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Judgment
Ranjit Singh, J
S.A. filed by the appellant has been dismissed by the Tribunal below on 13.2.2014. Aggrieved against the same, the appellants has filed the present appeal to impugn the said order of the Tribunal below. Before filing the present appeal, the appellant had filed a Writ Petition before Hon'ble High Court of Rajasthan, challenging the action of the Bank in declaring the accounts of the appellant as NPA. The said Writ Petition was, however, got dismissed on 21.3.2014 with liberty to file appeal before this Tribunal. Consequently, the appellant has filed the present appeal on 21.4.2014. Since the appeal was filed with delay of 37 days, notice was issued on the application seeking condonation of delay as well as on the application praying for waiver of the requirement of pre-deposit.
The delay in filing the appeal was condoned on 19.9.2014. The prayer for waiving the amount of pre-deposit was considered on 12.11.2014. It was conceded by the Bank in its reply filed to this application that Rs. 90.50 lac was deposited after service of notice under Section 13(2) of the SARFAESI Act. This was approximately 31% of the notice amount. In view of this, the prayer made in the waiver application was allowed directing that the appellant need not make any further deposit and the remaining amount required to be deposit as pre-deposit was waived.
The Bank has filed reply on merits. When the case came up for hearing on 9.2.2015, the Counsel for the appellant made a statement that the appellant has a proposal for settlement which it would wish to submit before the Bank. After hearing the proposal, the appellant was given time to seek settlement with the Bank. In this proposal, the appellant had prayed that it will discharge the liability by paying installment of Rs. 5 lac per month and would also make a lump sum payment of Rs. 60 lac in June 2015. The appellant accordingly showed its intention to pay the notice amount with interest in this manner. This proposal was rejected by the Bank by pointing out that amount due was Rs. 3.42 crore and statement to this effect was made before this Tribunal. The appeal accordingly was adjourned for argument on merit and is, therefore, being heard today.
The sole submission made by the Counsel for the appellant is that the account of the appellant was wrongly declared NPA in violation of the guidelines issued by the RBI. In this regard, the Counsel for the appellant would refer to the RBI guidelines placed on record. As per the Counsel, Clause 2.1.3 of the RBI guidelines provides that:
"Banks 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."
The Counsel would accordingly submit that the account could have been classified as NPA only if the interest due and charged during a quarter is not paid fully within 90 days from the end of the quarter. As per the Counsel, the account was declared NPA on 16.7.2011 which would be in violation of Clause 2.1.3 reproduced above.
In support of his plea, the Counsel would refer to the statement of accounts to point out that interest of Rs. 1,25,765/- was debited on 30.4.2011 and another interest of Rs. 3,313/- was debited on the same date. As per the Counsel, the account could have been declared NPA if this interest due and charged was not fully paid within 90 days from the end of the quarter. Thus, according to the appellant, the account could only have been classified NPA after 90 days from 30.4.2011, which date would be 30.7.2011. The Counsel, therefore, submits that the action of the Bank in classifying the account as NPA on 16.7.2011 as is given in the notice under Section 13(2) of the SARFAESI Act is in violation of the RBI guidelines.
To further substantiate this aspect, the Counsel would refer to an application filed by the Bank before the Judicial Magistrate under Section 14 of the SARFESI Act, where the Bank has mentioned the date of NPA as 30.9.2011. The Counsel would, therefore, contend that by this act of the Bank, wrong declaration of the account as NPA on 16.7.2011 shall stand conceded. Counsel for appellant would contend that the date of NPA being 30.9.2011 would be correct as per the RBI guidelines.
The Counsel for the appellant has also made mention of settlement proposal which was considered by the Bank and had agreed to accept the amount Rs. 2,65,49,296/- as per the formula given in the scheme of OTS against the outstanding amount of NPA Rs. 2,83,86,486.41. The Bank had even subsequently agreed to settle the amount on payment of Rs. 2,51,52,942/- against the earlier OTS proposal. As per the Counsel, the appellant could not maintain financial discipline primarily because third party default, it being sub-contractor of Soma, as the work for almost three years had remained standstill. The plea by the Counsel is that the appellant may be given some concession in the rate of interest for the period of three years and given some time to make the payment as now it has commenced work as subcontractor and would be in a position to discharge liability of the Bank.
