{"id":201968,"date":"2007-10-16T00:00:00","date_gmt":"2007-10-15T18:30:00","guid":{"rendered":"https:\/\/www.legalindia.com\/judgments\/m-j-betty-vs-union-bank-of-india-on-16-october-2007"},"modified":"2016-11-11T19:14:57","modified_gmt":"2016-11-11T13:44:57","slug":"m-j-betty-vs-union-bank-of-india-on-16-october-2007","status":"publish","type":"post","link":"https:\/\/www.legalindia.com\/judgments\/m-j-betty-vs-union-bank-of-india-on-16-october-2007","title":{"rendered":"M.J.Betty vs Union Bank Of India on 16 October, 2007"},"content":{"rendered":"
Kerala High Court<\/div>\n
M.J.Betty vs Union Bank Of India on 16 October, 2007<\/div>\n
       \n\n  \n\n  \n\n \n \n  IN THE HIGH COURT OF KERALA AT ERNAKULAM\n\nWP(C) No. 27563 of 2007(F)\n\n\n1. M.J.BETTY,\n                      ...  Petitioner\n2. M.J.TOMY,\n3. M.J.TOMY,\n4. M.J.BETTY,\n\n                        Vs\n\n\n\n1. UNION BANK OF INDIA,\n                       ...       Respondent\n\n2. REGIONAL MANAGER,\n\n3. CHIEF MANAGER & AUTHORISED OFFICER,\n\n4. BRANCH MANAGER,\n\n                For Petitioner  :SRI.GEORGE ABRAHAM\n\n                For Respondent  :SRI.A.S.P.KURUP, SC, UBI\n\nThe Hon'ble MR. Justice ANTONY DOMINIC\n\n Dated :16\/10\/2007\n\n O R D E R\n                   ANTONY DOMINIC, J.\n\n             = = = = = = = = = = = = = = =\n             W.P.(C) No. 27563 OF 2007 - F\n             = = = = = = = = = = = = = = =\n\n          Dated this the  16th October, 2007\n\n                    J U D G M E N T\n<\/pre>\n
    The question that arises for consideration in this<\/p>\n
writ  petition  is  whether   the  1st  respondent  was<\/p>\n
justified in declaring the accounts of the petitioners<\/p>\n
to be Non-Performing Assets (NPA for short).<\/p>\n
    2. The facts of the case are that petitioners 1 to<\/p>\n
3 herein, who are conducting textile business, had<\/p>\n
availed  of  from  the  1st respondent     cash  credit<\/p>\n
facilities for Rs.56 lakhs, Rs.10 lakhs and Rs. 23<\/p>\n
lakhs respectively.  In so far as the 4th petitioner is<\/p>\n
concerned she had availed of a house building loan for<\/p>\n
Rs.12 lakhs.    As security for the above, petitioners<\/p>\n
had offered a commercial building in Angamali Town<\/p>\n
situated in a plot of 6 cents of land.   In addition to<\/p>\n
this two plots having an extent of 35 cents and 25<\/p>\n
cents each with building therein, were also given.<\/p>\n
According to the petitioners these properties are worth<\/p>\n
at least Rs.8 crores.\n<\/p>\n
    3. Petitioners would submit that in 2001, on<\/p>\n
W.P.(C) No.27563 of 2007      -2-<\/span><\/p>\n
account of certain misunderstanding between the Branch<\/p>\n
Manager of the Bank and themselves, the Bank refused to<\/p>\n
renew the cash credit facility and caused a lawyer<\/p>\n
notice issued to them requiring them to repay the<\/p>\n
entire amount availed of.           It is pointed out that<\/p>\n
thereafter          invoking    the   provisions    of    the<\/p>\n
Securitisation and Reconstruction of Financial Assets<\/p>\n
and     Enforcement      of   Security  Interest  Act,   2002<\/p>\n
(hereinafter referred to as ‘the Act’ for short) Ext.<\/p>\n
P4 notice under Section 13(2) was issued on 1-8-2007.<\/p>\n
Thereupon,           petitioners    submitted    Ext.     P11<\/p>\n
representation dated 7-8-2007 agreeing to immediately<\/p>\n
pay Rs.25 lakhs and requesting the bank not to proceed<\/p>\n
further with Ext. P4.        Even thereafter, the Bank issued<\/p>\n
Ext. P5 notice dated 13-8-2007 under Section 13(4) of<\/p>\n
the    Act    to     which  they  had  filed  an   objection.<\/p>\n
Thereupon, the petitioners approached the 2nd respondent<\/p>\n
who had instructed them to remit Rs.25 lakhs offered in<\/p>\n
Ext. P11 and in compliance thereof, they had remitted<\/p>\n
an amount of Rs.24.25 lakhs.\n<\/p>\n
     4. Inspite of it on 3-9-2007 Exts. P6 to P9 were<\/p>\n
issued requiring them to pay the entire amount availed<\/p>\n
W.P.(C) No.27563 of 2007      -3-<\/span><\/p>\n
of by them.         They had filed Ext. P10 objection and as<\/p>\n
they apprehended further action from the Bank this writ<\/p>\n
petition was filed on 14-9-2007 seeking to quash Exts.<\/p>\n
P6 to P9 and to direct respondents 2 to 4 to renew the<\/p>\n
cash credit facility availed of by them.          They also<\/p>\n
sought a further direction requiring the Bank not to<\/p>\n
take    any      action    pursuant  to  Exts.  P6  to   P9.<\/p>\n
