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Judgment
R.S. Kulhari, J
This appeal has been preferred under section 18 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act") against the order dated 08.04.2019 passed by the Presiding Officer, DRT, Lucknow, whereby the S.A. filed by the respondents/borrowers was allowed.
The brief facts of the matter are that appellant-Bank granted various credit facilities to the respondent no. 1- company through its directors, to which the respondents No. 2 to 6 stood as guarantors and created equitable mortgage over their immovable properties in favour of the Bank to secure the loans. As the borrowers committed default in repayment of the loans, the accounts were classified as NPA on 01.06.2015. On the request of the borrowers, the accounts were restructured by the Bank on 18.08.2015 with certain conditions, but the borrowers failed to comply with the same. Therefore, the Bank initiated the recovery proceedings against the SA-applicants to recover the loans and issued the demand notice dated 23.05.2017 under section 13(2) of the SARFAESI Act demanding a sum of Rs. 12,72,11,369/-. On receipt of the demand notice, the respondents individually filed their objection/representation under section 13(3-A) of the SARFAESI Act on 10.07.2017, 19.07.2017 and 20.07.2017, which were separately replied and disposed off by the appellant-Bank. Since the borrowers did not pay any amount against the demand raised by the Bank, so the possession notice dated 05.08.2017 was issued under section 13(4) of the said Act and the same was published in the newspapers on 10.08.2018.
The respondents/borrowers challenged the proceedings of the Bank by filing the S.A. No. 379 of 2017 before the Tribunal below seeking setting aside the demand notice dated 23.05.2017, possession notice dated 05.08.2017 and further prayed that the Bank be restrained from taking physical possession of the secured assets.
The Tribunal below vide impugned order allowed the S.A. holding that since the respondent-Bank has issued the demand notice without classification of the loan accounts as NPA under the modified sanction granted on 18.08.2015, hence, the demand notice dated 23.05.2017 and possession notice dated 05.08.2017 are void ab- initio. Further, the Bank was restrained from taking the physical possession of the secured assets. Being aggrieved by the said order, the present appeal has been filed by the appellant-Bank.
Learned counsel for the appellant-Bank submitted that the S.A.-applicants had raised various issues alleging that the representations filed by the borrowers were not disposed off and the possession notice was not properly served and published. The Tribunal below observed that the Bank has complied with the provisions of the statute, hence those issues were decided in favour of the Bank. The borrowers had not categorically pleaded that the accounts were wrongly declared as NPA, but the Tribunal below has developed its own case and held that fresh loans were sanctioned, so the Bank was required to again declare the assets as NPA. In fact, the assets were declared as NPA on 01.06.2015, but on the request of the borrowers, the loan accounts were restructured and accordingly, one more opportunity was granted to the borrowers to regularize their accounts, but they had failed to pay the principal as well as the interest, therefore, the Bank had proceeded further for issuing the demand notice on 23.05.2017. There was no necessity to classify the accounts again to be NPA as per the guidelines issued by the Reserve Bank of India. The account may be upgraded only in case the overdue amount along with interest is paid after restructuring of the account. Thus, the order of the Tribunal below is perverse and against the record. Therefore, the appeal be allowed.
On the other hand, the learned counsel for the respondents contended that after classification of the accounts as NPA on 01.06.2015, fresh loans were sanctioned and new documents were executed, therefore, the earlier declaration of the accounts as NPA became redundant. As per contents of the demand notice, the borrowers had failed to pay the interest upto 31.12.2015, then it was not possible to declare the accounts as NPA w.e.f. 01.06.2015, hence the Bank ought to have classified the accounts as NPA after 31.12.2015 and could not have proceeded on the basis of earlier NPA as on 01.06.2015. Thus, the Tribunal below has rightly set aside the proceedings of the Bank.
I have considered the rival contentions of the learned counsels for the parties and perused the record.
