Capital Electronics And ... vs Reserve Bank Of India And Others
2021 Latest Caselaw 66 Cal

                       In the High Court at Calcutta
                      Constitutional Writ Jurisdiction
                               Appellate Side

The Hon'ble Justice Sabyasachi Bhattacharyya

                             W.P.A. No. 9226 of 2020
           Capital Electronics and Appliances Ltd. and others
                                   Vs.
                    Reserve Bank of India and others


For the petitioners      :       Mr. Anirban Roy,
                                 Mr. Ranajit Chatterjee,
                                 Mr. Arijit De,
                                 Mr. Aniruddha Mitra,
                                 Ms. Deblina Banerjee

For the R.B.I            :       Ms. Suchismita Chatterjee (Ghosh),
                                 Mr. Malay Kumar Seal

For the respondent

nos. 3 and 4             :       Mr. Jishnu Choudhury,
                                 Ms. Sani Ojha,
                                 Ms. Aishwarya Chatterjee

Hearing concluded on     :       22.12.2020

Judgment on              :       07.01.2021


Sabyasachi Bhattacharyya, J:-

1. The petitioner no. 1 is a non-government company registered under

the Companies Act, 2013. Petitioner nos. 2, 3 and 4 are its directors.

The cash credit facility given to the petitioner no.1-company was

classified as Non-Performing Asset (NPA) on February 28, 2020.

Subsequently, the respondent-bank issued notice to the petitioners

under Section 13(2) of the SARFAESI Act, 2002 on August 17, 2020,

apparently followed up by proceedings under Section 13(4) of the 2002

Act, as claimed by the respondent-bank.

2. The petitioners had applied for an One-Time Settlement (OTS).

3. Learned counsel for the petitioners alleges that the bank sat tight over

the OTS proposal on one hand and proceeded under the 2002 Act by

rendering the company accounts NPA on the other.

4. Learned counsel submits that the OTS proposal of the petitioners

comes within the purview of the RBI Master Circular, dated July 1,

2015, which grants relief to corporate entity in the pandemic

situation. Placing reliance on Clause 2.1 of the Master Circular, laying

down Prudential Norms on Income Recognition, Asset Classification

and Provisioning pertaining to Advances, learned counsel for the

petitioners submits that an asset, including a leased asset, becomes

non-performing when it ceases to generate income for the bank.

Clause 2.1.2 (i) stipulates that a loan or an advance where interest

and/or instalment of principal remains overdue for a period of more

than 90 days in respect of a term loan is treated as NPA.

5. Clause 2.1.3 provides that in case of interest payments, banks should

classify an account as NPA only if the interest issued and charged

during any quarter is not serviced fully within 90 days from the end of

the quarter.

6. An account should be treated as 'out of order', Clause 2.2 provides, if

the outstanding balance remains continuously in excess of the

sanctioned limit/drawing power for 90 days.

7. Clause 2.3 defines 'overdue' to be any amount due to the bank under

any credit facility if not paid on the due date fixed by the bank. By

placing particular reliance on Clause 2.1.3, learned counsel for the

petitioners argues that the classification of the petitioner's account as

NPA was premature.

8. Even apart from the argument that the RBI Circular-in-question as

well as the subsequent RBI Circular dated March 1, 2020, issued in

view of the pandemic scenario, are applicable to the OTS proposal of

the petitioners, learned counsel for the petitioners contends that the

classification of the petitioners' accounts as NPA as on February 28,

2020 was an afterthought to suit the purpose of the respondents.

Learned counsel submits that the relevant publication on the

concerned website and the correspondence of the bank shows that it

was admitted even on March 16, 2020 that the account was NPA 'as

on date', implying such asset classification as NPA to operate from

that date itself. As such, the account of the petitioners with the

respondent-bank was a Standard Account even on March 1, 2020,

attracting the financial relief given by the 2020 Circular to the

petitioners. By placing reliance on the statement of accounts annexed

at page-96, learned counsel argues that even the bank's own accounts

reveal that interest was charged on the petitioner's loan as late as on

February 29, 2020, belying the bank's contention that the account

was already NPA on the previous date. The bank's e-mail

communication at page-106, dated March 16, 2020 reflects that the

petitioners were alleged not to have cleared the overdue in the loan

accounts of the company rendering the loan account NPA as on that

date.

