M/S Luhit Commercials vs Punjab National Bank

Anil Kumar Srivastava, Chairperson

THE APPELLATE TRIBUNAL :

Instant appeal has arisen against the order dated 12.09.2022 passed by learned DRT, Guwahati in S.A. No. 02 of 2022 whereby the S.A. was dismissed. Feeling aggrieved the appellant preferred the appeal.

At the very outset it is to be observed that appellant no.1, Luhit Commercial, represented by appellant no.2, Mrs. Dipika Rani Buragohain, who is the sole proprietress of the appellant no.1,partnership firm. Appellant no.3 is the son of appellant no.2 and appellant no.4 and 5 are children of appellant no.2.

It appears from the record that cash credit limit was sanctioned by the respondent bank in favour of appellant no.1 wherein appellant no.2 is the proprietress while appellant no.3 is the guarantor. Cash credit limit was also sanctioned by the bank in favour of appellant no.3 in his personal name wherein appellant no.2, mother, is the guarantor. Loan account of appellant no.3 became irregular and was classified as NPA on 31.12.2018. In the meantime, appellant no.2 intended to substitute appellant no.3 as proprietor of appellant no.1, partnership firm. An affidavit to this effect was also sworn on 01.10.2015 by appellant no.3, but this change was not acceptable to the bank. Hence Writ Petition No. 3601 of 2020 was filed before the Hon’ble High Court seeking direction upon the bank to incorporate the change inthe partnership firm in the bank record. Hon’ble High Court has directed to hold a joint meeting in the bank. In the meantime, pending writ petition, GECL loan was sanctioned in favour of the appellant on 30.10.2020. Ultimately, Hon’ble High Court disposed of the writ petition on 05.04.2021 after considering the affidavit filed by appellant no.3, bank was directed to sanction the GECL loan, which was complied. It was further observed that once the account standing in the name of appellantno.3, who is under liquidated, classified as NPA, then the name of the proprietor of said partnership firm shall not be changed in the name of appellant no.3. Thereafter, a recall notice dated 07.04.2021 was made indicating that cash credit account of appellant no.3 has became irregular for which request to recall of the notice was made, but not accepted by the bank. Request was also made for restructuring the loan account in terms of RBI resolution.

Notice u/s 13(2) of the SARFAESI Act, 2002 was issued by the bank on 17.08.2021 claiming dues of Rs.92,17,302.30. Thereafter, SARFAESI actions were initiated by the bank communicating the account as NPA on 31. 03.2021. Certain representations were made by the appellant. SARFAESI actions were continued and were challenged by the appellant in different courts wherein ground of challenge was that classification of NPA was against the law as well as against the RBI guidelines/circulars. Learned DRT after considering documents made by the learned counsel for the parties passed an order dismissing the S.A. holding that classification of loan account as NPA was in accordance with law.

Admittedly the loan account was settled between the parties and no objection certificate was also issued by the bank in favour of the appellant, although learned counsel for the appellant would submit that it was accepted under protest, but that issue is not relevant here.

However, after receiving no objection certificate, learned counsel for the appellants merely pressed the appeal on the issue of classification of NPA by the bank. Learned counsel for the appellant has placed reliance upon Para No. 2.2.1 of RBI guidelines dated 01.04.2022. It is submitted that as per the guideline there are following conditions in which action can be taken as provided in Para

2.1 which reads as under :

“2.2.1 – CC/OD account shall be treated as ‘out of order’ if:

(i) The outstanding balance in the CC/OD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or

(ii) The outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or the outstanding balance in the CC/OD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 90 days period.”

Learned counsel for the appellant submits that if the account of the appellant no.3, Sri Prayag Pulin Buragohain, was classified as NPA, then on that ground only account of appellant no.1, Lohit Commercial, could not be classified as NPA as the appellant no.2, proprietress of appellant no.1 firm, is the guarantor of the loan account of appellant no.1. Learned counsel further submits that on this ground alone appellant is pressing the appeal.

Per contra, learned counsel for the respondent bank has placed reliance upon Para 2.2.2 of the RBI guideline/circular dated 01.07.2014, which reads as under :

“2.2.2 – Treatment of NPA’s - borrowerwise and not facilitywise

(i) In respect of a borrower having more than one facility with a bank, all the facilities granted by the bank will have to be treated as NPA and not the particular facility or part thereof which has become irregular.

(ii) However, in respect of consortium advances or financing under multiple banking arrangement, each bank may classify the borrower’s accounts according to its own record of recovery and other aspects having a bearing on the recoverability of the advances.”

However, same guidelines find place in Para 4.2.7.1of the RBI circular dated 01.04.2022, which reads as under:

“4.2.7.1 – It is difficult to envisage a situation when only one facility to a borrower/one investment in any of the securities issued by the borrower becomes a problem credit/investment and not others. Therefore, all the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower will have to be treated as NPA/NPI and not the particular facility / investment or part thereof which have become irregular.”

Now it is to be seen as to whether the classification of account as NPA by the bank was in accordance with law and the RBI guidelines or not?

Admittedly, guidelines are issued by the RBI under the authority of law and these guidelines are binding upon the bank and other financial institutions as well as borrower and guarantors. These guidelines have a statutory force. The guidelines of 01.07.2014 was reiterated in the guidelines of 01.04.2022wherein it is specifically mentioned that treatment of NPA shall be borrowerwise and not facilitywise. In the guidelines specific directions were issued to the effect that if a borrower having more than one facility with a bank, then all the facilities granted by the bank will have to be treated as NPA and not the particular facility or part thereof which has become irregular. This provision decides the whole controversy. Although learned counsel for the appellant has placed reliance upon Para 2.2.1 of the RBI guideline dated 01.04.2022, but that conditions have to be read with the conditions in Para 2.2.2 of 01.07.2014 RBI guideline. Although, all the guidelines in 2014 or 2022 are similar. It is true that condition of the guidelines has to be followedwhen an account become out of order, but this condition would have to be read subject to the conditions in Para 2.2.2 of 2014 wherein specific guidelines are issued that the treatment of NPA shall be borrowerwise and not facilitywise.

In the present case the account of the appellant no.3, Prayag Pulin Buragohain, which was in his personal name, was classified as NPA. He was a guarantor in the account of appellant no.1, Lohit Commercial. As would be apparent from the possession notice dated 23.12.2021 that appellant no.2, Smt. Dipika Rani Buragohain, was the proprietressand borrower of appellant no.1, Lohit Commercial, and appellant no.3, 4 and 5 were the guarantors. Hence, in accordance with the guidelines of RBI, classification of NPA has to be made borrowerwise and not facilitywise. Accordingly, when one account of appellant no.3 got irregular and was classified as NPA, then account of appellant no.1, Lohit Commercial, wherein appellant no.3 was guarantor, was rightly classified by the bank as NPA.

Accordingly, I do not find any illegality in the impugned order passed by the learned DRT. Loan account of appellant no.1 was rightly classified as NPA by the bank. I do not find any merit in the appeal. No other issue on merits in the appeal was pressed by the appellants. Accordingly, appeal is liable to be dismissed.

ORDER

Appeal is dismissed.Impugned order dated 12. 09.2022 passed by learned DRT is confirmed.No order as to costs.

File be consigned to record room.

Copy of the order be supplied to the appellant and the respondent and a copy be also forwarded to the concerned DRT.

Copy of the judgement/Final Order be uploaded in the Tribunal’s website.

Order dictated, signed and pronounced by me in the open Court on this the 29 day of April, 2024..