Bank Can Assign Debt Even If NPA Classification Is Later Declared Invalid: Rajasthan High Court

The Rajasthan High Court dismissed a writ petition filed against SBI's assignment of debt in favor of Alchemist Asset Reconstruction Company Ltd. (AARC) holding that even if NPA classification is later declared invalid, it does not affect the validity of assignment of debt. Justice Rekha Borana held that “the assignment cannot be invalidated merely because the NPA classification was later declared invalid. The writ petition being totally misconceived does not deserve any interference and is hence dismissed.” The petitioners had challenged the assignment deed dated 20th march 2014 by which the State Bank of India had assigned HGPL's loan account to Alchemist Asset Reconstruction Company Ltd. (AARC). The SBI had provided a loan of Rs. 24 crore and a cash credit facility of Rs. 1 crore to HGPL. The loan was classified as Non-Performing Assets (NPA) due to persistent defaults. Proceedings under the SARFAESI Act and the IBC were initiated after the assignment of debt to AARC. The Petitioner submitted that the assignment of debt was illegal as it was executed when NPA classification was under challenge and later declared illegal. It was further submitted that only a validly classified NPA can be subject to recovery and assignment under sections 13(2) and 13(4) of the SARFAESI Act. Lastly, it was submitted that once the classification of NPA was declared illegal, the entire transaction of assignment of debt stood nullified. Per contra, the respondent submitted that the guarantor lacked locus standi to challenge the assignment when the borrower had failed in the similar attempts. Relying on ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd., it was further submitted that banks are entitled to assign debts as assets and such transfer of assets do not affect the rights of the borrower. Findings: The court observed that the writ petition was wholly misconceived as the issue of assignment of debt had been adjudicated multiple times before several forums and rejected on each occasion. Relying on APS Star Industries, it held that “a bank, being a secured creditor, has the right to transfer or assign its financial assets, and such transfer does not in any manner affect the rights or interests of the borrower.” On NPA classification, the court held that “the act of assigning a loan is a legal transaction distinct from the internal classification of that loan as an NPA. Even if the NPA classification is later declared invalid, the bank's right to transfer or assign the debt remains unaffected.” In light of the above discussion, the court held that therefore invalidity of NPA classification did not affect the validity of the assignment of debt. The court concluded that “the assignment cannot be invalidated merely because the NPA classification was later declared invalid. The writ petition being totally misconceived does not deserve any interference and is hence dismissed.” Accordingly, the present petition was dismissed. Case Title: Sh. Harendra Singh Rathore Versus State Bank Of India Case Number: S.B. Civil Writ Petition No. 1240/2024 Order Date: 23/09/2025 For Petitioner(s) : Mr. Anil Kumar Singh with Mr. Abhyudai Singh For Respondent(s): Mr. Vikas Balia, Sr. Adv. assisted by Mr. Ashu Kansal Mr. Abhishek MehtaCitation: 2025 LiveLaw (Raj) 357 Click Here To Read/Download The Order

Bank Can Assign Debt Even If NPA Classification Is Later Declared Invalid: Rajasthan High Court

Mohd Malik Chauhan

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