Facts of the Case

The petitioner, Blaze Marketing, a partnership firm, had availed a cash credit facility and a term loan from the respondent, Union Bank of India. The petitioner subsequently committed default in repayment of the loan liabilities.

As a consequence of the repayment default, the respondent Bank issued Ext. P6 notice dated 07.10.2022, demanding repayment of the outstanding amounts within seven days.

According to Ext. P6 notice, the outstanding liabilities were:

  • Cash Credit Account: Rs. 35,82,761.61
  • Term Loan Account: Rs. 4,95,141.39

The notice further informed the petitioner that unless the accounts were closed before 15.10.2022, the accounts would be declared as Non-Performing Assets (NPA).

Aggrieved by the impending action and seeking reasonable time for repayment, the petitioner approached the Kerala High Court by filing the writ petition.

Issues Involved

The principal issues before the Court were:

  1. Whether the petitioner, having defaulted in repayment of the cash credit facility and term loan, could be granted reasonable time to clear the outstanding dues.
  2. Whether repayment of the amount demanded by the Bank could be permitted through monthly instalments.
  3. Whether the proposed declaration of the petitioner’s loan accounts as NPA and consequential recovery action could be kept in abeyance subject to strict compliance with the instalment schedule.
  4. What consequence should follow if the petitioner committed default in payment of any instalment granted under the Court’s order.

Petitioner’s Arguments

The petitioner submitted that repayment of the loan liabilities had been made promptly until the COVID-19 pandemic struck and lockdown restrictions were imposed.

It was contended that the pandemic and lockdown adversely affected the petitioner’s ability to continue regular repayment of the financial facilities.

The petitioner further submitted that it remained ready and willing to repay the outstanding amount, provided reasonable time was granted for clearing the dues.

Accordingly, the petitioner sought the indulgence of the Court for a reasonable instalment facility to discharge the liability demanded by the respondent Bank.

Respondent’s Arguments

The learned Standing Counsel appearing for the respondent Bank submitted that if repayment was not effected, the Bank would proceed to declare the account as NPA.

The Bank further submitted that, if any instalment facility was to be granted to the petitioner, the same should be restricted to the minimum possible period.

Thus, the respondent Bank maintained its right to proceed against the petitioner in the event of continued non-payment, while addressing the possibility of a limited instalment arrangement.

Court Order / Findings

The Kerala High Court disposed of the writ petition by granting the petitioner an opportunity to repay the amount demanded under Ext. P6, together with up-to-date interest, in six equated monthly instalments.

The Court directed as follows:

  1. The petitioner shall repay the amount demanded in Ext. P6, together with up-to-date interest, in six equated monthly instalments.
  2. The first instalment shall be remitted on or before 20.11.2022.
  3. The remaining instalments shall be paid before the 20th day of every succeeding month.
  4. If the petitioner commits default in payment of any one instalment, the benefit granted under the judgment shall be recalled.
  5. Upon such default, the respondent Bank shall be at liberty to proceed in the manner stated in Ext. P6 notice.
  6. If the petitioner pays all instalments without default, the proposal to declare the accounts as NPA and to effect recovery shall be kept in abeyance.

Accordingly, the writ petition was disposed of subject to strict compliance with the repayment schedule fixed by the Court.

Important Clarification

The judgment grants a conditional repayment facility and should not be understood as an unconditional prohibition against the Bank declaring the loan accounts as NPA or initiating recovery action.

The protection granted to the petitioner operates only so long as the petitioner strictly complies with the six-instalment repayment schedule.

A default in payment of even one instalment would result in recall of the benefit granted under the judgment, thereby enabling the Bank to proceed in accordance with Ext. P6 notice.

Conversely, where the petitioner makes payment without default, the proposed NPA declaration and recovery proceedings are required to remain in abeyance.

The judgment, therefore, balances the borrower’s request for reasonable repayment time against the Bank’s right to proceed upon default.

Sections / Legal Provisions Involved

No specific statutory section is expressly cited or adjudicated upon in the judgment.

The matter principally concerns:

  • Writ jurisdiction of the High Court
  • Default in repayment of banking facilities
  • Cash credit facility
  • Term loan liability
  • Proposed classification of loan accounts as NPA
  • Recovery action by the lending Bank
  • Court-directed repayment through equated monthly instalments

It is important not to attribute any specific statutory provision to the judgment when the order itself does not expressly identify or decide the matter under such provision.

Link to download the order - https://mytaxexpert.co.in/uploads/1783498963_1446compressed.pdf

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