The Counsel for the Bank, on the other hand, would refute the submissions made by the Counsel for the appellant. He would submit that the account was rightly classified as NPA on 16.7.2011 which was in terms of the instructions/guidelines issued by the RBI. Counsel would refer to various facilities that were granted to the appellant, one of which was Cash Credit limit of Rs. 75 lac. In this background, the Counsel would refer to the definition of NPA as given in the Circular relied upon by the Counsel for the appellant. He would refer to Clause 2.1 where the Non Performing Asset is defined. As per the Counsel, Clause 2.1.2 defines a Non Performing Asset as a loan or advance where the account remains 'out of order' as indicated at Para 2.2 of the Circular in respect of an Overdraft/Cash Credit (OD/CC). Counsel would say that for determining the NPA so far Cash Credit is concerned, the relevant para is 2.1.2 and not 2.1.3 relied upon by the Counsel for the appellant. It may be essential to refer and reproduce this Clause 2.1, which is as under:-
2.1. Non Performing Assets.
2.1.1. An asset, including a leased asset, becomes non performing when it ceases to generate income for the Bank.
2.1.2. A non performing asset (NPA) is a loan or an advance where--
(i) interest and/or installment of principal remain overdue for a period of more than 90 days in respect of a term loan,
(ii) the account remains 'out of order' as indicated at Paragraph 2.2 below, in respect of an Overdraft/Cash Credit (OD/CC),
(iii) the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
(iv) the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops,
(v) the installment of principal or interest thereon remains overdue for one crop season for long duration crops,
(vi) the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006.
(vii) in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment."
The Counsel would then refer to Clause 2.2. which defines 'out of order' status of an account. This clause reads thus:
"Out of Order" status
An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'."
The out of order account is the outstanding balance when it remains continuously in excess of the sanctioned limit/drawing power. In this respect, the Counsel for the Bank would refer to the statement of account so far as Cash Credit account is concerned. As per entry 18.4.2011 in the statement of accounts, the Cash Credit limit had exceeded Rs. 75 lac and it continued to remain so above Rs. 75 lac thereafter. The Counsel would, therefore, contend that once the account of Cash Credit limit has remained out of order being continuously in excess of sanctioned limit/drawing power and no credit had been received, these accounts are to be treated out of order. As per Clause 2.1.2., when the accounts remain out of order in respect of overdraft/cash credit limit, then the same can be declared as non performing asset, i.e., NPA.
The Counsel would further point out that counting the days from 18.4.2011 up to 16.7.2011, period of 90 days is made out and thus the Cash Credit limit account had rightly been classified as NPA on 16.7.2011. As per the RBI guidelines, if one account is classified as NPA then the other facilities and accounts pertaining to the same borrower are required to be classified as NPA. The Counsel submits that question of reversal of income referred to and highlighted by the Counsel for the appellant in this background has no relevance.
To justify the act of mentioning the NPA to be 30.9.2011, the Counsel for the Bank would submit that the accounts were classified as NPA, in fact, from 16.7.2011, whereas, these accounts were declared as NPA on 30.9.2011 at the end of a quarter. In this regard, the Counsel has drawn a distinction between classification of an account as NPA which is generated by the computer and declaration which is done at the end of quarter and was accordingly done at the end of the quarter on 30.9.2011.
I have considered the submissions made before me. I find that the appellant is not well advised to rely upon Clause 2.1.3 of the Circular to urge that the account was wrongly declared as NPA. For declaring the Cash Credit account as NPA, Clause 2.1.2 would be relevant as that would regulate the manner in which the Cash Credit account is to be declared as NPA. The Bank had rightly classified the account as NPA w.e.f. 16.7.2011 which was declared as such on 30.9.2011, In any case, mentioning the date in the application before the Judicial Magistrate for taking possession of the property would not have effect on the classification of the account as NPA. The Judicial Magistrate otherwise has no jurisdiction to go into the issue if the account was rightly declared as NPA. I also do not find any infirmity on the part of the Bank in making a mention that the account was declared NPA on 30.9.2011 which has been justified by the Bank in the manner as noticed above. I, therefore, do not find any substance in the submission made by the Counsel or the appellant in this regard.
I have already considered the prayer of the appellant and had afforded it an opportunity to settle the account with the Bank. The proposal given by the appellant to the Bank did not find favour with the Bank. The Counsel for the appellant has not been able to show any precedent that this Tribunal would be competent to direct the Bank to enter into a compromise as it is a matter to be decided between the borrower and the lender Bank. If the proposal submitted by the appellant has been rejected, then the appellant can still approach the Bank with viable better proposal as the OTS which was earlier agreed upon by the Bank would not have much relevance at this stage. The submission by the Counsel for the appellant that this Tribunal should grant some concession in the rate of interest for the period of three years when the appellant was not in a position to work is a prayer which may also appear to be beyond the acceptable grounds of jurisdiction which this Tribunal can exercise. Merely because the appellant was unable to carry out the work without any fault on the part of the Bank would be enough to dispel the submission in equity or in law. The question of grant of any concession in the rate of interest for the period of three years as prayed, therefore, again cannot be accepted.
I find no merit in the appeal and, therefore, would dismiss the same.