Banking Regulation Act | Declaring Account As NPA On 90th Day Of Irregularities Compliant With RBI Norms: Delhi High Court

The Delhi High Court has held that the action of a bank, declaring an account as Non-Performing Asset (NPA) on the 90th day of irregularities, cannot be said to be 'premature'.

RBI's prudential norms on Income Recognition, Asset Classification and Provisioning which have statutory force under Sections 21 and 35A of the Banking Regulation Act, 1949, provide that an Overdraft (OD) or Credit Cash (CC) account becomes an NPA when the outstanding balance remains continuously in excess of the sanctioned limit or drawing power for more than 90 days.

Canara Bank, the Petitioner argued that it correctly computed the 90-day period of continuous irregularity and classified the accounts of Respondents only upon expiry of the mandated period on 31.03.2013.

The Respondents on the other hand contended that the Debt Recovery Appellate Tribunal had rightly considered and held that the Bank classified its account prior to expiry of more than 90 days.

The High Court observed that as of 31.12.2012, the Respondents' OD and CC accounts had become irregular, with the outstanding balances exceeding the sanctioned limits. This excess, it noted, was neither marginal nor temporary, prompting the Bank to declare the account as NPA on 31.03.2013.

Even if this date is treated as the 90th day, the Court said, 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”. When the 90-day period ends on 31.03.2013, the Petitioner Bank's act of classification on the same date or immediately thereafter would equally satisfy the regulatory requirement.”

The Court added that under the RBI framework a bank cannot defer or postpone classification once the statutory period of continuous irregularity has elapsed.

“The expression “more than 90 days” has been consistently understood to require the completion of a full 90-day period before classification. The computation begins from the date immediately succeeding the day on which the account first becomes irregular. If the irregularity continues unabated through the entire 90-day period, the account stands impaired in the eyes of the regulatory framework, and the Bank must classify it as NPA on the day following such completion.”

The Court further noted that the Respondents had placed no material to show that the accounts were regularised, interest was serviced, or the account was otherwise brought within sanctioned limits at any point during the relevant period.

“The burden of showing incorrect classification lies on the borrower once the Petitioner Bank demonstrates the existence of continuous irregularity, and that burden has not been discharged,” the Court said.

Appearance: Ms. Anju Jain, Mr. Hitesh Sachar, Mr. Dev Inder Singh & Ms. Deeksha Kingrani, Advs. for Appellants; Mr. Pulkit Aggarwal, Adv. for R-3.

Case title: Canara Bank v. M/S Karishma Enterprises & Ors.

Case no.: W.P.(C) 6494/2016

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