Case at a Glance
SBI classified a steel company’s account as NPA retrospectively, pursued DRT, NCLT and SARFAESI remedies in quick succession, and then assigned the debt to an asset reconstruction company for Rs 250 crore while one-time settlement talks were on. The Calcutta High Court Division Bench upheld the bank. Without deciding the validity of the NPA classification or the assignment, the Supreme Court acted as a court of equity: it directed the borrower to pay the ARC a further Rs 125 crore within 12 weeks as full and final settlement, after which all securities must be released and the DRT and NCLT proceedings stand disposed of.
The appellant, a manufacturer of sponge iron, pig iron and allied products, borrowed from a consortium led by SBI. It relied on the RBI’s COVID-19 moratorium circulars of 27 March, 17 April and 23 May 2020, which extended relief to 31 August 2020. SBI classified the account as NPA with effect from 16 October 2020, communicating this by a letter dated 31 March 2021 after the Supreme Court lifted the bar on NPA classification in SSI Manufacturers Association v. Union of India, (2021) 03 SC CK 0069. It issued a recall notice on 17 January 2022, filed an original application before DRT-I Kolkata and a Section 7 IBC petition before NCLT Kolkata, and issued a SARFAESI Section 13(2) notice on 8 July 2022 demanding about Rs 410.27 crore.
Meanwhile, the borrower’s one-time settlement offers rose from Rs 227 crore to Rs 238 crore and it paid about Rs 25 crore, but the offers were not accepted. A web notice of 10 February 2023 put the loan up for e-auction, and on 24 March 2023 SBI assigned the debt to CFM ARC for Rs 250 crore. A Single Judge of the Calcutta High Court set aside the NPA classification, assignment and e-auction notice, but the Division Bench reversed on 25 July 2024. In the Supreme Court, a report by Justice Anil R. Dave was placed on record; it rejected the claim to pre-assignment dues and recommended a return of 13–15% on the Rs 250 crore.
The Key Question Before the Court
What equitable terms should govern settlement of the borrower’s debt with the ARC, given the bank’s conduct and the competing claims of the assignee?
Equity over strict entitlement
The Court noted that the NPA classification was made retrospectively and without regard to the RBI moratorium, and criticised SBI for initiating DRT, NCLT and SARFAESI proceedings in “quick succession” after rejecting the OTS, and for timing the assignment after settlement talks. It acknowledged, citing Transcore v. Union of India, (2006) 11 SC CK 0164, that the SARFAESI remedy is additional, and, citing ICICI Bank v. Official Liquidator, APS Star Industries, (2010) 09 SC CK 0043, that banks may transfer debts; and it noted from Bijnor Urban Cooperative Bank v. Meenal Aggarwal, (2021) 12 SC CK 0058 that a borrower cannot claim OTS as of right by mandamus. It expressly left open whether the NPA classification and the assignment were valid.
The assignee claimed the full dues of about Rs 453.83 crore as of 24 March 2023. The Court observed that the allegation about who funded the Rs 250 crore was not denied, financial statements were not produced, and the borrowing rate was not disclosed. Taking a 15% return as the benchmark and accounting for an 18-month delay, it fixed Rs 125 crore over and above Rs 250 crore as full and final settlement, “without going into the issue whether it is a return on investment or otherwise.” Describing itself as a court of equity, it balanced the interests of the parties and the employees of a running concern.
What the Court Actually Held
- The appellant shall pay the ARC (Respondent No. 2) a further Rs 125 crore within 12 weeks, in full and final settlement of all claims on the debt.
- On receipt, the respondents must return title deeds and release securities and guarantees within four weeks.
- The Section 7 IBC proceedings before NCLT Kolkata and the DRT-I Kolkata proceedings stand disposed of.
- If the appellant defaults within 12 weeks, the respondents may revive proceedings and the benefit of the judgment is lost; the validity of the NPA classification and assignment was left open.
Why This Judgment Matters
- It is a striking example of the Supreme Court using equity to settle a large corporate debt dispute and keep a running business alive.
- It flags concerns over retrospective NPA tagging that ignores RBI’s COVID moratorium.
- It signals that ARCs may not automatically recover full contractual dues over the price they paid.
What Should Advocates Take Away From the Judgment?
For Borrowers
- Document OTS offers and payments; the Court considered the borrower’s settlement efforts.
- Challenges to NPA classification during the COVID moratorium remain open questions on facts.
- Equitable relief comes with strict timelines — default revives the lender’s remedies.
For Counsel
- Assignment to an ARC is lawful in principle (ICICI Bank v. APS Star Industries), but timing and conduct can influence relief.
- Seek disclosure of the assignee’s funding and cost of borrowing when contesting claims for full dues.
- The Court did not decide debt value versus acquisition value; argue it afresh where relevant.
Key Takeaways
- Rs 125 crore on top of Rs 250 crore fixed as full and final settlement.
- Securities to be released within four weeks of payment; DRT and NCLT cases disposed of.
- Retrospective NPA classification and assignment during OTS talks drew criticism.
- Legality of NPA tag and assignment left open.
Frequently Asked Questions
Can a bank sell a loan to an ARC while settlement talks are going on?
The Court accepted that banks may transfer debts, but criticised the timing of the assignment here. It did not rule on the assignment’s validity and instead fixed equitable settlement terms.
Does the ARC get the full outstanding dues?
Not in this case. The ARC claimed about Rs 453.83 crore, but the Court fixed a further Rs 125 crore over the Rs 250 crore it paid as full and final settlement.
What happens if the borrower doesn’t pay on time?
If payment is not made within 12 weeks, the respondents may revive their proceedings and the borrower loses the benefit of the judgment.
Conclusion
Atibir Industries, (2026) 10 SC CK 3290 shows the Supreme Court’s willingness to cut through multi-forum recovery litigation and craft a practical solution. By fixing the ARC’s return rather than ruling on every legal point, the Court gave the lender a fair return and the borrower a path to survive.
Practical takeaway: In disputes over assigned NPAs, the assignee’s acquisition cost and the lender’s conduct can shape equitable relief; but such relief is time-bound and conditional.
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