Harish Tandon, J.@mdashThis revisional application is directed against judgment and order dated 3rd February, 2011, passed by the Debt
Recovery Appellate Tribunal, Kolkata in Appeal No. 79 of 2009. A short but interesting question is raised in this revisional application by the
petitioner as to whether it is an account which is declared as non-performing assets for non-payment of the term deposit or the property which is
hypothecated and/or pledged for securing such term loan when depletes its value is termed as nonperforming assets.
2. According to the petitioner which is not disputed by the Financial Institutions/Bank that the flat which stood as collateral security for such term
loan would fetch much value than the claim of the bank and as such the action of the bank under the Securitisation & Reconstruction of Financial
Assets and Enforcement of Security Interest Act after declaring the said asset as NPA is illegal and contrary to the aims and object for which such
act was introduced.
3. Before dealing with such point, certain facts is required to be narrated.
4. On 30th September, 2003, the opposite party bank sanctioned a term loan of Rs. 32 lakhs against an equitable mortgage of the entire 5th floor
of the premises No. 45, Jhowtalla Road, Kolkata- 700019. An irrevocable Power of Attorney was executed to enable the opposite party bank to
collect the rent directly from the tenant which would be adjusted against the said term loan. Subsequently, the tenant defaulted in making the
payment on and from the month of June, 2005. On August 5,2006, The opposite bank intimated to the petitioner that as on July 31,2006, there is
a total outstanding of Rs. 34,49,239/- where in turn the petitioner proposed for settlement of the aforesaid dues at Rs. 22 lakhs as the Bank has
collected more than Rs. 10 lakhs as rent from the said tenant. Such proposal was not accepted by the bank as according to it, the petitioner is
obliged to make the payment of a sum of Rs. 30,79,8957-.
5. The petitioner opposite party, thereafter, issued a notice u/s 13(2) of Securitisation & Reconstruction of Financial Assets and Enforcement of
Security Interest Act on April 29,2007 and thereafter issued farther notice u/s 13(4) of the said Act on February 22,2008.
6. Challenging the aforesaid Act of the opposite party bank, the petitioner moved before the Debt Recovery Tribunal u/s 17 of the Securitisation &
Reconstruction of Financial Assets and Enforcement of Security Interest Act which was registered as SA No. 68 of 2008. The Debt Recovery
Tribunal Dismissed the said application and an appeal preferred against the said order before the Debt Recovery Appellate Tribunal being Appeal
No. 79 of 2009 is also dismissed. Against refusal of the said application u/s 17 of the Securitisation & Reconstruction of Financial Assets and
Enforcement of Security Interest Act by the Debt Recovery Tribunal which is stood affirmed before the Appellate Tribunal, the present revisional
application is filed.
7. As indicated above, the point which is urged by the respective parties in this revisional application is the core issue which is to be decided
herein.
8. By contending the ''asset'' means of fixed asset which is capable of fetching a value ascertainable in the form of money, the action of the bank in
declaring such asset as non-performing assets (NPA) is illegal and contrary to the guidelines issued by the Reserve Bank of India from time to time.
9. A bone of contention of the petitioner is that the flat comprised in the entire 5th Floor of the Premises No. 45, Jhowtalla Road, Kolkata-
700019 has a present market value of above 123 lakhs whereas the claim of the opposite party bank is to the tune of 30 lakhs and odd and as
such declaration of non-performing asset is illegal and bad. It is strenuously submitted that if the liability is more than the value of the asset then only
such asset could be declared as non-performing asset and not otherwise. By contending so reliance is placed upon the judgment of the Apex Court
in case of Transcore Vs. Union of India (UOI) and Another, .
10. By refuting the contention of the petitioner, the respondent bank submits that non-performing assets as defined in the said Securitisation &
Reconstruction of Financial Assets and Enforcement of Security Interest Act means an account and not the fixed assets. It is further contended that
the Reserve Bank of India has issued a prudential norms on income recognition, asset classification and provisioning which contains the provision
for declaration of nonperforming assets and the same has been strictly adhere to before declaring the said account as non-performing assets. It is
further contended that the Apex Court judgment rendered in case of M/s. Transcore (supra) does not lay down the proposition as tried to be
contended by the petitioner and placed certain paragraphs of the said judgment in support of the above contention.
11. The object aim and purpose for which the Securitisation Act in acted is well-defined by the Supreme Court in case of M/s. Transcore (supra),
it has been held that the non-performing asset is nothing but a cost to the economy which basically is an account which becomes nonviable and
non-performing in terms of the guidelines given by the Reserve Bank of India. The non-performing asset represents the amounts receivable and
realisable by the financial institutions/bank.
12. The aforesaid aims, object and purpose are elucidated in Paragraph 12 which reads thus:
12. The NPA Act, 2002 is enacted to regulate securitisation and reconstruction of financial assets and enforcement of security interest and for
matters connected therewith. The NPA Act enables the banks and FI to realize long-term assets, manage problems of liquidity, asset liability
mismatch and to improve recovery of debts by exercising powers to take possession of securities, sell them and thereby reduce non-performing
assets by adopting measures for recovery and reconstruction. The NPA Act further provides for setting up of asset reconstruction companies
which are empowered to take possession of secured assets of the borrower including the right to transfer by way of lease, assignment or sale. The
said Act also empowers the said asset reconstruction companies to take over the management of the business of the borrower. The constitutional
validity of the said Act has been upheld in the case of Mardia Chemicals Ltd. and Ors. vs. Union of India and Ors. reported in 2004 (4) 311.
