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Rita Bagga & Others v/s Union of India & Others

    Civil Misc. Writ Petition No. 15456 of 2015

    Decided On, 18 May 2015

    At, High Court of Judicature at Allahabad

    By, THE HONOURABLE MR. JUSTICE TARUN AGARWALA & THE HONOURABLE AMAR SINGH CHAUHAN

    For the Appearing Parties: --------



Judgment Text

Tarun Agarwala, J.

The petitioners are carrying on the business of designed jewellery in the name and style of Umrrao Jewels which was subsequently changed to Aum Jewels. The petitioners were having business relationship with the respondent-Vijaya Bank since 2006.

The petitioners applied for cash credit facility. The Bank vide its letter dated 31.01.2011 sanctioned a sum of Rs. 550.00 lakhs as cash credit facility for a period of one year, which was to be renewed on a year to year basis. While sanctioning the cash credit limit, the stocks of gold and diamond jewellery were hypothecated. A collateral security in the nature of half western portion of freehold residential/commercial property measuring 934.315 sq. yards situate at plot no.G/4, Civil Station, Allahabad having a market value of Rs. 698.91 lakhs was also given. It is alleged that after previous permission from the Bank, a Memorandum of Understanding dated 20.09.2011 was arrived at with Millan Developers for building a commercial property on the landsituate at Allahabad which was duly registered on 20.09.2011. On 19.03.2012, the petitioners sought renewal of the cash credit limit for the financial year 2012-13. Another application on 18.06.2012 followed by an application dated 17.11.2012 was moved for conversion of part of cash credit limit to a term loan. It is alleged that the Bank was not happy with the builders agreement and insisted that a tripartite agreement should be executed. Accordingly, a tripartite agreement dated 08.03.2013 was executed between the petitioners, respondent- Bank and the builder, in which it was clearly indicated that the Bank will have the first and paramount charge on the entire property even after its reconstruction. In spite of this agreement, the cash credit limit was not renewed in the financial year 2013-14 and, accordingly, the petitioners made another application for renewal of the cash credit limit for the financial year 2012-13. By a letter dated 09.03.2013, the Bank approved Rs.350.00 lakhs towards the cash credit facility and Rs.200.00 lakhs towards Working Capital Demand Loan (hereinafter referred to as WCDL). According to the petitioners, this WCDL loan was to be paid in five years. Security for the aforesaid cash credit limit and WCDL was the same, namely, hypothecation of stocks of gold, diamond, gold and diamond jewellery, assignment of book debts/receivables and collateral security of the land situate at Allahabad. In addition to the aforesaid, a guarantee was also given by the petitioners as guarantors. The aforesaid cash credit limit, etc., again expired on 28.01.2014. The respondent- Bank after reviewing the matter issued a letter dated 04.04.2014 extending the cash credit limit for a period of three months up to 28.04.2014. By the said letter, the respondent-Bank also requested the petitioners to reduce the WCDL loan at least by Rs. 10.00 lakhs per month by selling the stocks. The petitioners vide letter dated 16.04.2014 protested with regard to the unilateral action of the Bank in reducing the WCDL loan by Rs.10.00 lakhs every month. The Court finds that on account of negotiation and financial performance by the petitioners, the cash credit limit was extended by the respondent-Bank till 28.10.2014.

The petitioners contend that for the reasons best

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known to the respondent-Bank they became hostile and vindictive. The petitioners by way of example contended that petitioner no.1 took a term loan of Rs.4.5 lakhs by pledging LIC policies and, after clearing the loan the Bank did not return the LIC policies till date in spite of repeated requests. Similarly, the petitioners started a clothing business in the name of M/s Padmakriti in the same premises in which the partners were the same. This clothing business was objected to by the Bank and, on their request, the petitioners had to stop this business.

While the petitioners application for renewal of cash credit limit remained pending, the respondent-Bank issued a notice dated 01.1.2015 under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the Act) demanding a sum of Rs.5,58,59,198.04 alleging that the petitioners had committed a default in payment of principal, interest and other monies and that the operation and conducting of the account had become irregular and that the account of the petitioners had been classified by the Bank as a Non-Performing Asset (NPA). By the said notice, the respondent-Bank gave notice to the petitioners to pay the aforesaid amount within a period of sixty days.