9. However, the respondent-bank communicated to the petitioners on

June 29, 2020 by speed post (annexed at page-119 of the writ

petition) that the company accounts had been classified as NPA 'with

effect from' February 28, 2020 in the bank's books in accordance with

RBI Guidelines. This, it is argued by the petitioners, is an attempt to

deprive the petitioners of the RBI relief package to the petitioner by

retrospectively rendering the Standard Account of the petitioner NPA

post facto. It was beyond the authority of the bank to intimate on June

29, 2020 the apparently retrospective classification of the accounts of

the petitioner no.1 as NPA with effect from February 28, 2020.

10. Learned counsel for the petitioners places further reliance on the RBI

Circular dated February 11, 2020 (annexure P9 at page-190 of the

writ petition) which permits an one-time restructuring of existing

loans to MSMEs classified as 'standard' without a downgrade in the

asset classification, subject to certain conditions.

11. Counsel next places the RBI Circular dated March 27, 2020 (at page-

192 of the writ petition) which, he contends, is a continuation of the

February 11 Circular. Therein, it is provided that the banks and

financial institutions are permitted to grant a moratorium of three

months on payment of all instalments falling due between March 1,

2020 and May 31, 2020 in respect of term loans and working capital

facilities. The repayment schedule for such loans as also the residual

tenor, the Circular provides, would be shifted across the Board by

three months after the moratorium period. Learned counsel argues

that the petitioner's account was classified retrospectively as NPA to

avoid application of the said Circular.

12. The petitioners rely on an extract from the National e-Governance

Portal at page-198 of the writ petition, to substantiate the argument

that even as per the information published on the website as on April

30, 2020, the number of days the instalments were overdue was 32.

From a CIBIL report annexed at page-201 of the writ petition, learned

counsel for the petitioners contends that the account of the petitioners

was first shown to be overdue in February, 2020. Thus, it was not

possible for the account of the petitioners to be classified as NPA on

February 28, 2020.

13. It is argued that even if the OTS proposal of the petitioners is held to

fall beyond the pale of the RBI Circulars, the petitioner no.1-company

is, in any event, entitled to get the benefits of the Circulars even

without any OTS scheme, which has been denied by the respondents.

14. Learned counsel cites paragraph no. 22 of Andi Mukta Sadguru Shree

Muktajee Vandas Swami Suvarna Jayanti Mahotsav Smarak Trust and

Others vs. V.R. Rudani and others reported at (1989) 2 SCC 691 in

support of the proposition that even violation of fundamental rights on

the part of a private body may be amenable to the writ jurisdiction.

15. Learned counsel also relies on the unreported judgment of the

Karnataka High Court in Velankani Information Systems Limited vs.

Secretary, Ministry of Home Affairs and others to argue that the RBI

Circular was issued in public interest, attracting a public law element

and permitted the grant of moratorium to all borrowers so as to keep

the viable borrowers/businesses running. In the event the business of

the petitioner is viable, the petitioner has a right to such moratorium

without being left to the discretion of the bank. In the present case,

since the account of the petitioner no. 1 was shown to be a standard

account on all records, before it was retrospectively classified as NPA,

the petitioner is entitled to the moratorium as a matter of right, it is

argued.

16. Learned counsel for the petitioners also relies on a Division Bench

judgment of this court dated October 13, 2020 rendered in Vineet

Ruia vs. Principal Secretary, Department of School Education,

Government of West Bengal and others, for the proposition that in a

breakdown scenario as a result of any natural calamity or an act of

God or when the subordinate judiciary is not available or a litigant

has no access to any other court in an extreme case, the High Court

must not forget the width of the authority available to it and its

constitutional obligation to discharge its duties governed by the

overarching established principles designed by what may be loosely

said to be the rule of law.