Subsequently, petitioners filed I.A. No. 12586 of 2007<\/p>\n
producing Exts. P12 to P15, statements of account<\/p>\n
issued by the Bank as on 15-9-2007 which indicate that<\/p>\n
the credit availed of by them was far below the limit<\/p>\n
prescribed by the Bank.\n<\/p>\n
     5. A counter affidavit has been filed by the Bank<\/p>\n
in   which     the     petitioners have  been  described  as<\/p>\n
defaulters.       It is also the contention of the Bank that<\/p>\n
the renewal granted was only upto 2006 and that          the<\/p>\n
petitioners were not submitting their balance-sheet,<\/p>\n
financial      statements,     stock  statements and   audit<\/p>\n
reports.      Therefore even when renewal was granted by<\/p>\n
Exts. P1 to P3 it was indicated that the Bank will be<\/p>\n
reviewing the progress of the accounts in the month of<\/p>\n
August, 2006.          Bank would state that the petitioners<\/p>\n
W.P.(C) No.27563 of 2007     -4-<\/span><\/p>\n
had not approached them for renewal of the facility and<\/p>\n
that in any case in view of their unsatisfactory<\/p>\n
performance, the Bank would not have renewed it.<\/p>\n
     6.     In   paragraph   6  of  the  counter  affidavit,<\/p>\n
answering the contention of the petitioners that the<\/p>\n
value of the properties mortgaged by them is more than<\/p>\n
Rs.8 crores, it is stated that there is no dispute<\/p>\n
regarding the value of the security offered by the<\/p>\n
petitioners even though the value may not be that much<\/p>\n
as narrated by them.            Justifying their action in<\/p>\n
declaring the accounts to be NPA, it is stated that in<\/p>\n
so far as the 1st petitioner is concerned as against<\/p>\n
Rs.56 lakhs credit limit, the outstanding as on 31-3-<\/p>\n
2007    was    Rs.63,29,723.97   and  that  as  against  the<\/p>\n
sanctioned limit of Rs.10 lakhs for the 2nd petitioner,<\/p>\n
the outstanding was Rs.11, 20,092\/-.          It is further<\/p>\n
stated that as far as the 3rd petitioner is concerned,<\/p>\n
while    the     sanctioned  limit   was  Rs.23 lakhs,   the<\/p>\n
outstanding as on 31-3-2007 was Rs.26,74,697\/- and in<\/p>\n
the    housing       loan account  availed  of  by  the  4th<\/p>\n
petitioner, Rs.53,643\/- was overdue for payment.       It is<\/p>\n
stated that on account of the wilful default as above<\/p>\n
W.P.(C) No.27563 of 2007      -5-<\/span><\/p>\n
and     the    substantial     amount   that  was   remaining<\/p>\n
outstanding the Bank classified the accounts as NPA<\/p>\n
with effect from 31-3-2007.\n<\/p>\n
     7. It is also stated that when notices under<\/p>\n
Section 13(2) of the Act there was no objection from<\/p>\n
the petitioners and thereafter notice under Section 13<\/p>\n
(4) were issued and the Bank took possession of the<\/p>\n
properties on 14-9-2007, the date on which this writ<\/p>\n
petition was filed.        Exts. R4(a), (b) and  (c) are the<\/p>\n
mahazars,        possession    notices   published  in   the<\/p>\n
newspapers and the photographs evidencing the take over<\/p>\n
of the properties.         According to the Bank, if at all<\/p>\n
the petitioners are aggrieved, the remedy available to<\/p>\n
them is to file appeals to the Debt Recovery Tribunal<\/p>\n
and they are not entitled to invoke the extraordinary<\/p>\n
jurisdiction of this Court.\n<\/p>\n
     8.     A   reply    affidavit  has  been filed  by  the<\/p>\n
petitioners       on    24-9-2007 in   which, answering  the<\/p>\n
contention       that   the   petitioners  had not   produced<\/p>\n
documents which were required for the renewal of cash<\/p>\n
credit facility, the petitioners would state that they<\/p>\n
were always willing to produce these documents, but the<\/p>\n
W.P.(C) No.27563 of 2007     -6-<\/span><\/p>\n
Manager of the Bank was not willing to accept the same.<\/p>\n
They would further reiterate that on receipt of the<\/p>\n
notice under Section 13(2) they approached the 2nd<\/p>\n
respondent and it was on his direction that they had<\/p>\n
deposited Rs.24.25 lakhs.        They would contend that in<\/p>\n
terms of the guidelines issued by the Reserve Bank of<\/p>\n
India which is binding on the respondent-Bank, their<\/p>\n
accounts could not have been classified as          NPA and<\/p>\n
that    the    classification    so  made  is  an  arbitrary<\/p>\n
exercise of power justifying invocation of the powers<\/p>\n
of this Court under Article 226 of the Constitution.<\/p>\n