On receipt of the aforesaid notice, the petitioners submitted its objection by letter dated 27.02.2015 contending that the overdrawn amount in the cash credit limit has been paid and that the amount is now within the cash credit limits and, therefore, the account has been regularised. The petitioners requested the Bank to withdraw its order passed under Section 13(2) of the Act as well as the order by which their account was classified as NPA. The respondent- Bank, after considering the objection of the petitioners, rejected the same by an order dated 07.03.2015 alleging that the petitioners never adhered to the terms and conditions of the cash credit facility and the same was unsatisfactory. The respondent-Bank contended that the cash credit facility account had become irregular as on 31.12.2014 and subsequent deposit after 31.12.2014 could not regularise the account. The respondent-Bank contended that the classification of the petitioners' account as NPA was in conformity with the relevant guidelines issued by the Reserve Bank of India (hereinafter referred to as the RBI) and that the account was frequently overdrawn. The respondent-Bank thereafter issued a notice dated 17.03.2015 under Section 13(4) of the Act directing the petitioners to pay a sum of Rs.5,58,59,198.04 within sixty days, failing which possession would be taken under Section 13(4) of the Act read with Rule 8 and 9 of the Security Interest (Enforcement) Rules, 2002. The notice was also published in a Hindi newspaper on 18.03.2015. It is also alleged that a possession notice at the site of the property situate at Allahabad was also pasted. The petitioners, being aggrieved by the action of the respondents, have filed the present writ petition.

We have heard Sri A.D.Saunders along with Sri Rakesh Bagga, the learned counsels for the petitioners and Sri G.K.Srivastava, the learned counsel for the respondent-Bank.

Sri Saunders contended that the action of the respondent-Bank to classify the petitioners' account as NPA was wholly arbitrary, illegal and against the master guidelines framed by the Reserve Bank of India and, therefore, the action of the RBI declaring the petitioners' account as NPA was wholly illegal. The petitioners contended in the alternative that assuming that the petitioners' account had become irregular on 31.12.2014, the same was regularised within a month in January,2015 and, therefore, as per the RBI guidelines the account should have been regularised and upgraded as a 'standard account'. The refusal by the respondent-Bank to regularise the account on the strength that the subsequent payment would not cure the illegality was wholly arbitrary and against the guidelines. The learned counsel further contended that the petitioners had never exceeded the cash credit limit in all these years and had paid the interest without any demur. The petitioners for the first time exceeded the cash credit limit in September, 2014, which was brought down in October, 2014, which again exceeded the limit soon thereafter but was brought down in January, 2015. The learned counsel submitted that the irregularity was only a temporary deficiency, which was cured but the action of the respondents in proceeding with the recovery was patently harsh quite apart that it was also arbitrary. The learned counsel subsequently submitted that the respondent-Bank committed an error in rejecting the objection of the petitioners and further committed an error in issuing the notice under Section 13(4) of the Act. The learned counsel also submitted that the action of the respondents in proceeding to recover the amount from the collateral security was wholly arbitrary when the amount was secured by the primary security of the hypothecation of the stocks, namely, gold and jewellery. The respondents without touching the primary security had proceeded to recover the amount from the collateral security, which was wholly arbitrary.

On the other hand, Sri Srivastava, the learned counsel for the respondent-Bank contended that the petitioners has an efficacious alternative remedy by filing an application under Section 17 of the Act. The learned counsel submitted that the account of the petitioners had become irregular for more than ninety days and as per the RBI guidelines the petitioners' cash credit account was rightly classified as a NPA. The learned counsel submitted that since the account was classified as a NPA, a valid notice under Section 13(2) of the Act was issued. The objection raised by the petitioners, being untenable was rejected and thereafter a notice under Section 13(4) of the Act was issued. The learned counsel further submitted that any deposit made by the petitioners after 31.12.2014 was done at the petitioners' own risk and peril, which would not cure the irregularity and would not make the NPA account as a 'standard account'.

Sri Srivastava further contended that the reason for declaring the petitioners' account as NPA has been indicated in paragraph 5 of the counter affidavit, which indicates that as on 31.12.2014 the cash credit account was overdrawn by a sum of Rs.8,97,371.04. It was contended that as on 30.09.2014 cash credit account was overdrawn by a sum of Rs.4,53,695.04 and for the period from 1.10.2014 to 31.12.2014 a total sum of Rs. 14,19,176.00 was debited in this account towards interest, whereas during the same period the total sum of Rs 9,75,500.00 was credited in this account. Thus, as on 31.12.2014 an amount of Rs.8,97,371.04 had remained unpaid and since this outstanding amount was not cleared within ninety days, therefore, as per RBI guidelines the account was classified as NPA, on the basis of which a notice under Section 13(2) of the Act was issued. The learned counsel also referred to paragraph 7 of the affidavit contending that as per para 2.2 of the master circular issued by the RBI if the outstanding balance remained continuously in excess of the sanctioned limit/drawing power and there was no credit continuously for ninety days, the account would would be classified as NPA.

