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Oswal Spinning & Weaving Mills Ltd. v. Reserve Bank of India and Ors. - (High Court of Punjab and Haryana) (11 Apr 2016)

Opportunity to decide NPA classification on account-basis slips by



A borrower having repaid all of the principal sum but with more than 20 per cent of interest remaining cannot escape the provisions of the SARFAESI Act. In the instant case the Petitioner had availed multiple loan facilities from the Kotak Mahindra Bank. While it complied with the terms and conditions of the first, it reneged on the latter. Kotak Mahindra classified the Petitioner’s account as non-performing asset - a classification that was linked to both accounts, even though the principal was paid in full for the first account. It submitted that the same was applicable on a borrower-basis not a facility-basis.

The Petitioner’s claim had lain in the fact that since the entire principal amount had been paid on the first facility, it would be removed from the remit of the SARFAESI and would thus not be classifiable as a non-performing asset. The court interpreted Section 31(j) of the Act somewhat differently: simply paying off the principal would be insufficient, as the Act required less than 20 per cent of the interest payable remain. It concluded that Kotak Mahindra’s classification of both accounts was, therefore, accurate.

The anomaly in classification of one account as non-performing while the other as ‘standard’, both belonging to the same borrower, was considered by the Reserve Bank of India in its Master Circular on the issue. It considered the possibility of such a situation arising to be remote, instead sticking with an encompassing approach whereby “all the facilities granted by a bank to the borrower…will have to be treated as [non-performing asset]”.

Relevant : Sravan Dall Mill P. Limited vs. Central Bank of India and Anr. MANU/AP/0331/2009 Section 31 SARFAESI Act, 2002


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