17. Learned counsel for the respondents, on the other hand, argues that

the account of the borrower was classified as NPA on February 28,

2020 itself since the balance outstanding therein stood continuously

in excess of the sanctioned limit for more than 90 days since

November 30, 2019. NPA Identification of the Axis bank, it is

submitted, is carried out in a separate system known as the CRISMAC

system, which is configured to extract information and classify the

account as NPA in appropriate cases. Such stamping of NPA

classification in core banking system is carried out on T+2-day basis.

As such, the NPA identification process for February 28, 2020 (T) was

completed and sent for updation in the core banking system within 2

days. The borrower was stamped as NPA on March 1, 2020, which

was the 91st day from overdue. Thus, since the entire operation was

completed on March 1, 2020, interest for the month of February got

charged in the account. Clause 3.4 of the RBI Master Circular relating

to Prudential Norms, dated July 1, 2015, provides that on an account

turning NPA, banks should reverse the interest already charged and

not collected by adopting Profit and Loss Account and stop further

application of interest. However, banks may continue to record such

accrued interest in a Memorandum account in their books. Thus, in

the petitioners' case, interest was charged on February 29, 2020 even

after the account turned NPA the previous date, due to system level

gaps. Such interest was reversed manually in the corresponding

quarter.

18. Clause 2.6 of the RBI Circular dated September 14, 2020, on

Automation of Income Recognition, Asset Classification and

Provisioning Processes in Banks, advises the bank that the system

based asset classification shall be an ongoing exercise for both

downgradation and upgradation of accounts and that banks should

ensure that the established classification status is updated as part of

day end process.

19. The periodicity of updating report to CIBIL is monthly. The data for

February, 2020 was thus reported in March, 2020. The regulatory

guidelines contained in the Circular bearing DBR

No.CID.BC.60/20.16.056/2015-15 dated January 15, 2015, it is

submitted, mandate membership of Credit Information Companies

(CICs). It provides that CICs and CIs shall keep the credit information,

collected/maintained by them, updated regularly on a monthly basis

or at such shorter intervals as may be mutually agreed upon between

the CI and CIC in terms of Regulation 10 (a) (i) and (ii) of the Credit

Information Companies Regulations, 2006. This creates a lag in

updation of data at the CIBIL level. That apart, the Circular dated

February 11, 2020 is not applicable to the borrower as the

outstanding in the accounts exceeded Rs. 25 crore. The account was

already overdrawn on November 30, 2019. The balance in the

accounts exceeded Rs. 25 crore as on January 1, 2020. In fact, the

petitioners never requested the bank for restructuring of loan, thus,

waiving the benefits afforded by the RBI Circular of 2020.

20. The respondents contend that the guidelines contained in the

Notification dated February 11, 2020 permit one-time restructuring of

existing loans to MSMEs classified as 'standard' without a downgrade

in the asset classification subject to the condition that the aggregate

exposure, including non-fund based facilities of banks and NBFCs to

the borrower, does not exceed Rs.25 crore as on January 1, 2020. In

the present case, the exposure exceeded Rs. 25 crore as on January 1,

2020, rendering the petitioner ineligible for the one-time restructuring

as per such Notification.

21. That apart, in the present case, steps have been taken under Sections

13(2) and 13(4) of the SARFAESI Act, 2002. Thus, as per the

proposition laid down in United Bank of India vs. Satyawati Tondon

and others [(2010) 8 SCC 110], the writ court ought not to interfere in

the matter since an equally efficacious remedy is available to the

petitioners before the tribunal.

22. Relying on Authorized Officer, State Bank of Travancore and Another

vs. Mathew K.C, reported at (2018) 3 SCC 85, the respondents submit

that the discretionary jurisdiction under Article 226 is not absolute

but has to be exercised judiciously in the given facts of a case and in

accordance with law. Except in cases falling within well-defined

exceptions, a writ petition under Article 226 of the Constitution ought

not to be entertained if alternative remedies are available.

23. Hence, the respondents submit that the writ petition ought to be

dismissed on merits.

