State Bank Of India vs Atibir Industries Co. Ltd. & Anr APO 180 of 2023
Facts:
1) Two appeals directed against the judgement and order dated October 5, 2023, passed in WPO 722 of 2023 have been heard analogously as similar issues are involved, appeals are between the same parties and appeals are directed against the same judgement and order.
Issue: Whether the appeal can be allowed ?
Argument:
Appellant:
1) Counsel submitted that the Company obtained both fund and non-fund-based credit facilities from SBI. Such credit facilities have been sanctioned by a letter dated January 27, 2020. Referring to the letter of sanction dated January 27, 2020, he has pointed out that, amongst the fund based credit facilities, the borrower enjoyed cash credit as well as term loan facilities.
2) Counsel contended that, the account of the borrower became a non-performing asset 4 (NPA) on the date when the borrower had applied for restructuring of the credit facilities. Counsel submitted that account of the borrower became an NPA as of October 16, 2020. The account became irregular on January 17, 2020 itself. Moreover, sickness in the account of a borrower has to be treated borrower-wise and not account-wise. In support of such contention, he has relied upon the Master Circular of RBI.
3) Counsel contended that the learned Single Judge failed to appreciate that, when one account in the bunch of credit facilities enjoyed by a borrower becomes a nonperforming asset, then, the entirety of the credit facility is treated as NPA. He has contended that the learned Single Judge erred in concentrating only on the term loan account and holding such a term loan account did not become a NPA
Respondent:
1) Counsel submitted that ARC came across an e-auction notice dated February 10, 2023, issued by SBI concerning the borrower. ARC had participated in the eauction, became successful, and obtained the assignment of the stressed loan exposure of the borrower from SBI by way of a registered deed of assignment dated March 24, 2023. Then, SBI had already initiated proceedings under Section 7 of the Insolvency and Bankruptcy Code, 2016 against the borrower on March 10, 2022.
2) Counsel contended that ARC having obtained the assignment validly, the same should not be interfered with. It was submitted that asset classification is borrower-wise and not facility wise, in terms of the RBI Master Circular Prudential Norms on Income Recognition, Asset Classification and Provision Pertaining to Advance dated July 11, 2015, all accounts of the borrower have become NPA on October 16, 2020.
3) Counsel submitted that ARC has submitted that, despite receipt of the notice under Section 13(2) of the SARFAESI Act, 2002 dated July 8, 2022, the borrower did not reply thereto, or challenge the same. Accordingly, the borrower had accepted the classification of its account as NPA and is now estopped from challenging it.
Decision: HC allowed the appeal.
Rationale:
1) It noted that Nothing has been placed on record at the behest of the borrower either in the writ petition or in this appeal that, the account of the borrower was not an NPA under the cash credit limit being exceeded as of October 16, 2020, for 90 days or in excess thereof.
2) It held that Assuming that the borrower may claim the benefit of the doubt concerning the classification of the term loan account as NPA, then also, the account of the borrower so far as cash credit facilities are concerned, turned NPA, and therefore, the account was correctly classified as NPA by SBI
3) It held that the date on which the account should be considered as NPA or not for a sale under Section 5 of the Act of 2002, in the facts and circumstances of the present case, would be the date of publication of the web notice and need not be pinned to the date of NPA mentioned in the notice under Section 13 (2). The act of assignment or the process to assign the financial asset per se does not violate any right of the borrower. In the facts and circumstances of the present case, the borrower as the writ petitioner has failed to establish any action of SBI to be beyond the Act of 2002 or any binding directions of the Reserve Bank of India.
4) It noted that Unlike a civil suit filed under Order 37 of the Code of Civil Procedure, 1908, or a suit filed for compensation on account of storage, which does not statutorily empower the recipient of a demand notice to respond to and the issuer of such demand notice to deal with the response within a specified time, a notice under Section 13 (2) of the Act of 2002 can be responded to by the borrower and the secured creditor who has issued such notice is obliged to inform the reasons as to non-acceptance or non-tenability of the objection within the specified period of 15 days from the date of receipt of the response.
Order:
