DATE: 06/12/2025
COURT: High Court of Delhi
BENCH: Justice Anil Kshetarpal and Justice
Harish Vaidyanathan Shankar
FACTS:
The Petitioner Bank, Syndicate Bank,
extended a credit facility of Rs. 100 lakhs to Respondent No. 1 (M/s Karishma
Enterprises, a proprietorship firm owned by Sh. Vijay Kumar) in 2007, secured
by guarantees and mortgages from Respondent Nos. 1 and 2 over three properties
in Delhi. Additional facilities were granted in 2008 and renewed in 2009 and
2010, with Respondent No. 2 reaffirming liabilities. By 2012, the accounts
became irregular due to defaults, nil stock reports indicating no business
activity, and overdrawn limits. Despite reminders in early 2013, the
Respondents failed to regularize, leading to the account being declared a
Non-Performing Asset (NPA) on 31.03.2013. The Bank issued a notice under
Section 13(2) of the SARFAESI Act on 22.04.2013, appointed a Court Receiver,
and took symbolic possession of two properties in October 2013, while the third
was under ARCIL's control.
Respondents challenged the actions via a
writ petition (dismissed as withdrawn) and S.A. No. 325/2013 before the DRT,
which temporarily restrained the Bank subject to deposits. The Bank issued an
auction notice in January 2014, challenged by the Respondents, but the DRT on
16.04.2014, with Respondents' consent, directed auction of only one property
(275 sq. yds.), which sold for Rs. 214 lakhs. Respondents appealed this to DRAT
(Appeal No. 303/2014), disposed as infructuous on 16.12.2014 after the sale.
The DRT dismissed S.A. No. 325/2013 on 29.09.2015, confirmed the sale to
Respondent No. 3 (auction purchaser), and the Bank withdrew a separate recovery
O.A. Respondents appealed to DRAT (Appeal No. 37/2016), which set aside the
DRT's dismissal on 02.03.2016, leading to the present writ petition challenging
that order.
ISSUES:
The primary issues were whether the DRAT
erred in setting aside the DRT's dismissal of S.A. No. 325/2013 by
miscalculating the 90-day period for NPA classification, disregarding
Respondents' prior consent to the property sale as recorded in the DRT's
16.04.2014 order, overlooking their conduct in challenging consented orders and
failing to deposit dues despite opportunities, and faulting procedural
non-compliance under the SARFAESI Act and Rules despite the Respondents' waiver
through consent.
JUDGEMENT WITH REASONING:
The High Court allowed the writ
petition, set aside the DRAT's impugned order dated 02.03.2016, and upheld the
DRT's dismissal of S.A. No. 325/2013, thereby validating the Bank's NPA
classification, the auction sale, and related actions under the SARFAESI Act.
The Court reasoned that the
Bank's NPA declaration on 31.03.2013 was lawful, as the accounts had been
continuously irregular since 31.12.2012, with the 90-day period under RBI's
IRACP norms commencing from 01.01.2013 and completing exactly on 31.03.2013 (31
days in January + 28 in February + 31 in March). No evidence showed
regularization during this period, and classification on the 90th day or
immediately thereafter complied with the mandatory norms under the Banking
Regulation Act, without premature action. The Respondents failed to discharge
their burden of proving incorrect classification, and their continued default
post-notice under Section 13(2) reinforced the Bank's position. Furthermore,
the DRAT ignored the Respondents' explicit consent to auction one property, as
recorded in the DRT's 16.04.2014 order, and their subsequent frivolous appeals,
including Appeal No. 303/2014 disposed as infructuous after the sale. Multiple
opportunities to deposit dues, such as via the DRT's 13.04.2015 order, were not
availed, highlighting bad faith conduct that the DRAT overlooked.
Additionally, the Court held that
the Respondents' consent to the sale diluted the need for strict procedural
compliance under SARFAESI Rules 8 and 9, as these safeguards protect borrowers
who can waive them through informed acquiescence without showing prejudice or
mala fides by the Bank. The sale for Rs. 214 lakhs against dues of Rs. 1.06
crores was fair, and the DRAT erred in invalidating it on technical grounds
despite the Respondents' participation and failure to demonstrate harm. The
overall factual matrix, including substantial recovery and withdrawal of the
Bank's O.A. in good faith, demonstrated the Bank's bona fides, leading the
Court to conclude that the impugned order was flawed and required setting aside
to ensure justice under Article 226.
ANALYSIS:
This judgment reinforces the sanctity of
RBI’s mandatory prudential norms on asset classification and sends a strong
message that courts will not permit borrowers to exploit minor arithmetical
debates over the exact counting of the 90-day period when the account has
remained continuously overdrawn and unregularised for months. The Delhi High
Court’s meticulous day-by-day calculation (01.01.2013 to 31.03.2013 = exactly
90 days) and its firm holding that classification on the 90th day itself is not
premature settles a point that often arises in SARFAESI litigation. More
importantly, the judgment clarifies that once irregularity is established and
the borrower produces no evidence of having serviced interest or brought the account
within limits during the crucial three months, the burden squarely shifts to
the borrower to prove correct classification — a burden the respondents
miserably failed to discharge. The decision thus protects banks from protracted
challenges based on hyper-technical interpretations of “more than 90 days.”
Equally significant is the court’s robust
application of the principle of waiver and acquiescence in SARFAESI
proceedings. By giving explicit consent before the DRT to the sale of one
mortgaged property (recorded in the order dated 16.04.2014), subsequently
appealing the same consented order, allowing the auction to be completed, and
then raising procedural objections under Rules 8 and 9 only at the DRAT stage,
the borrowers were rightly held to have waived their right to insist on strict
compliance. The High Court has authoritatively ruled that procedural safeguards
in the SARFAESI Act and Rules primarily exist for the borrower’s benefit and
can be waived by informed consent or conduct; once waived, minor deviations
cannot be used to scuttle a completed fair sale, especially when the property
fetched a price higher than its assessed value and substantially exceeded the
outstanding dues. This ruling will deter borrowers from adopting a “consent
today, challenge tomorrow” strategy merely to delay enforcement and buy time,
and it strengthens the hands of secured creditors and bona fide auction
purchasers in SARFAESI matters.
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