24. The petitioners rely on the OTS between the parties and argue that

such scheme would attract the RBI Circulars issued to provide

financial relief during the pandemic situation. However, in the present

case, the materials on record clearly show that the proposed OTS

stopped at the stage of a proposal being advanced by the petitioners to

the respondent-bank, without there being any acceptance of such

proposal on the part of the bank at any point of time. Thus, the

petitioners' proposal did not crystallise into an OTS 'scheme' at any

point of time, in the absence of any consensus ad idem having been

arrived at by the concerned parties, eliminating the question of the

petitioners being entitled to the benefits provided by the RBI Circulars

on the score of an OTS.

25. As regards the petitioners' allegation that the marking of the account

of the petitioner no. 1 as NPA on February 28, 2020 was a deliberate

post facto attempt on the part of the respondents to deprive the

petitioners of the benefits envisaged by the RBI pandemic circulars,

the petitioners have failed to show any mala fides or bias on the part

of the bank or the other respondents in doing so. The bank has

furnished sufficient justification for the technical delay in uploading

the classification of account as NPA. The T+2 procedure of updation is

a plausible explanation for the delay in updation. In any event, in view

of the petitioners having continued to maintain overdue of above Rs.

25 crore from November 30, 2020 onwards, the 90th day from the

commencement of such default was February 28, 2020. Hence, on

February 28, the account was subject to automatically being marked

as NPA in view of the RBI Circulars.

26. The technical delay in uploading the same can very well be attributed

to cyber lag and the system of updation on a monthly basis. That

apart, Clause 3.4 of the RBI Master Circular dated July 1, 2015,

pertaining to Prudential Norms on Income Recognition, Asset

Classification and Provisioning pertaining to Advances clearly provides

that on an account turning NPA, banks should reverse the interest

already charged and not collected by adopting Profit and Loss

Account and stop further application of interest. As such, interest

being shown to have been charged till February 29, 2020 could not

ipso facto be an indicator of the account of the petitioner no. 1

remaining standard even after February 28, 2020.

27. In any event, the petitioners never applied for restructuring under the

RBI Circular of 2020, which disentitles the petitioners' claim of being

governed by the RBI Circular, even irrespective of the OTS.

28. Another pertinent question which arises for consideration here is,

whether Clause 2.1.2 (i) or Clause 2.1.3 of the 2015 Circular governs

the account of the petitioner no.1.

29. Clause 2.1.2 (i) stipulates that a Non-Performing Asset (NPA) is a loan

or an advance where interest and/or instalment of principal remain

overdue for a period of more than 90 days in respect of a term loan.

On the face of it, contrary to the arguments of the respondents, the

account-in-question was a cash credit facility, as opposed to a term

loan. Thus, Clause 2.1.2 (i) does not apply in terms to the account of

the petitioner no.1.

30. Clause 2.1.3, on the other hand, provides that in case of interest

payments, 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. In the present case, the

petitioners argue that the bank did not wait for the end of the quarter

to classify the account of the petitioner no.1 as NPA. However, to

appreciate the complete purport of Clause 2.1.3, certain other

provisions of the Master Circular of 2015 are to be looked into.

31. Clause 2.1.4 provides that an account may also be classified as NPA

in terms of paragraph 4.2.4 of the Master Circular.

32. Sub-clause (i) of Clause 4.2.4 provides that, considering the

difficulties of large borrowers, stock statements relied upon by the

banks for determining drawing power should not be older than three

months. The outstanding in the account based on drawing power

calculated from stock statements older than three months would be

deemed as irregular. A working capital borrowal account will become

NPA if such irregular drawings are permitted in the account for a

continuous period of 90 days even though the unit may be working or

the borrower's financial position is satisfactory.

33. Clause 4.2.5 provides for upgradation of loan accounts classified as

NPAs. As per the said Clause, if arrears of interest and principal are

paid by the borrower in the case of loan accounts classified as NPAs,

the account should no longer be treated as non-performing and may

be classified as a 'standard' account.

34. In the present case, the petitioners did not make any attempt at such

repayment.

35. Clause 2.3 of the Master Circular of 2015 stipulates that any amount

due to the bank under any credit facility is 'overdue' if it is not paid on

the due date fixed by the bank.