In the light of the rival stand submitted by the parties, we first take up the plea of alternative remedy. The respondent-Bank has relied upon a decision of the Supreme Court in United Bank of India Vs. Satyawati Tondon and others, (2010) 8 SCC 110. No doubt the petitioners has a remedy of filing an application under Section 17(1) of the Act. However, the jurisdiction of the High Court under Article 226 of the Constitution of India is not ousted merely because an appeal is provided under Section 17 of the Act. The power under Article 226 of the Constitution is wide and for the exercise of such power there is no restriction except the territorial restriction. However, the exercise of the writ jurisdiction is discretionary. Ordinarily, the Court does not entertain the matter where the petitioners have an alternative remedy. In Whirlpool Corporation Vs. Registrar of Trade Marks, Mumbai and others, (1998) 8 SCC 1, the Supreme Court held as under:

'14.The power to issue prerogative writs under Article 226 of the Constitution is plenary in nature and is not limited by any other provision of the Constitution. This power can be exercised by the High Court not only for issuing writs in the nature of habeas corpus, mandamus, prohibition, quo warranto and certiorari for the enforcement of any of the Fundamental Rights contained in Part III of the Constitution but also for 'any other purpose.'

15. Under Article 226 of the Constitution, the High Court, having regard to the facts of the case, has a discretion to entertain or not to entertain a writ petition. But the High Court has imposed upon itself certain restrictions one of which is that if an effective and efficacious remedy is available, the High Court would not normally exercise its jurisdiction. But the alternative remedy has been consistently held by this Court not to operate as a bar in at least three contingencies, namely, where the writ petition has been filed for the enforcement of any of the Fundamental Rights or where there has been a violation of the principle of natural justice or where the order or proceedings are wholly without jurisdiction or the vires of an Act is challenged. There is a plethora of case-law on this point but to cut down this circle of forensic whirlpool, we would rely on some old decisions of the evolutionary era of the constitutional law as they still hold the filed.'

Similarly the Supreme Court in Popcorn Entertainment and another Vs. City Industrial Development Corpn. And another, (2007) 9 SCC 593 held as under:

'22. He invited our attention to Whirlpool Corpn. Case, (1998) 8 SCC 1 wherein this Court has held that there are three clear-cut circumstances wherein a writ petition would be maintainable even in a contractual matter. Firstly, if the action of the respondent is illegal and without jurisdiction, secondly, if the principles of natural justice have been violated, and thirdly, if the appellants' fundamental rights have been violated.'

In ABL International Ltd. and another Vs. Export Credit Guarantee Corporation of India Ltd. and others, (2004) 3 SCC 553, the Supreme Court held that there is no absolute rule that in all cases involving disputed questions of fact the parties should be relegated to a civil suit. The writ court has the jurisdiction to entertain a writ petition and there is no bar for entertaining a writ petition even if it involves some disputed questions of fact.

The Supreme Court in Harbanslal Sahnia and another Vs. Indian Oil Corpn. And others, (2003) 2 SCC 107, held that the petitioners' dealership, which is their bread and butter, cannot be terminated for irrelevant and non-existent cause. The Supreme Court held that the petitioners should not be relegated to the rule of alternative remedy and that the High Court should have entertained the writ petition and granted relief instead of driving the petitioners to initiate the arbitration proceedings. The Supreme Court held that in an appropriate case in spite of availability of an alternative remedy, the High Court should still exercise its jurisdiction where the writ petition sought enforcement of any of the fundamental rights or where there was a failure of the principles of natural justice or where the orders or proceedings were wholly without jurisdiction or where the vires of an Act was challenged.

