High Court Sets Aside DRAT Order: NPA Classification After 90 Days of Default Upheld and SARFAESI Auction Sustained
- REEDLAW
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REEDLAW Legal News Network reports: In a significant ruling on SARFAESI enforcement and NPA classification, the High Court reaffirmed that once a borrower’s account remains continuously irregular for the prescribed ninety-day period, classification as a non-performing asset in accordance with RBI norms cannot be termed premature. The Court further clarified that express consent granted by the borrower for the auction of the secured asset operates as a waiver of procedural objections, thereby foreclosing any subsequent challenge to recovery measures or the concluded auction sale.
The Division Bench of the Delhi High Court, comprising Justice Anil Kshetarpal and Justice Harish Vaidyanathan Shankar, while adjudicating a writ petition and connected application, held that continuous default beyond the ninety-day threshold squarely justified NPA classification under applicable RBI norms. The Court further observed that where the borrower had expressly consented to the auction of the secured asset, such consent amounted to a clear waiver of procedural safeguards, disentitling the borrower from assailing SARFAESI recovery actions or questioning the validity of the completed auction process.
The petition had been filed challenging the order passed by the Debts Recovery Appellate Tribunal, which had set aside the dismissal of the securitisation application and interfered with the measures taken by the secured creditor under the SARFAESI Act. The dispute arose out of credit facilities extended by the Financial Creditor to the Corporate Debtor, which were secured by a mortgage and a guarantee furnished by the Respondent. Upon persistent defaults and continuous irregularity in the overdraft and cash credit accounts, the loan account had been classified as a non-performing asset after completion of the prescribed ninety-day period, followed by issuance of a demand notice and initiation of recovery proceedings.
The record disclosed that the Respondent had repeatedly failed to regularise the account despite multiple opportunities. Proceedings under the SARFAESI Act were challenged before the Debts Recovery Tribunal, where interim protection was granted subject to a conditional deposit, which was not complied with. Symbolic possession of the secured assets was taken, and a sale notice was issued. During the proceedings, the Respondent expressly submitted before the Tribunal that the sale of one mortgaged property would be sufficient to satisfy the outstanding dues, pursuant to which the Tribunal directed that only one secured asset be put to auction.
In compliance with the said direction, the secured asset was auctioned and sold for a value exceeding the outstanding dues. Despite having consented to the sale, the Respondent challenged the very order permitting the auction, though the appeal was later disposed of as infructuous after the sale had already been concluded. Even thereafter, further opportunities were granted to the Respondent to clear the dues and redeem the property, which were not availed. Ultimately, the securitisation application was dismissed, and the auction sale was confirmed in favour of the auction purchaser.
The Appellate Tribunal, however, interfered with the dismissal of the securitisation application by holding that the classification of the account as NPA was premature and that there were procedural lapses in the conduct of the auction. The High Court found that such findings ignored the undisputed factual position that the account had remained continuously irregular beyond the statutory period and that the secured creditor had classified the account strictly in accordance with the RBI’s prudential norms. It was held that the computation of the ninety-day period was arithmetical in nature and that the declaration of NPA was neither premature nor unlawful.
The Court further held that the Respondent had given explicit consent to the auction of the secured asset, which had been duly recorded by the Tribunal. Once such consent was furnished, the Respondent was deemed to have waived objections relating to procedural irregularities in the auction process, particularly in the absence of any demonstrated prejudice or mala fides. The subsequent challenge to the sale was therefore found to be impermissible. It was also noted that the Respondent’s conduct reflected repeated attempts to delay recovery despite substantial accommodation granted by the Tribunal.
In view of these findings, the Court concluded that the Appellate Tribunal had failed to consider the Respondent’s consent and conduct, as well as the settled legal position governing asset classification and waiver of procedural safeguards. The impugned order was accordingly set aside, and the measures taken by the secured creditor, including the auction sale, were upheld as lawful and valid.
Ms. Anju Jain, Mr. Hitesh Sachar, Mr. Dev Inder Singh and Ms. Deeksha Kingrani, Advocates, represented the Petitioner/Bank.
Mr. Pulkit Aggarwal, Advocate, appeared for the Respondent No. 3.
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