They have also elaborately        referred to the guidelines<\/p>\n
of the Reserve Bank of India in terms of which only the<\/p>\n
account could be classified as NPA and reiterate their<\/p>\n
contention that there is a patent violation of these<\/p>\n
guidelines.\n<\/p>\n
     9.     Subsequent    to    the  filing  of  the  reply<\/p>\n
affidavit, on 26-9-2007, the Bank filed an additional<\/p>\n
counter affidavit.       In paragraph 2 thereof, the reasons<\/p>\n
for declaring the accounts as NPA have been detailed in<\/p>\n
the following manner:\n<\/p>\n
     (1) The party has not paid the interest portion<\/p>\n
W.P.(C) No.27563 of 2007      -7-<\/span><\/p>\n
and the outstanding amount was far above the sanctioned<\/p>\n
limit.\n<\/p>\n
     (2) In CCH accounts the clear stipulation is that<\/p>\n
amount     in    the    account  must  be  always  below  the<\/p>\n
sanctioned limit.         Once it goes above the sanctioned<\/p>\n
limit    it     is     an overdrawing   and  accumulation  of<\/p>\n
interest.\n<\/p>\n
     (3) Similarly they have not submitted the audited<\/p>\n
balance sheet for the year 2005-2006 and 2006-07.        They<\/p>\n
were    irregular       in the   matter of  submitting  stock<\/p>\n
statements and financial statements and cheques issued<\/p>\n
were dis-honoured.\n<\/p>\n
     10. The bank has also produced          Exts. R4D, E, F<\/p>\n
and G indicating the total amount due from the accounts<\/p>\n
of the petitioners as on 25-9-2007.              It is stated<\/p>\n
that the outstanding as on 25-9-2007 in the accounts of<\/p>\n
petitioners          1    to     4    were   Rs.55,36,477.97,<\/p>\n
Rs.7,21,543.29,         Rs.21,65,578.38   and  Rs.10,25,954\/-<\/p>\n
respectively.            However,   the   additional  counter<\/p>\n
affidavit filed by the Bank is also silent on the<\/p>\n
contention raised by the petitioners regarding the<\/p>\n
irregularity in classifying the account as NPA with<\/p>\n
W.P.(C) No.27563 of 2007      -8-<\/span><\/p>\n
reference to the guidelines issued by the Reserve Bank<\/p>\n
of India.\n<\/p>\n
     11.     Thus,      from the averments  in  the   counter<\/p>\n
affidavit,       it    is  to be  noted that  the   following<\/p>\n
averments of the writ petitioners stand undisputed: (1)<\/p>\n
That the value of the security offered is Rs.8 crores<\/p>\n
as averred by the petitioners.             (2) That on the<\/p>\n
direction of the 2nd respondent, the petitioners have<\/p>\n
remitted an amount of Rs.24.25 lakhs by crediting their<\/p>\n
daily income during the period 13-8-2007 to 25-8-2007.<\/p>\n
(3) The further allegation that the establishments of<\/p>\n
petitioners 1 to 3 are running establishments which<\/p>\n
employed about 180 persons (in reply affidavit it is<\/p>\n
stated to be 140 persons).        The averment that there was<\/p>\n
some    misunderstanding      with the  Manager   which  even<\/p>\n
resulted in heated argument with him and that resulted<\/p>\n
in the initiation of the proceedings.\n<\/p>\n
     12. On these pleadings, the point that was urged<\/p>\n
by the learned counsel for the writ petitioner, was<\/p>\n
that the bank could not have classified the account as<\/p>\n
NPA as on 31-3-2007.         Therefore, I am only concerned<\/p>\n
with the correctness or otherwise of the action of the<\/p>\n
W.P.(C) No.27563 of 2007        -9-<\/span><\/p>\n
Bank in this regard.               Since the counsel for the<\/p>\n
respondent Bank contended that in view of Section 17 of<\/p>\n
the Act, the remedy available to the petitioners is to<\/p>\n
file appeal before the Debt Recovery Tribunal, that<\/p>\n
question also falls for consideration.<\/p>\n
     13. While examining the legality of classifying<\/p>\n
the    accounts       as   NPA,   the   cash   credit   originally<\/p>\n
sanctioned, the outstanding as on 31-3-2007, 15-9-2007<\/p>\n
and 25-9-2007, which are available on record needs to<\/p>\n
be seen.      For easy reference, I will put it in the form<\/p>\n
of a comparative statement in the following manner:<\/p>\n
                                STATEMENT<\/p>\n
         Limit          As on
\n     (in lakhs)        31.3.07        15.9.07        25.9.07<\/p>\n
  1        56       63,29,723.97   43,50,120.00   55,36,477.97
\n  2        10       11,20,092.00    5,25,120.00    7,21,543.29
\n  3        23       26,74,697.00   16,00,586.80   21,65,578.38<\/p>\n