36. Upon a conjoint reading of the aforesaid provisions, it is clear that the

concerned bank has a discretion with regard to marking an account

as NPA upon the account running overdue for 90 days. Clause 2.1.3

has to be read with the other provisions of the Master Circular as

discussed above.

37. The RBI Circular bearing DOR No. BP.BC.34/21.04.048/2019-20

dated February 11, 2020 provides for restructuring of advances in the

MSME (Micro, Small and Medium Enterprises) sector. Such provision

for one-time restructuring of existing loans to MSMEs only pertain to

those classified as 'standard', which the account of the petitioner no.1

ceased to be from February 29, 2020 onwards. Moreover, Clause (i)

thereof provides that the aggregate exposure, including non-fund

based facilities, of banks and NBFCs to the borrower cannot exceed

Rs. 25 crore as on January 1, 2020 for an MSME to be eligible for

such restructuring. The petitioners, as per the annexures of the writ

petition itself, had exceeded the Rs. 25 crore limit on November 30,

2019 itself, thus, rendering the petitioners ineligible for getting the

benefit of the scheme contemplated by the aforementioned Circular.

38. The general ratio laid down by the Division Bench in Vineet Ruia

(supra), that a High Court must not forget the width of the authority

available to it and its constitutional obligation to discharge its duties

governed by the overarching established principles designed by the

rule of law in breakdown scenarios, is beyond dispute. However, the

scope of interference by this court is also circumscribed by certain

self-imposed fetters. The court has to be vigilant as to whether there

has been any gross act of arbitrariness or violation of any

fundamental/statutory right to justify interference with administrative

functioning.

39. As far as the ratio contained in Velankani Information (supra) is

concerned, the said report lays down that the exercise of discretionary

power by the bank or lending institution, vis-à-vis the RBI Circular of

2020, is predicated on ensuring the continuity of the business of a

borrower. The decision of the bank, if falls foul of this intention, the

same would be contrary to the Policy as also the Circular.

40. However, such general propositions cannot help the petitioners in the

present case, since the petitioners have failed to prove any mala fides

or arbitrariness on the part the respondents. As discussed above, the

RBI Circulars cited by the petitioners are not attracted, since the

account of the petitioner no.1 lost its status as a 'standard' account

after February 28, 2020, when the same was classified as NPA. That

apart, such classification on February 28, 2020 could not be said to

be an arbitrary exercise beyond the pale of discretion of the bank and

the respondent-authorities. Thus, there is no scope of finding fault

with the legitimate exercise of discretion on the part of the

respondents in the present case. Keeping an eye on United Bank of

India vs. Satyawati Tondon (supra), it is evident that the rule of self-

imposed restraint in the exercise of power under Article 226 of the

Constitution is applicable to the present case. Since proceedings have

already been initiated under Sections 13(2) and 13(4) of the SARFAESI

Act, it would be interdicting with the jurisdiction of the tribunal to

pass any order on merits as regards the claim of the respondents

against the petitioners. In any event, upon a consideration of the

conspectus of the present writ petition, the said principle is irrelevant

in the present case, since the petitioner has sought to invoke the

benefits under the RBI Circulars cited by the petitioners and have not

challenged the bank's claims against the petitioners on merit.

41. The same principle as in Satyawati Tondon (supra) was reiterated in

Mathew K.C. (supra), wherein it was held that discretionary

jurisdiction under Article 226 is not absolute but has to be exercised

judicially in a given facts of a case and in accordance with law and

that normally a writ petition ought not to be entertained if alternative

statutory remedies are available.

42. Be that as it may, against the backdrop of the aforesaid discussions,

the acts/omissions complained of in the writ petition do not merit

interference by the writ court.

43. Accordingly, W.P.A. No. 9226 of 2020 is dismissed. Connected

application, if any, also stands disposed of accordingly.

44. There will be no order as to costs.

45. Urgent certified website copies of the order shall be provided to the

parties upon due compliance of all the requisite formalities.

( Sabyasachi Bhattacharyya, J. )