V SRIRAMULU Vs. KARUR VYSYA BANK LIMITED

JUDGEMENT

(1.) The petitioner is father-in-law of one Smt. V. Srivani, (wife of V. Giridhar, third respondent herein) who is proprietor of second respondent concern. Second respondent availed loan of Special Over Draft Facility (SOD) for Rs.15,00,000/- (Rupees fifteen lakhs only) against hypothecation of raw materials and finished products. The petitioner and respondents 3 and 4 herein created mortgage of the house to secure the loan as guarantors. There was a default on the part of the second respondent in repayment of the loan. Therefore, the first respondent bank issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Act, for brevity) on 16.5.2005 proposing to enforce the security. The second respondent was called upon to pay a sum of Rs.17,40,437/- (Rupees seventeen lakh forty thousand four hundred and thirty seven only) within sixty days from the date of receipt of the said notice. The second respondent was also informed that the default on its part would entail any action under Section 13(4)(a) to (d) of the Act. The second respondent did not pay the amount. Therefore, the first respondent initiated action under Section 13(4) of the Act and issued auction nouce proposing to sell house bearing door No. 17/144-3, situated in Nandyal Town, Kurnool District for realizing the security. Aggrieved by the same, the petitioner filed the present writ petition seeking a writ of certiorari to quash the notice under Section 13(2) of the Act issued by the first respondent.

(2.) Learned Counsel for the petitioner, Mrs. Ch.Vedavani, vehemently contends that the action initiated by the first respondent Bank under Section 13(2) of the Act and thereafter action under Section 13(4) of the Act is illegal and without jurisdiction. According to the learned Counsel, the Act has no application for the recovery proceedings initiated by the first respondent against the petitioner in respect of SOD availed by the second respondent. She would urge that the first respondent has not classified SOD facility availed by the second respondent as a Non-Performing Asset (NPA) in accordance with the norms prescribed by the Reserve Bank of India in its Master Circular, dated 17. 7.2004, and therefore notice issued under Section 13(2) of the Act is bad and illegal. She places reliance on the definition of Non-Performing Asset as defined in Section 2(o) of the Act. She further submits that as the first respondent is discharging public functions, a writ would lie under Article 226 of the Constitution of India.

(3.) Section 2(o) of the Act defines NPA as an asset or account of the borrower, which has been classified by a bank as substandard, doubtful and loss asset in accordance with the directions or guidelines issued by the authority of a bank administered or regulated by a body or authority established by any law for the time being in force. If such bank is administered by an authority or body, which is not established by any law for the time being in force, an account of a borrower can be treated as NPA in accordance with the directions or guidelines relating to assets classification issued by Reserve Bank of India. Reserve Bank of India issued guidelines in Master circular No.DBOD No.BP.BC.10/21.04.048/ 2004-2005, dated 17.7.2004, under the nomenclature 'Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances' (prudential norms, for brevity). A copy of the original circular is not placed before this Court. The learned Counsel, however, placed before this Court extracts of the circular from "Law and Practice of Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest, by Dr. R.G. Chaturvedi (pp.189-191)". As per these prudential norms, Non-Performing Assets are defined as under. Non-performing Assets - Norms for classification An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank. A "non-performing asset", abbreviated as NPA, has been defined as a credit facility in respect of which the interest and/or instalment of principal has remained 'past due' for a specified period of time. The specified period has been reduced in a phased manner as under. Year ending March 31 Specified period 1993 Four Quarters 1994 Three Quarters 1995 onwards Two Quarters An amount due under any credit facility is treated as 'past due' when it has not been paid within 30 days from the due date. Due to the improvements in the payment and settlement systems, recovery climate, upgradation of technology in the banking system, etc., it had been decided to dispense with 'past due' concept with effect from March 31, 2001. Accordingly, as from that date, a non-performing asset (NPA) shall be an advance where- (i) interest and/or instalment of principal remains overdue for a period of more than 180 days in respect of a Term Loan; (ii) the account remains 'out of order' as indicated in paragraph 5-6.3 below, in respect of an Overdraft/Cash Credit (OD/ CC); (iii) the bill remains overdue for a period of more than 180 days in the case of bills purchased and discounted; (iv) interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half-years in the case of an advance granted for agricultural purposes; and (v) any amount to be received remains overdue for a period of more than 180 days in respect of other accounts. With a view to moving towards international best practices and to ensure greater transparency, the '90 days' overdue norm for identification of NPAs has been adopted, from the year ending March 31, 2004. Accordingly, with effect from March 31, 2004, a non-performing asset (NPA) shall be a loan or an advance where: (i) interest and/or instalment of principal remain overdue for a period of more than 90 days in respect of a term loan; (ii) the account remains 'out of order' as indicated in paragraph 5-6.3 below, in respect of an Overdraft/Cash Credit (OD/CC); (iii) the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted; (iv) interest and/or instalment of principal remains overdue for two harvest seasons but for a period not exceeding two half years in the case of an advance granted for agricultural purposes; (v) any amount to be received remains overdue for a period of more than 90 days in respect of other accounts, (emphasis supplied)