NPA Classification On 90th Day Of Continuous Irregularity Is Valid Under RBI Prudential Norms: Delhi High Court

The High Court observed that where the irregularity remains undisputed, an NPA declaration coinciding with the completion of the statutory period cannot be challenged as premature.

The Court was hearing an appeal under Section 18 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, challenging the order of the Debts Recovery Appellate Tribunal affirming the validity of the NPA classification and ensuing SARFAESI proceedings.

A Division Bench of Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar observed: “Even if this date is treated as the 90th day, classification on the very date of completion of the statutory period cannot be termed premature, especially where the irregularity is undisputed and where the declaration is contemporaneous with the expiry of the mandated timeframe. The prudential norms require classification after the account has remained irregular “for more than 90 days”.

Advocate Anu Jain represented the petitioner, while Advocate Pulkit Aggarwal represented the respondents.

Background

The borrower had availed of credit facilities from the bank, and the account became irregular due to failure to maintain financial discipline. After the irregularity persisted, the bank classified the account as NPA on 31.03.2013, initiating measures under Section 13(2) of the SARFAESI Act.

The borrower challenged the action, contending that the account was declared NPA prematurely, on the very date the 90-day period expired. It was argued that the classification should be permissible only after 90 days had elapsed.

The bank disputed the claim and submitted that the borrower had not attempted to regularise the account either on the 90th day or thereafter, rendering the challenge untenable.

Court’s Observation

The Delhi High Court examined the Income Recognition and Asset Classification (IRAC) norms and held that NPA classification is based on continuous default for more than 90 days. It found that when the 90-day period ends on a date, classification on the same day is at the outer permissible limit and not premature in any manner.

The Bench observed that even assuming arguendo a minor prematurity arguendo, there was no corrective step taken by the borrower on the immediate next day or thereafter to demonstrate curative intent. Therefore, the challenge failed on both factual and legal grounds.

The Court further noted that the borrower had not shown any financial arrangement to clear the outstanding dues, and absent any contrary record before the bank, the declaration could not be faulted. The Bench reiterated that the prudential norms exist to safeguard systemic discipline and cannot be diluted based on speculative objections.

In response to the challenge to consequential actions taken under SARFAESI, the Bench held that once the NPA classification was upheld, the measures undertaken thereafter were lawful. It emphasised that statutory timelines under the Act cannot be interfered with without proof of prejudice.

The Court found that the borrower’s objections were devoid of substance and stated: “There is nothing on record to show that the appellant, even on the subsequent day, had taken any steps to infuse any monies to evidence an attempt to steer off such a declaration.”

Conclusion

Upholding the NPA classification and subsequent SARFAESI proceedings, the Court dismissed the appeal and affirmed the orders passed by the Debts Recovery Appellate Tribunal. All pending applications were also disposed of.

Cause Title: Canara Bank v. M/s Krishna Enterprises (Neutral Citation: 2025:DHC:10911-DB)

Appearances

Appellant: Advocate Anu Jain, Hitesh Sachar, Dev Inder Singh, Deekhsha Kingrani

Respondent: Advocate Pulkit Aggarwal

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