                        54,643.00   9,71,643.00   10,25,954.00
\n  4     12(HBA)                    (Exts. P12 to
\n                                       P15)      (Exts. R4D to G)<\/p>\n
Thus while the Bank is right in contending for the<\/p>\n
position that as on 31-3-2007 when the account was<\/p>\n
classified as NPA (the outstandings were in excess of<\/p>\n
the limits).        But when the Bank took possession on 14-\n<\/p><\/blockquote>\n
W.P.(C) No.27563 of 2007      -10-<\/span><\/p>\n
9-2007 the outstandings in all the accounts were far<\/p>\n
below the limit fixed and this is evident from Exts.<\/p>\n
P12 to P15 statements of account issued by the Bank<\/p>\n
itself.       Even on 25-9-2007, the outstanding amounts<\/p>\n
were much below the limit fixed by the Bank and this is<\/p>\n
also evident from Exts. R4D to G produced along with<\/p>\n
the additional counter affidavit filed by the Bank.<\/p>\n
     14. However, dealing with the contention that as<\/p>\n
on 15-9-2007 the outstanding amount was below the limit<\/p>\n
fixed by the Bank, the learned counsel for the Bank at<\/p>\n
one stage argued that since the classification as NPA<\/p>\n
was as on 31-3-2007, the position of the accounts as on<\/p>\n
15-9-2007       is     irrelevant.   Irrespective  of   the<\/p>\n
correctness of this, if that be the logic I fail to see<\/p>\n
the relevance of the figures as on 25.09.2007 supplied<\/p>\n
by the Bank through Exts. R4D to G.      In any case, there<\/p>\n
is substantial difference in the figures in Exts. P12<\/p>\n
to P15, statements of accounts as on 15-9-2007 and<\/p>\n
Exts. R4D to G, statement of accounts as on 25-9-2007<\/p>\n
and this has not been explained by the Bank in the<\/p>\n
affidavits filed.\n<\/p>\n
     15. The expression N.P.A is defined in Section 2<\/p>\n
W.P.(C) No.27563 of 2007      -11-<\/span><\/p>\n
(o) which is extracted below for reference:<\/p>\n
        “Section 2(o). “non-performing asset” means
\n        an asset or account of a borrower, which
\n        has been classified by a bank or financial
\n        institution as sub-standard, doubtful or
\n        loss asset,”\n<\/p><\/blockquote>\n
               (a) in case such bank or financial
\n         institution is administered or regulated
\n         by    any     authority  or body   established,
\n         constituted or appointed by any law for
\n         the time being in force, in accordance
\n         with the directions or guidelines relating
\n         to assets classifications issued by such
\n         authority or body;\n<\/p><\/blockquote>\n
               b) in any other case, in accordance
\n         with the directions or guidelines relating
\n         to assets classifications issued by the
\n         Reserve Bank;\n<\/p><\/blockquote>\n
Thus, going by its definition, NPA means an asset or<\/p>\n
account of a borrower which has been classified by a<\/p>\n
bank or financial institution as sub-standard, doubtful<\/p>\n
or   loss    asset      in accordance  with  the  guidelines,<\/p>\n
relating      to    asset   classifications,  issued  by  the<\/p>\n
Reserve Bank of India.\n<\/p>\n
     16. The Master Circular – Prudential Norms on<\/p>\n
Income       Recognition,       Asset   Classification    and<\/p>\n
Provisioning Pertaining to Advances dated 1st July, 2006<\/p>\n
issued by the Reserve Bank of India is the one which is<\/p>\n
relevant.      This circular defines Non-Performing Assets<\/p>\n
W.P.(C) No.27563 of 2007      -12-<\/span><\/p>\n
as follows:\n<\/p>\n
     “2.1.2 A non-performing asset (NPA) is a loan
\n     or an advance where;\n<\/p><\/blockquote>\n
            i)      interest   and\/or  instalment  of
\n     principal remain overdue for a period of more
\n     than 90 days in respect of a term loan,<\/p>\n<\/blockquote>\n
            ii) the account remains ‘out of order’
\n     as    indicated     at  paragraph 2.2  below, in
\n     respect of an Overdraft\/Cash Credit (OD\/CC),<\/p>\n<\/blockquote>\n
            iii) the bill remains overdue for a
\n     period of more than 90 days in the case of
\n     bills purchased and discounted,<\/p>\n<\/blockquote>\n
            iv)     the  instalment  of  principal or
\n     interest thereon remains overdue for two crop
\n     seasons for short duration crops,<\/p>\n<\/blockquote>\n
            v)     the   instalment  of  principal or
\n     interest thereon remains overdue for one crop
\n     season for long duration crops.