After the judgment of this Court in Mardia Chemicals, the amending Act 30 of 2004 was inserted,. By the said Act 30 of 2004, Section 19(1) of
the DRT Act was recasted simultaneously with Section 13 of the NPA Act, 2002. These amendments were made in order to enable the banks/FIs
to withdraw, with the permission of DRT, the O. As. made to it, and thereafter take action under the NPA Act. In the judgment in Mardia
Chemicals (supra) this Court observed that, in cases where a secured creditor has taken action u/s 13(4), it would be open to the borrower to file
an application u/s 17 of the NPA Act. In the said judgment, this Court further observed that if the borrower, after service of notice u/s 13 (2) of
the NPA Act, raises any objection or places facts for consideration of the secured creditor, such reply to the notice must be considered such reply
to the notice must be considered by the bank/FI with due application of mind and reasons for not accepting the objections briefly must be given to
the borrower. In the said judgment, it is further stated that the reasons so communicated shall only be for the purposes of information/knowledge of
the creditor and such reasons will not give him any right to approach the Tribunal u/s 17 of the NPA Act. The appellant here in (M/s. Transcore)
mainly relied on the said reasons given by this Court in Mardia Chemicals (supra) in support of its contention that the Notice dated 6.1.2003 under
section13(2) of NPA Act was merely a show cause notice and it did not constitute ""action"" under the NPA Act and, therefore, the said bank was
obliged statutorily to apply for withdrawal of O.A. No. 354/99 before invoking the NPA Act.
13. Section 2(o) of the Securitisation Act defines non-performing assets in the following words:
(o) ""non-performing asset"" means an asset or account of a borrower, which has been classified by a bank or financial institution as sub-standard,
doubtful or loss asset,-
(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;
14. The RBI in the prudential norms provided as to when the account can be classified as substandard, doubtful and loss assets. Paragraph 2.1.3
(i) of the said prudential norms which was issued by the RBI vide circular No. DBOD No. BP. Bc. 10/21.04.048/2004-05 dated 17.07.2004
defines the non-performing asset where the interest and/or installment of principal remain overdue for a purpose more than 180 days in respect of
term loan. Substandard assets, default assets and loss assets are defined in the said prudential norms as:
4.1.1. Sub-standard Assets
A sub-standard asset was one, which was classified as NPA for a period not exceeding two years. With effect from 31 March, 2001, a sub-
standard asset is one, which has remained NPA for a period less than or equal to 18 months. In such cases, the current net worth of the
borrower/guarantor or the current market value of the security charged is not enough to ensure recovery of the dues to the hanks in full. In other
words, such an asset will have well-defined credit weakness that jeopardise the liquidation of the debt and are characterized by the distinct
possibility that the banks will sustain some loss, if deficiencies are not corrected.
With effect from 31 March 2005, a sub-standard asset would be one, which has remained NPA for a period less than or equal to 12 months.
4.1.2. Doubtful Assets
A doubtful asset was one, which remained NPA for a period exceeding two years. With effect from 31 March 2001, an asset is to be classified as
doubtful, if it has remained NPA for a period exceeding 18 months. A loan classified as doubtful has all the weaknesses inherent in assets that were
classified as sub-standard, with the added characteristic that the weaknesses make collection or liquidation in full, - on the basis of currently known
facts, conditions and values- highly questionable and improbable.
With effect from March 31, 2005, an asset would be classified as doubtful if it remained in the sub-standard category for 12 months.
4.1.3. Loss Assets
A loss asset is one where loss has been identified by the bank or internal or external auditors or the RBI inspection but the amount has not been
written off wholly. In other words, such an asset is considered uncollectible and of such little value that its continuance as a bankable asset is not
warranted although there may be some salvage or recovery value.
15. Therefore, it is only when the said account being the asset of the bank becomes doubtful, substandard and loss, the same can be declared as
non-performing asset as held by the Supreme Court in case of M/s. Transcore(supra) in these words:
It is only when these assets in the hands of the bank or FI becomes sub-standard, doubtful or loss then the account or the asset becomes
classifiable as a non-performing asset and it is only then the NPA Act comes into operation.
16. Section 13(2) comes in operation when the borrower makes any default in repayment of the secured debt or any installment and his account in
respect of such debt is classified as non-performing assets which could obviously be done if the same has become substandard doubtful or loss.
The aforesaid classification can be done in accordance with the guidelines issued by the RBI as held in case of M/s. Transcore (supra) in the
following words:
That notice of demand is based on the footing that the debtor is under a liability and that his account in respect of such liability has become sub-
standard, doubtful or loss. The identification of debt and the classification of the account as NPA is done in accordance with the guidelines issued
by RBI.
17. Admittedly in the instant case, there has been no payment towards the debt after the cessation of payment of rent by the tenant for more than
180 days and the action of the bank in declaring the said account as non-performing assets in terms of the guidelines issued by the RBI, cannot be
faulted with. Furthermore, in a representation u/s 13(3A) of the Securitisation Act there is no objection taken by the petitioner relating to the
declaration of the asset as non-performing assets.
18. Thus I do not find any merit in the instant revisional application.
19. The same is hereby dismissed.
20. However, there shall be no order as to costs. Urgent Photostat certified copy of this order, if applied for, be given to the parties on priority
basis.