It is observed from the impugned order that the S.A.- applicants have alleged the non-disposal of the representations submitted under section 13(3-A) of the SARFAESI Act, non-service of possession notice and some objection with regard to NPA. The Tribunal below decided the main issues in favour of the Bank, holding that the representations were duly disposed off and the possession was taken after complying with the provisions of the Rules 8(1) and (2) of the Security Interest (Enforcement) Rules, 2002. However, it has set aside the proceedings of the Bank mentioning that the modified sanction was issued on 18.08.2015, therefore, the Bank was required to classify the accounts as NPA after such sanction and the guidelines of the Reserved Bank of India with regard to restructuring of the loan are not applicable on the facts of the present case. Thus, the sole question for consideration before this Tribunal remains to be, as to whether it was a fresh sanction of the loans or it was restructuring of the previous loans, so the Bank was justified in proceeding further on the basis of earlier declaration of the accounts as NPA?
A perusal of the pleadings of the S.A. reflects that the S.A.-applicants have never pleaded that it was any fresh sanction of the loans nor that the Bank has wrongly declared the accounts as NPA. A casual reference has been made that the Bank has not given information of NPA nor any letter was sent to this effect. However, in supplementary affidavit, some reference of declaration of NPA has been mentioned. Thus, it cannot be said that it was a specific case of the S.A.-applicants that the Bank had sanctioned any fresh loan, whereby the Bank was required to again declare the accounts as NPA.
Now, coming on merit of declaration of the accounts as NPA, the undisputed facts are that the Bank had considered the proposal of borrowers for restructuring of the loan accounts. The same has been specifically mentioned in the meeting of the proposal committee held on 28.05.2015 that it was a "review with structuring proposal for a period of 12 months" (page 132 of memo of appeal). The restructuring of the accounts was conveyed to the borrowers. Thereafter, the borrower- company had taken resolution on 29.05.2015 (page no. 136 of the memo of appeal) acknowledging the review with restructuring‟ proposal and thereafter signed various documents on 30.05.2015. The modified sanction was issued on 18.08.2015, whereas the accounts were declared as NPA on 01.06.2015.
Thus, it is clear that it was not a fresh sanction of loans, but the restructuring of the earlier loan accounts was made considering the prevailing situation of loan accounts at that relevant time. The earlier sanctioned limit for various accounts was Rs. 925.00 lacs, whereas the restructured sanction was Rs. 1024.64 lacs with certain conditions including that the borrowers shall deposit the overdue amount and interest from time to time. The charge on the secured properties remained continued. No fresh loan was sanctioned for any specific purpose. Thus, the Tribunal below has misconstrued to treat the restructuring of the loans as fresh sanction of the loans.
With regard to restructuring of the loans, specific guidelines have been issued by the Reserve Bank of India. The relevant portion qua restructuring is reproduced herein under:-
"17.2.2 The non-performing assets, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per extant asset classification norms with reference to the pre-restructuring repayment schedule.
17.2.3 Standard accounts classified as NPA and NPA accounts retained in the same category on restructuring by the Bank should be upgraded only when all the outstanding loan/facilities in the account perform satisfactorily during the specified period (annex-5) i.e. principal and interest on all facilities in the account are serviced as per terms of payment during that period.
17.2.4 In case, however, satisfactory performance after the specified period is not evidenced, the asset classification of the restructured account would be governed as per the applicable prudential norms with reference to the pre-restructuring payment schedule."
A bare reading of the above guidelines goes to show that the nature of the accounts declared as NPA could not be changed unless the overdue amount and interest are paid by the borrowers and the account cannot be upgraded as "standard" only because of restructuring of the loan. Since the borrowers have not regularized their accounts nor even paid interest, therefore, there was no question of upgrading of their accounts and the same continued as NPA w.e.f. 01.06.2015.
It is not the case of the borrowers/respondents that they have ever regularized their accounts after modified sanction/restructuring and even they have not alleged that there were no valid grounds for declaration of the accounts as NPA on 01.06.2015. A scrutiny of the documents furnished by the Bank indicates that there was an amount of Rs. 42.60 lacs overdue as on 28.05.2015 at the time of consideration of the proposal by the competent proposal committee (page no. 132 of the memo of appeal) for restructuring of the loans. Thus, the Bank has rightly classified the accounts to be NPA w.e.f. 01.06.2015.
In view of the above, there is no irregularity/illegality in the proceedings of the Bank and the impugned order passed by the Tribunal below is not sustainable.
Resultantly, the appeal is allowed and the impugned order dated 08.04.2019 passed by the Tribunal below is set aside. No order as to costs.
A copy of this judgment be uploaded on the e-DRT portal and be also sent to the DRT concerned.