\n     2.1.3 Banks should, classify an account as
\n     NPA only if the interest charged during any
\n     quarter is not serviced fully within 90 days
\n     from the end of the quarter.\n<\/p><\/blockquote>\n
     2.2 ‘Out of Order’ status<\/p>\n
            An account should be treated as ‘out of
\n     order’ if the outstanding balance remains
\n     continuously       in  excess  of the  sanctioned
\n     limit\/drawing power.          In cases where the
\n     outstanding         balance   in  the   principal
\n     operating account is less than the sanctioned
\n     limit\/drawing power, but there are no credits
\n     continuously for 90 days as on the date of
\n     Balance Sheet or credits are not enough to
\n     cover the interest debited during the same
\n     period, these accounts should be treated as
\n     ‘out of order’.<\/p><\/blockquote>\n
W.P.(C) No.27563 of 2007     -13-<\/span><\/p>\n
     17. Para 4 of the circular states that the Banks<\/p>\n
are required to classify non-performing assets further<\/p>\n
into    the        three  categories,  namely,  Sub-standard<\/p>\n
Assets, Doubtful Assets and Loss Assets.        In terms of<\/p>\n
paragraphs 4.1.1, 4.1.2 and 4.1.3 of the circular a<\/p>\n
non-performing asset can be classified as Sub-standard<\/p>\n
or    Doubtful if it has remained in any one of such<\/p>\n
categories as defined in the circular for a period of<\/p>\n
12 months.          As far as Loss Assets is concerned it<\/p>\n
should be identified by the bank and the amount has not<\/p>\n
been written off wholly.         Such an asset is considered<\/p>\n
as   uncollectible       and  of    little  value that  its<\/p>\n
continuance as a bankable asset is not warranted.<\/p>\n
     18.     Circular specifically provides in para 4.2.3<\/p>\n
as follows:\n<\/p>\n
            “Bank should not classify an advance
\n     account as NPA merely due to the existence
\n     of some deficiencies which are temporary in
\n     nature such as non-availability of adequate
\n     drawing power based on the latest available
\n     stock         statement,    balance   outstanding
\n     exceeding         the  limit   temporarily,  non-
\n     submission        of stock  statements  and  non-
\n     renewal of the limits on the due date, etc.
\n     In the matter of classification of accounts
\n     with such deficiencies banks may follow the
\n     following guidelines:\n<\/p><\/blockquote>\n
            a) Banks should ensure that drawings in<\/p>\n
W.P.(C) No.27563 of 2007       -14-<\/span><\/p>\n
     the working capital accounts are covered by
\n     the     adequacy      of   current   assets,  since
\n     current assets are first appropriated in
\n     times of distress. Drawing power is required
\n     to     be    arrived    at    based  on  the  stock
\n     statement         which  is    current.    However,
\n     considering         the   difficulties   of   large
\n     borrowers, stock statements relied upon by
\n     the     banks      for determining   drawing  power
\n     should not be older than three months.          The
\n     outstanding in the account based on drawing
\n     power calculated from stock statements older
\n     than     three      months,   would  be  deemed  as
\n     irregular.\n<\/p><\/blockquote>\n
            A working capital borrowal account will
\n     become NPA if such irregular drawings are
\n     permitted in the account for a continuous
\n     period of 90 days even though the unit may
\n     be     working      or  the   borrower’s  financial
\n     position is satisfactory.\n<\/p><\/blockquote>\n
            b) Regular and ad hoc credit limits need
\n     to be reviewed\/regularised not later than
\n     three months from the due date\/date of ad
\n     hoc sanction.         In case of constraints such
\n     as non-availability of financial statements
\n     and     other      data from   the  borrowers,  the
\n     branch should furnish evidence to show that
\n     renewal\/review of credit limits is already
\n     on and would be completed soon.             In any
\n     case,      delay     beyond   six   months  is  not
\n     considered          desirable     as   a    general
\n     discipline.          Hence, an account where the
\n     regular\/ad hoc credit limits have not been
\n     reviewed\/renewed within 180 days from the
\n     due date\/date of ad hoc sanction will be
\n     treated as NPA.”<\/p><\/blockquote>\n
      19. Para 4.2.4 requires the bank to upgrade loan<\/p>\n
accounts classified as NPAs and the said paragraph is<\/p>\n
extracted below:\n<\/p>\n
W.P.(C) No.27563 of 2007      -15-<\/span><\/p>\n
            “4.2.4      Upgradation  of   loan  accounts
\n      classified as NPAs.\n<\/p><\/blockquote>\n
            If arrears of interest and principal are
\n      paid by the borrower in the case of loan
\n      accounts       classified  as  NPAs,  the  account
\n      should no longer be treated as nonperforming
\n      and may be classified as ‘standard’ accounts.\n<\/p><\/blockquote>\n
      With       regard      to   upgradation    of    a\n      restructured\/rescheduled       account   which  is\n      classified       as  NPA  contents  of  paragraphs\n<\/pre>\n
      4.2.14 and 4.2.15 will be applicable.”\n<\/p><\/blockquote>\n
The obligation of the bank to upgrade loan accounts has<\/p>\n
been    reiterated      by  the   Reserve Bank  of  India  in<\/p>\n
subsequent circulars as well.\n<\/p>\n
      20. What emerges from a reading of the circular is<\/p>\n
that all on a sudden, an account cannot be classified<\/p>\n
to be an NPA.         On the other hand, the bank can classify<\/p>\n
an account as an NPA only when interest or instalment<\/p>\n
of principal remains overdue for a period of more than<\/p>\n
90 days in respect of a term loan.          In so far as cash<\/p>\n
credit account is concerned, the account remains out of<\/p>\n
order if the outstanding balance remains continuously<\/p>\n
in excess of the sanctioned limit\/drawing power.        It is<\/p>\n
also stated that in cases where the outstanding balance<\/p>\n
in the principal opearting account is less than the<\/p>\n
sanctioned       limit\/drawing    power,  but  there  are   no<\/p>\n
credits continuously for 90 days as on the date of<\/p>\n
W.P.(C) No.27563 of 2007      -16-<\/span><\/p>\n
balance sheet or credits are not enough to cover the<\/p>\n
interest debited during the said period, such accounts<\/p>\n
should be treated as out of order.              Therefore, a<\/p>\n
minimum 90 days period is required in terms of the<\/p>\n
aforesaid provisions of the guidelines to classify an<\/p>\n
account as an NPA.          Similarly, the existence of some<\/p>\n
deficiencies which are temporary in nature such as non-<\/p>\n
availability of adequate drawing power should not be a<\/p>\n
reason for classifying an advance as NPA.        Further, the<\/p>\n
bank is also required to upgrade the loan account<\/p>\n
already classified as NPA if arrears of interest and<\/p>\n
principal are paid by the borrower.\n<\/p>\n
      21. In so far as the facts of this case, the bank<\/p>\n
has classified the accounts of the petitioners as NPA<\/p>\n
on 31-3-2007 when the outstanding was above the limits<\/p>\n
fixed.     In the counter affidavits filed not an attempt<\/p>\n
is made by the Bank to explain the position for at<\/p>\n
least the period specified in the notification prior to<\/p>\n
31-3-2007,       to    justify  the  classification as   NPA.<\/p>\n
However, in view of the admitted remittance of Rs.24.25<\/p>\n
lakhs during the period from 13-8-2007 to 25-8-2007 and<\/p>\n
other remittances made the outstandings as on 15-9-2007<\/p>\n
W.P.(C) No.27563 of 2007      -17-<\/span><\/p>\n
were    much     below    the  limits  fixed  by  the  bank.<\/p>\n
Therefore, as on 15-9-2007, in terms of para 4.2.4 of<\/p>\n
the prudential norms issued by the Reserve Bank of<\/p>\n
India the bank ought to have upgraded the loan accounts<\/p>\n
of the petitioners which were already classified as<\/p>\n
NPAs on 31.03.2007.          This has not been done by the<\/p>\n
bank.     On the other hand, for the mere fact that the<\/p>\n
accounts of the petitioners were classified as NPAs as<\/p>\n
early as on 31-3-2007, ignoring the changed position,<\/p>\n
on   14.09.2007,        the  bank  proceeded  to  take  over<\/p>\n
possession of the running concerns of the petitioners<\/p>\n
and the other mortgaged properties.\n<\/p>\n
      22. Nowhere in the affidavits filed by the bank<\/p>\n
has it made any attempt to explain as to how the action<\/p>\n
taken by them is in compliance with the Reserve Bank of<\/p>\n
India guidelines.         Therefore, they have no case that<\/p>\n
what they have done is in terms of Section 2(o) of the<\/p>\n
Act.    If that be so, there is violation of the Reserve<\/p>\n
Bank of India guidelines in classifying the petitioners<\/p>\n
account as NPAs.        Once it is held to be so, all further<\/p>\n
action     taken      on the   basis that  the   petitioners’<\/p>\n
accounts were NPAs also have to be declared illegal and<\/p>\n
W.P.(C) No.27563 of 2007      -18-<\/span><\/p>\n
arbitrary. It may be true that power has been conferred<\/p>\n
on the bank to classify an asset as an NPA.          But the<\/p>\n
conferment of power and the exercise thereof are two<\/p>\n
different      aspects.       When  power  conferred on  an<\/p>\n
authority is exercised in an arbitrary manner the court<\/p>\n
is entitled to examine the manner in which the power<\/p>\n
has been exercised. If it is found that there has been<\/p>\n