In the light of the aforesaid decisions, we are of the opinion that at present moment only a notice under Section 13(4) of the Act has been initiated. No action on it had been taken by the respondents and, therefore, at this stage the petitioners cannot avail the remedy of an appeal under Section 17 of the Act. It is only when an action is taken under Section 13(4) of the Act the cause of action arises for the petitioners to file an appeal under Section 17 of the Act. In any case, we are of the opinion that considering the facts and circumstances that has been brought on record, we find that the action of the respondents in declaring the petitioners' account as a NPA was arbitrary and in violation of RBI guidelines. We also find that there are no disputed questions of fact, which needs to be adjudicated and the entire matter can be decided on the basis of the guidelines framed by the RBI.

Consequently, we are of the opinion that it is a fit case in the given circumstances where appropriate direction should be issued to the respondents. Hence, the preliminary objection raised by the learned counsel for the respondent- Bank is rejected.

From a perusal of the notice issued under Section 13(2) of the Act, we find that the petitioners' account has been classified as NPA. At this stage, it may be pointed out that there was no default in the petitioners' WCDL account. The interest is being paid and according to the petitioners, the principal amount was to be paid in five years. No document has been filed by the respondent-Bank to dispute this fact. On the other hand, the learned counsel for the respondent-Bank submitted that if one of the accounts of the petitioners becomes irregular then all the accounts are classified as NPA. According to the learned counsel for the respondents, since the cash credit account became irregular, the WCDL account had also become irregular and was jointly classified as NPA.

On the basis of the notice under Section 13(2) of the Act read with paragraph 5 of the Counter Affidavit and paragraph 7 of the affidavit of the Bank, the only reason for the cash credit account being made irregular and thereafter being classified as a NPA is that this account was overdrawn by Rs. 8,97,371.04 as on 31.12.2014 and that between 30.09.2014 to 31.12.2014 total interest payable was Rs. 14,19,176.00, whereas the total credit during this period was Rs.9,75,500.00 and therefore, the account was overdrawn by Rs. 8,97,371.04. It was also contended that since the outstanding amount was not paid within ninety days, the account was classified as NPA.

Before we proceed, it would be essential to peruse Section 13(2) of the Act. Section 13(2) of the Act provides that where any borrower, who is under a liability to a secured creditor under a security agreement, makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as a nonperforming asset, then, the secured creditor may require the borrower by notice in writing to discharge in full his liabilities to the secured creditor within sixty days from the date of notice failing which the secured creditor shall be entitled to exercise all or any of the rights under subsection(4) of Section 13 of the Act.

From the aforesaid, it is clear that a notice can only be issued if a borrower commits default in the repayment of the security debt and his account in respect of such debt, is classified as NPA. Unless and until the account is declared as NPA, no notice under Section 13(2) of the Act could be issued, even if there is a default. Subsection (3A) of Section 13 of the Act gives an opportunity for the borrower to make any representation or raise any objection to the said notice, which in turn is required to be considered and decided by the secured creditor. Sub-section (4) of Section 13 of the Act provides the secured creditor to adopt any of the measures for recovery of the secured debt.

Default has been defined under Section 2(j) of the Act. For facility, the said provision is extracted hereunder:

'(j) 'default' means non-payment of any principal debt or interest thereon or any other amount payable by a borrower to any secured creditor consequent upon which the account of such borrower is classified as nonperforming asset in the books of account of the secured creditor.'

Similarly, NPA has been defined in sub- Section 2(o), which is as under:

'(o) 'non-performing asset' means an asset or account of a borrower, which has been classified by a bank or financial institution as substandard-

(a) in case such bank or financial institution is administered or regulated by any authority or body established, constituted or appointed by any law for the time being in force, in accordance with the directions or guidelines relating to assets classifications issued by such authority or body;

(b) in any other case, in accordance with the directions or guidelines relating to assets classifications issued by the Reserve Bank.'

The classification of the NPA as per the aforesaid meaning has to be in accordance with the directions or guidelines relating to the asset classification issued by the RBI. In this regard, RBI has issued a master circular known as 'Master Circular-Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances', which was revised on 01.07.2014. Certain provisions of these guidelines are essential for adjudication and are extracted hereunder:

'Definitions

2.1 Non performing Assets

2.1.1 An asset, including a leased asset, becomes non perming when it ceases to generate income for the Bank.

2.1.2 A non performing asset (NPA) is a loan or an advance where;

i. interest and/or installment 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 at paragraph 2.2 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. the instalment of principal or interest thereon remains overdue for two crop seasons for short duration crops,

v. the instalment of principal or interest thereon remains overdue for one crop season for long duration crops,

vi. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of guidelines on securitisaton dated February 1, 2006.

vii. In respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

2.1.3 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.

