section 13(4) stage.

(H)  The entire case of the appellant is premised on the argument that the decision of the secured creditor classifying the account of the borrower as NPA, is a 'jurisdictional' one and the remedy of judicial review is available thereagainst. The appellants has however though picked up the term "jurisdictional decision" but not even attempted to argue how a jurisdictional decision is different from any other decision pursuant whereto an authority under a statute is entitled to take action as provided therein. It is wondered whether all decisions, on the making whereof an action under a statute is predicated, would be jurisdictional decisions.

(I)  Such a proposition cannot be agreed with. If every decision on the taking whereof a statutory provision were to get invoked/activated, the need for the Supreme Court in the judgments relied upon by the appellants to label the fact/decision as jurisdictional one would not have arisen.

(K)  Moreover, if it was to be said that every fact upon the happening/existence whereof an action under a statute can be taken or an administrative authority is entitled to take action were to be held to be a jurisdictional fact and a writ to the High Court upon the same being challenged were to be maintainable, it would imply that a writ can be filed in all cases.

(L)  At least in the context of the SARFAESI Act, the same would totally nullify the purpose of enactment thereof. Therefore every such fact/decision cannot be a jurisdictional one.

(M)  Section 13(2) permits a secured creditor to issue the notice provided thereunder to the borrower if (a) the borrower has made a default in repayment of secured debt or any instalment thereof; and, (b) the borrower's account in respect of such debt is classified by the secured creditor as an NPA.

(N)  It thus follows that a mere default in payment of the debt or any instalment thereof does notipso facto make the borrowers account an NPA.

(O)  'NPA' is defined in section 2(o) as an asset or account of a borrower which has been classified by a bank or financial institution as substandard, doubtful or loss asset in accordance with the directions or guidelines relating to assets classifications by the Reserve Bank of India (RBI) or by any other authority or body which is administrating or regulating the bank or financial institution concerned.

(P)  The appellants have alongwith the appeal filed a copy of the letter dated 2-7-2012 of the RBI to all commercial banks enclosing therewith the updated "Master Circular relating to Prudential Norms on Income Recognition, Assets Classification and Provisioning pertaining to Advances". Clause 2.1.1 thereof provides that asset become a non-performing asset when it ceases to generate income for the bank and clause 2.1.2 thereof defines NPA as a loan or an advance where the interest and/or the instalment of principal remains overdue for a period of more than 90 days in respect of a term loan (which the appellants admitted to have taken from the respondent bank). Clause 2.1.3 thereof provides that bank should classify an account as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter. Thus as per the said circular of the RBI, read with section 13(2), the notice under section 13(2) can be issued not immediately on default in payment or any instalment thereof but on such default remaining overdue for more than 90 days.

(Q)   What emerges thus is, whether a decision of the bank that the default on the part of the borrower in repayment has remained over due for more than 90 days or not, can be called a jurisdictional decision/fact.

(R)  At this stage the plea of the appellants in this respect may be noticed. The appellants do not dispute that they availed of secured credit from the respondent bank. Their case is, (i) that as per the order dated 23-10-2013 of the DRT in an earlier proceeding between the parties, the loan account was ordered to be restructured and was restructured on 10-9-2014; (ii) that the quarter in which the loan account was so restructured ended on 31-12-2014; (iii) that even if the appellants were in default of payment for the said quarter, 90 days there from ended on 31-3-2015 and, thus, the action of the respondent bank of declaring account as a NPA prior thereto on 9-2-2015 was wrong.

(S)  The respondent bank in its decision on the objections/representations of the appellants to the notice under section 13(2) has reasoned —

(a)  That the term loan had remained unpaid and was classified as a NPA on 1-12-2009 and thereafter action under section 13(2) and 13(4) was initiated;

(b)  The re-against the proceeding aforesaid in the DRT under section 17 was filed;

(c)  That in compliance with the order of the DRT, the loan account was restructured and the revised Statement of Account was communicated on 1-9-2014 and again on 10-9-2014;

(d)  That the appellants though raised objections thereto but failed to respond with any specific error in the Statement of Account and instead filed an application in the disposed of proceedings in the DRT for recalculation of the interest and which application was dismissed on 31-1-2015;

(e)  The DRT in the said order itself directed the appellants to pay the admitted debt within 45 days;

(f)  That no payment was made in the said loan accounts since 1-9-2014 and the amount of Rs. 4,63,84,456.88 had fallen due with a principal amount of Rs. 3,97,34,719.77 was outstanding in one loan account and a principal amount of Rs. 24,97,556.55 was outstanding in another loan account;

(g)  That, thus, the loan account of the appellant had correctly been classified as a NPA.