illegal exercise of power, the court will hold that the<\/p>\n
power conferred is not for exercised in the manner it<\/p>\n
has been done.          Statutory power conferred for public<\/p>\n
purposes is conferred as it were upon trust, not<\/p>\n
absolutely and can validly be used only in the right<\/p>\n
and proper way which parliament when conferring it, is<\/p>\n
presumed to have intended.         In this case the bank has<\/p>\n
exercised the power conferred under the provisions of<\/p>\n
the Act in a most arbitrary manner and therefore all<\/p>\n
further action taken by them against the petitioners<\/p>\n
has to be declared null and void.\n<\/p>\n
      23. In this context I should refer to the judgment<\/p>\n
of the Apex Court in Mardia Chemicals v. Union of India<\/a><\/p>\n
{2004 (2) KLT 273 (SC)} in which the question as to<\/p>\n
whether it is on the whims and fancies of the financial<\/p>\n
W.P.(C) No.27563 of 2007    -19-<\/span><\/p>\n
institutions to classify the assets as non-performing<\/p>\n
assets, has been dealt with in paragraph 37.      It has<\/p>\n
been held that as a matter of fact a policy has been<\/p>\n
laid down by the Reserve Bank of India providing<\/p>\n
guidelines in the matter of declaring an asset as a<\/p>\n
non-performing asset and that is quite evident from the<\/p>\n
guidelines laid down by the Reserve Bank of India<\/p>\n
laying down the terms and conditions and circumstances<\/p>\n
in which the debt is to be classified as non-performing<\/p>\n
asset as early as possible.        Referring to the said<\/p>\n
guidelines the court found that there are guidelines<\/p>\n
for treating the debt as a non-performing asset.    I am<\/p>\n
afraid that the argument raised before the Apex Court<\/p>\n
has come true in this case.\n<\/p>\n
      24. The further question that remains to be dealt<\/p>\n
with is whether the only remedy available to the<\/p>\n
petitioners is to file an appeal under Section 17 of<\/p>\n
the Act.       It is true that in the Apex Court judgment<\/p>\n
referred to above, it is held in paragraph 80 that on<\/p>\n
measures having been taken under sub-section (4) of<\/p>\n
Section 13 and before the date of sale\/auction of the<\/p>\n
property it would be open to the borrower to file an<\/p>\n
W.P.(C) No.27563 of 2007      -20-<\/span><\/p>\n
appeal under Section 17 of the Act before the Debt<\/p>\n
Recovery Tribunal.\n<\/p>\n
      25. My examination in this case was to be limited<\/p>\n
extent     whether      the bank  has acted arbitrarily in<\/p>\n
classifying the accounts as NPA and whether there was<\/p>\n
violation of the guidelines issued by the Reserve Bank<\/p>\n
of India.       My finding is that the bank has not placed<\/p>\n
materials to satisfy the court that the guidelines<\/p>\n
issued by the Reserve Bank of India has been complied<\/p>\n
with and that this power has been exercised in an<\/p>\n
arbitrary manner. When an act is complained to be<\/p>\n
without      jurisdiction    or   when there  is  arbitrary<\/p>\n
exercise of power, this Court is entitled to examine<\/p>\n
the correctness of the same in exercise of its power<\/p>\n
under Article 226 of the Constitution of India.<\/p>\n
      26. The        question  whether availability of  an<\/p>\n
alternate remedy is an absolute bar for exercising<\/p>\n
powers under Article 226 of the Constitution has been<\/p>\n
considered by the Apex Court on various occasions.      It<\/p>\n
is an accepted principle that the availability of<\/p>\n
alternate remedy is not an absolute bar, but a self-<\/p>\n
imposed restriction and this issue has been dealt with<\/p>\n
W.P.(C) No.27563 of 2007      -21-<\/span><\/p>\n
in State of H.P. v. Gujarat Ambuja Cement Ltd.<\/a> {(2005)<\/p>\n
6 SCC 499} in the following terms:\n<\/p>\n
      “Where under a statute there is an allegation
\n      of infringement of fundamental rights or when
\n      on     the       undisputed   facts   the   taxing
\n      authorities        are  shown   to  have   assumed
\n      jurisdiction which they do not possess can be
\n      the grounds on which the writ petitions can
\n      be entertained.       But normally, the High Court
\n      should not entertain writ petitions unless it
\n      is shown that there is something more in a
\n      case, something going to the root of the
\n      jurisdiction of the officer, something which
\n      would     show    that  it  would  be  a  case of
\n      palpable       injustice to the writ petitioner to
\n      force him to adopt the remedies provided by
\n      the statute.        It was noted by this Court in
\n      L. Hirday Narain v. ITO {(1970) 2 SCC 355}
\n      that if the High Court had entertained a
\n      petition despite availability of alternative
