Banks can recover loan under SARFAESI Act: HC

Fayaz Bukhari
Srinagar, July 9: The High Court has dismissed the plea of a constructing company for setting aside the notice for recovery of loan amount of Rs 10 crores, issued by the bank under Secrutinisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act 2002.
M/s Mir Constructions Pvt Limited approached the High Court through a writ petition challenging the notice of Jammu and Kashmir Bank issued under Section 13(2) of the Secruti-nisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002 for liquidation of loan amount along with interest.
The main challenge to the recovery notice is that it has been issued in violation of the guidelines of the Reserve Bank of India and is, therefore, liable to be quashed. The plea of the company is that the bank did not adhere to the guidelines of the Reserve Bank of India regarding classification of assets as non performing.
As the High Court has dismissed the petition and rejected the plea of quashing the recovery notice issue by the bank, the bank authorities are at liberty to proceed ahead against the petitioner-company under Section 13(2) of the SARFAESI Act, 2002 and may seal and auction the assets.
It was also contended that since the classification of an asset as a Non Performing Asset (NPA) is a pre-condition for the issuance of a notice under Section 13(2), when the said pre-condition is not satisfied in accordance with the law, the notice itself would be bad in law and would be liable to be challenged by way of a writ petition under Article 226 of the Constitution of India read with Section 103 of the Constitution of Jammu and Kashmir.
However, in the recovery notice issued against the company in January this year bank has stated that the company had defaulted in repayment of the secured debt in violation of the terms agreed upon and, therefore, the petitioner’s account had been classified by the bank as a Non Performing Asset with effect from June 2016 as per the guidelines/ directions of the Reserve Bank of India.
It may be mentioned here that Supreme Court has held that the banks can proceed ahead against the defaulters by invoking SARFAESI act. “Before going into the merits of the case, it is important to note that SARFAESI is an enactment which entitles banks to enforce their security interest outside the court’s process by moving under Section 13 thereof to take possession of secured assets of the borrower and sell them outside the court process”, Supreme Court says adding with “As a result, notices issued by banks in terms of Section 13 and other coercive methods taken under the said Section are valid and can be proceeded with further”.
Division Bench of Chief Justice Badar Durez Ahmad and Justice M K Hanjura while hearing both the parties at length said the bench is concerned with an overdraft facility of Rs 9 crores to the company.
It is the case of the bank that in respect of the said overdraft facility, the outstanding balance remained continuously in excess of the sanctioned limit/ drawing power for 90 days and that is why it was classified as a Non Performing Asset.
“We may point out that the outstanding balance in the overdraft facility which was extended by the respondent bank to the petitioner had crossed the Rs 9 crore sanctioned limit in November, 2015, itself and continued to be outstanding for a period of over 90 days”, the DB recorded.
Bank itself sent a demand notice calling there-in the petitioner to pay the amount of Rs 9,82,27,146 with further interest and to discharge its liabilities towards the Bank in full within a period of 15 days from the date of notice, failing which the Bank would be constrained to initiate appropriate action.
Thereafter another notice has been issued by the respondent Bank to the petitioner wherein it was clearly indicated that after the overdraft facility, the petitioner had defaulted in repaying the same as per agreed terms and conditions of the sanction letter and that the account had been classified as NPA as on 30.06.2016 and by virtue of the said notice, the petitioner was called upon once again to pay the bank the amount of Rs. 10,87,68,048.72 with further interest thereon with effect from 01.12.2016 and discharge its liability towards the Bank in full within a period of 30 days from the date of the notice but the petitioner did not respond to this notice at all.
“We must note that the learned counsel for the respondent bank submitted that under the RBI circular there is no provision for any notice to be issued to the borrower prior to the borrower’s account being classified as an NPA. He further submitted that there is no requirement of giving any opportunity of hearing in the said guidelines before classification of an account as NPA”, the judgement read.
Court after having regard of the various Supreme Court rulings forwarded by both the parties in support of their arguments held that it is clear that the petitioner has no case.
“It also had an alternate remedy of making a representation in response to the Section 13(2) notice which it availed of.. Therefore, in the light of these circumstances, we reiterate that the petitioner has no case. The writ petition is dismissed. All interim applications also stand disposed of. There shall be no order as to costs”, Division Bench concluded.

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