2.1.4 In addition, an account may also be classified as NPA in terms of paragraph 4.2.4 of this Master Circular.'

Para 2.2 provides as to when an account should be treated out of order, which is extracted hereunder:

'2.2' Out of Order' status

An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit/drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit/drawing power, but there are no credits continuously for 90 days as on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.'

From the aforesaid as per para 2.1.2(ii) if an account remains out of order as per para 2.2 in respect of cash credit, it would be treated as NPA. Para 2.2 provides that an account would be treated as out of order if the outstanding balance remains continuously in excess of the sanctioned limit or where the outstanding balance in the account is less than the sanctioned limit/drawing power and there are no credit continuously for ninety days or credits are not enough to cover the interest debited during the same period . If any of the contingencies are existing, the account will be treated out of order. Para 2.1.3 provides if the interest due and charged during any quarter is not serviced fully within ninety days from the end of the quarter then the account will be classified as NPA.

The RBI guidelines has categorised the NPAs in para 4 as 'Substandard Assets', 'Doubtful Assets' and 'Loss Assets'. The petitioners' case falls under 'Substandard Assets', which is indicated in para 4.1.1, which is extracted hereunder:

'4.1.1 Substandard Assets With effect from March 31,2005, a substandard asset would be one, which has remained NPA for a period less than or equal to 12 months. Such an asset will have well defined credit weaknesses that jeopardies the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected.'

Paragraph 4.2 provides guidelines for classification of assets. Classification of assets into above categories should be done after taking into account the degree of well-defined credit weaknesses and the extent of dependence on collateral security for realisation of dues.

Paragraph 4.2.4 provides for accounts with temporary deficiencies as under:

'The classification of an asset as NPA should be based on the record of recovery. Bank should not classify an advance account as NPA merely due to the existence of some deficiencies which are temporary in nature such as nonavailability of adequate drawing power based on the latest available stock statement, balance outstanding exceeding the limit temporarily, non-submission of stock statements and non-renewal of the limits on the due date, etc.'

Paragraph 4.2.5 provides for upgradation of loan accounts classified as NPAs, which is extracted hereunder:

'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 nonperforming and may be classified as 'standard' accounts. With regard to upgradation of a restructured/rescheduled account which is classified as NPA contents of paragraphs 12.2 and 15.2 in the Part B of this circular will be applicable.'

From the aforesaid, it is clear that a substandard asset is one, which has remained NPA for a period less than or equal to 12 months. The guidelines provides that such asset will have well defined credit weakness that jeopardies the liquidation of the debt and are characterised by the distinct possibility that the banks will sustain some loss, if deficiencies are not corrected, meaning thereby that if the borrower corrects the deficiency then the substandard asset would be upgraded to a standard account as per para 4.2.5 of the RBI guidelines, which provides that if arrears of interest and principal is paid by the borrower, the account would no longer be treated as non-performing and would be classified as a standard account. In this regard, the Court further finds from a reading of para 4.2.4 of the guidelines that the classification of an account as NPA must be done by Bank based on the record of recovery and that the Bank could not classify an account as NPA merely due to the existence of some deficiencies which are temporary in nature such as balance outstanding exceeding the limit temporarily.

In the light of the aforesaid provisions in the RBI guidelines, we have to judge the stand of the respondent-Bank in declaring the petitioners' account as NPA, which is, that the cash credit limit was overdrawn by Rs.8,97,371.04 as on 31.12.2014 and that the outstanding balance remained continuously in excess of the sanctioned limit continuously for ninety days without there being any credit in the said account. The respondent-Bank has filed the statement of account, which shows that on 30.09.2014 the petitioners had exceeded the cash credit limit by Rs.4.53 lakhs, which came down to the prescribed limit on 29.10.2014 by deposit of Rs.6,76,000.00. However, from 31.10.2014 to 31.12.2014 the petitioners exceeded the sanctioned cash credit limit. The account further shows that on 29.12.2014 the petitioners deposited a sum of Rs. 2,99,500.00. From the aforesaid, it is clear that the petitioners had exceeded the cash credit limit in the last quarter from September, 2014 to December, 2014 and, as on 31.12.2014, the petitioners had overdrawn the cash credit limit by Rs.8,97,371.04. Upon a perusal of the statement of account, we find that it is incorrect to state that the outstanding balance remained continuously in excess of the sanctioned limit for ninety days. It is also incorrect to state that there was no credit during this period. We find that from September, 2014 to December, 2014 the petitioners had deposited a sum of Rs. 6,76,000.00 on 29.10.2014 and Rs. 2,99,500.00 on 29.12.2014.