(T)  The Single Judge in the impugned judgment has held —

(a)  That amounts were due and payable by the appellants to the respondent Bank with effect from October, 2014 and the challenge by the appellants to the Statement of Accounts had already been rejected by the DRT.

(b)  That the respondent bank in the said proceedings before the DRT itself had informed that the subject accounts had once again become a NPA and that the bank had, therefore, recalled the loan.

(c)  That the DRT in the concluding part of the order dated 30-1-2015 had also recorded that the bank had already recalled the loans.

(d)  That, thus, the amounts were due and payable by the appellants as on October, 2014 could in accordance with the Master Circular of the RBI be declared as NPA on 31-12-2014.

(U)  There is no reason to, in letters patent jurisdiction, interfere with the decision of the Single Judge on the challenge by the appellants to the accounts being classified NPA in accordance with RBI circular on 31-12-2014 and fully concur with the same.

(V)  A jurisdictional fact is one on existence of which depends the jurisdiction of a Court, Tribunal or an Authority. If the jurisdictional fact does not exist, the Court or Tribunal cannot act.

(W)  Supreme Court in Smt. Shrisht Dhawan v. Shaw Bros. [1992] 1 SCC 534 explained that error in assumption of jurisdiction should not be confused with mistake, legal or factual in exercise of jurisdiction. Applying the said fact, it is held that it is not as if it is not within the jurisdiction of the Bank to determine whether the account of the Bank is a NPA or not. The mistake if any by the Bank in holding the account to be an NPA would thus be a mistake in exercise of jurisdiction and not a mistake in assuming jurisdiction.

(X)  One draws strength for the aforesaid proposition from section 2(o) which vests the secured creditor with the power to classify an account as an NPA. The authority of the secured creditor in this regard cannot be questioned. Such authority of the secured creditor to classify the account of a borrower as an NPA has been recognized in Mardia Chemicals Ltd's case (supra) and in Transcore v. Union of India [2007] 73 SCL 11 (SC). All that was observed in Mardia Chemicals Ltd's case (supra) was that there must exist a specified internal channel which should settle the doubts in asset classification. The introduction of section 13(3A) has fulfilled the said requirement also.

(Y)  The question, whether declaration of an account as an NPA is a jurisdictional fact is no longerres integra. A Division Bench of the Court in Triton Corpn. Ltd. v. Karnataka Bank Ltd.[MANU/DE/1129/2011] held that a jurisdictional fact is one on the existence of which depends the jurisdiction of a Court, Tribunal or an authority and which fact if does not exist, the Court or tribunal cannot act. In contradiction, it was further held that the determination by the Bank whether the account of a borrower is a NPA or not, cannot be classified as jurisdictional fact but would fall in the category of adjudicatory facts relating to the merits.

(Z)  As far as the judgments cited by appellants are concerned, they all relate to adjudicatory authorities. In all the said cases the adjudicatory authorities, only if having jurisdiction, were required to adjudicate the respective claims. It was in this context held that if the authority had no jurisdiction it could not proceed with the adjudication. However the creditor bank/financial institutions in exercise of powers under section 13 does not exercise any adjudicatory function and after an account has been classified as NPA is not required to adjudicate anything further and is only required to take over the asset. The process under section 13(3A) can by no stretch of imagination be said to be adjudicatory. Moreover the question whether a borrower has committed any default in repayment and whether the account has been correctly classified as a NPA or not is a factual dispute which even otherwise ordinarily in writ jurisdiction is not to be entertained particularly when the fora for adjudication thereof i.e. DRT in the event of the bank taking further action, is prescribed. 

Accordingly, there is no merit in the appeal which is dismissed. The conduct of the appellants is found to be litigious. Though the appellants earlier invoked the jurisdiction of the DRT but inspite of DRT in its order dated 30-1-2015 directing the appellants to pay the admitted amount within 45 days the appellants did not pay the same. The reasons for the appellants having filed the instant proceedings are clearly dilatory and vexatious. The appellants before the DRT had recovered substantial cost from the respondent Bank. Having regard to the same, while dismissing the writ petition costs of Rs. 1 lakh is imposed on the appellants payable to the respondent bank.