\n      remedy and heard the parties on merits it
\n      would be ordinarily unjustifiable for the
\n      High Court to dismiss the same on the ground
\n      of    non-exhaustion      of  statutory  remedies;
\n      unless the High Court finds that factual
\n      disputes are involved and it would not be
\n      desirable       to  deal   with them  in  a   writ
\n      petition.”\n<\/p><\/blockquote>\n
This    Court      had   occasion  to  deal  with  an  almost<\/p>\n
identical question in the case of Padmanabhan & Others<\/p>\n
v. The Commissioner, HR & CE Department & Others {ILR<\/p>\n
2007(3) Kerala Series 289}.          In a case arising under<\/p>\n
the Securitisation & Reconstruction of Financial Assets<\/p>\n
& Enforcement of Security Interest Act, 2002 itself,<\/p>\n
W.P.(C) No.27563 of 2007     -22-<\/span><\/p>\n
the Bombay High Court in the case of Manoj D. Kapasi &<\/p>\n
Another v. Union of India & Others {2005 (125) Company<\/p>\n
Cases 676} held as follows:\n<\/p>\n
            “True it is that in the event of any
\n     measures being taken by a bank or when any
\n     order is passed by the DRT an appeal ought to
\n     be preferred as provided under the statute.\n<\/p><\/blockquote>\n
     However,        as  far as  the  writ  court   is
\n     concerned, the rule of exhaustion of internal
\n     statutory remedy is a rule of self-limitation
\n     as has been stated by the apex court time and
\n     again.      In the present case, the question was
\n     with respect to action of respondent No. 2<\/span>
\n     and whether it was in accordance with law.
\n     Prima facie, we do not find that notice of
\n     sale was in accordance with the statutory
\n     rules nor does the impugned order passed by
\n     the DRT take cognisance of these breaches.
\n     In the circumstances, we allow this petition
\n     in terms of prayer clauses (a) and (c-i)
\n     though without any order for costs.”<\/p><\/blockquote>\n
     27. I am convinced that a patent illegality has<\/p>\n
been committed by the bank and the bank has exercised<\/p>\n
the power in a most arbitrary manner.       The consequence<\/p>\n
of such exercise of power is the immediate closure of<\/p>\n
the business establishments run by the petitioners 1 to<\/p>\n
3 leaving at least 140 employees jobless. This has been<\/p>\n
done ignoring the guidelines of the Reserve Bank of<\/p>\n
India and despite the availability of security worth<\/p>\n
more than Rs.8 crores. Inspite of this, when the bank<\/p>\n
W.P.(C) No.27563 of 2007       -23-<\/span><\/p>\n
has acted in a manner like this, this Court should not<\/p>\n
shut its eyes and drive the petitioners to pursue the<\/p>\n
alternate remedy.\n<\/p>\n
     28. In the result, I declare that the action of<\/p>\n
the 1st Respondent Bank in classifying the accounts of<\/p>\n
the petitioners as NPA is illegal and arbitrary and a<\/p>\n
superior officer of the Bank shall re-examine the<\/p>\n
question whether the accounts of the petitioners are<\/p>\n
liable to be classified as NPAs strictly following the<\/p>\n
guidelines issued by the Reserve Bank of India.            For<\/p>\n
this purpose if the petitioners are to produce any<\/p>\n
documents,      the     concerned  officer of  Bank   will  be<\/p>\n
entitled to call upon them to produce the same.          Until<\/p>\n
that is done, all actions that have been taken by the<\/p>\n
bank shall be withdrawn and the status quo as on 31-3-<\/p>\n
2007    in    so     far   as  the  proceedings  against   the<\/p>\n
petitioners are concerned, shall be restored.<\/p>\n
        29. The writ petition is disposed of as above.<\/p>\n
                                           ANTONY DOMINIC,JUDGE
\njan\/-<\/p>\n","protected":false},"excerpt":{"rendered":"
Kerala High Court M.J.Betty vs Union Bank Of India on 16 October, 2007 IN THE HIGH COURT OF KERALA AT ERNAKULAM WP(C) No. 27563 of 2007(F) 1. M.J.BETTY, … Petitioner 2. M.J.TOMY, 3. M.J.TOMY, 4. M.J.BETTY, Vs 1. UNION BANK OF INDIA, … Respondent 2. REGIONAL MANAGER, 3. CHIEF MANAGER & AUTHORISED OFFICER, 4. BRANCH […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_lmt_disableupdate":"","_lmt_disable":"","_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[8,21],"tags":[],"class_list":["post-201968","post","type-post","status-publish","format-standard","hentry","category-high-court","category-kerala-high-court"],"yoast_head":"\nM.J.Betty vs Union Bank Of India on 16 October, 2007 - Free Judgements of Supreme Court & High Court | Legal India<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.legalindia.com\/judgments\/m-j-betty-vs-union-bank-of-india-on-16-october-2007\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"M.J.Betty vs Union Bank Of India on 16 October, 2007 - 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