We also find from a reading of paragraph 2.1.3 that the account can only be classified as a NPA, if the interest due and charged during any quarter is not serviced fully within ninety days from the end of the quarter, meaning thereby that the interest charged on the cash credit limit in the last quarter from September, 2014 to December, 2014 has to be cleared within ninety days from the end of the quarter i.e. upto 31.03.2015 since the last quarter ended on 31.12.2014. If the outstanding amount remains even after 31.03.2015 then the respondent-Bank could proceed and the account be declared as NPA. Consequently, we are of the opinion that the para 2.2 of the guidelines could not be invoked on 01.01.2015 by the Bank nor could be the petitioners' account be declared as NPA on 31.12.2014 merely on the ground that the petitioners had overdrawn Rs. 8,97,371.04 in excess of the cash credit limit. We are of the opinion that the petitioners were required to pay this amount of Rs. 8,97,371.04 within ninety days from the end of the quarter i.e. till 31.03.2015.

We also find that prior to 30.09.2014 the petitioners never exceeded the cash credit limit nor had defaulted in payment of the interest in WCDL account. The petitioners admittedly, exceeded the cash credit limit in the last quarter of 2014. Such deficiency would be classified as a temporary deficiency as per para 4.2.4 of the RBI guidelines, as the petitioners exceeded the cash credit limit temporarily. Paragraph 4.2.4 clearly indicates that the Bank should not classify the account as NPA only at the instance of such deficiency which was temporary in nature. We also find that the overdrawn amount in cash credit account was cured and the deficiency was removed in January, 2015. This is reflected in the petitioners' reply to the notice under Section 13(2) of the Act. The Bank acknowledges the removal of the deficiency while rejecting the petitioners' reply under Section 13(2) contending that subsequent deposit made by the petitioners could not cure the deficiency nor such deposit could allow the Bank to recall its order classifying the petitioners' account as NPA. In our opinion, such stand adopted by the Bank was violative of para 4.2.4 of the RBI guidelines. On the other hand, we are of the opinion that the petitioners' account should have been upgraded again as 'standard account' as per paragraph 4.2.5 of the RBI guidelines after the deficiency was cured. The action of the respondent-Bank in rejecting the petitioners' objection was per se arbitrary and illegal.

In the light of the aforesaid, we are of the view that the initial action taken by the Bank classifying the petitioners' account as NPA was wholly invalid, illegal and against the guidelines issued by the RBI, which has the force of law and which is binding upon the Bank. We further find that the temporary deficiency in the petitioners' cash credit account was cured and the petitioners had brought its account within the cash credit limit in January, 2015. The RBI guidelines provides ninety days time to the petitioners to clear the deficiency, that is, till 31.03.2015 and the same was cleared by the petitioners in January, 2015 itself. The respondent-Bank should have upgraded the petitioners' account again as a standard account, which was not done and consequently the rejection of the petitioners' reply by the respondent-Bank and issuance of notice under Section 13(4) of the Act becomes patently illegal and arbitrary.

At this stage, we must observe that the finance is required so that the petitioners could run their business. If the loan or the cash credit limit is withdrawn abruptly it becomes difficult for the borrower to repay the amount since the amount sanctioned by the Bank is invested in the business. We find that the business of the petitioners is running and, it is not a case where the business has stopped running or where the business is running in a loss. No doubt the respondent-Bank is required to protect the loan which it had sanctioned but, at the same time, the respondent-Bank should adopt a practical and pragmatic approach for which the RBI has framed guidelines which are binding upon them and which are required to be followed meticulously. In the instant case, we find the respondent-Bank has failed to adhere to the terms indicated in the guidelines. Consequently, the action of the respondent-Bank in declaring the petitioners' account as NPA by its order dated 31.12.2014 as well as the notice dated 01.01.2015 issued under Section 13(2) of the Act and the notice dated 17.03.2015 issued under Section 13(4) of the Act are quashed. The writ petition is allowed.

In the circumstances of the case parties shall bear their own cost.
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