MP High Court Upholds Eligibility Criteria Laid Down By Bank Of Baroda For Its Borrowers To Avail Benefits Of Resolution Framework 2.0 Issued By RBI

Justice Vivek Rusia held that the eligibility criteria of the Bank of Baroda ("the Bank"), whereby only those borrowers were eligible whose accounts were classified as standard on 31.03.2021 as well as on the date of invocation, was in sync with the guidelines of the RBI laid down vide Resolution Framework 2.0-

So far the additional condition i.e. account should be standard as on date of invocation is concerned, the same is also in conformity aforesaid para 16 of the RBI's Resolution Framework 2.0. According to which as on the date of the implementation of the resolution plan, the asset classification of the borrower's account should be classified as Standard and whereas the borrower accounts have slipped into NPA after the invocation and its the implementation it may be upgraded as Standard. Therefore, at the time of invocation, the account should be Standard and if after the invocation, it has slipped into NPA and before implementation it can be upgraded as standard, therefore, the BOB has rightly put a condition that the borrower's account should be standard as on 31.03.2021 and also as on date of invocation.

The case of the Petitioners was that they had availed a housing loan from the Bank and were regularly paying instalments prior to COVID-19. As their business got affected due to the pandemic, they could not deposit the instalments timely. Consequently, the Bank declared their loan account as Non-Performing Asset (NPA).

Meanwhile, the RBI had issued its Resolution Framework 2.0, and the bank formulated its Policy for the implementation of the same. The Petitioners accordingly sought for restructuring of their loan as per the RBI's policy. They were, however, declared ineligible for the scheme as per the eligibility criteria framed by the Bank, wherein it was laid down that in order to avail the benefits of the policy, the accounts should be classified as 'standard' as on 31.03.2021 and as on the date of invocation. While the Petitioners fulfilled the first criteria, their eligibility was hit by the second part as their loan account was classified as NPA before the date of invocation.

The Petitioners made a representation to the Bank stating that they were eligible to seek benefits of the Resolution Framework 2.0, but to no anvil. They then wrote to the RBI who sought an explanation from the Bank. The Bank justified its action before the RBI by referring to the eligibility criteria that it had framed for the implementation of the policy. Based on the reply of the Bank, the RBI closed the complaint of the Petitioners. During the pendency of the complaint, the Petitioners were also served a demand notice u/s 13(2) of the SARFAESI Act, based on the declaration of NPA. Aggrieved by the eligibility criteria laid down by the Bank, the Petitioner moved the Court.

The Bank submitted before the Court that as per the Resolution Framework 2.0, the lending institutions were authorised to frame board approved policy for its effective implementation, which included setting out the eligibility of borrowers in respect of whom the lending institutions shall be willing to consider the resolution. Placing reliance on the decision of the Apex Court in Bijnor Urban Cooperative Bank Limited v. Meenal Agrawal & Ors., the bank argued that the High Court, in the exercise of powers under Article 226 of the Constitution of India, cannot direct a financial institution/bank to positively grant the benefit of OTS to the borrower as the grant of benefit under the OTS is always subjected to the eligibility criteria mentioned under the OTS scheme and the guidelines issued from time to time.

The Bank further informed the Court that three of the Petitioners were absconding in a pending criminal case for offences punishable U/S 420, 409, 506/34 IPC. It was argued that they were chronic defaulters and hence could not invoke the discretionary remedy of the Court under Article 226 of the Constitution of India.

Examining the submissions of parties and documents on record, the Court was in consonance with the submissions of the Bank. Scrutinizing the relevant provisions of the Resolution Framework 2.0 and the policy of the Bank, the Court observed-

As held by the Apex court in the case of ICICI Bank Limited (supra), Sardar Associates (supra) and Central Bank of India (supra), the Bank of Baroda is bound to frame the policy and get it approved by its Board. Accordingly, the Bank of Baroda came up with a Policy for implementation of Resolution Framework 2.0 prescribing the eligibility criteria, sanctioning authority, process fee, timelines, identification of stress due to Covid-19, resolution plan for stress borrower etc. As per clause 1 (b) of the Policy of Bank of Baroda the accounts should be standard as on 31.03.2021 and as on the date of invocation.

Concurring with the stand of the Bank, the Court noted that the Petitioners were rightly denied the benefit of the scheme of RBI-

Petitioners' account had been declared NPA on 29.05.2021. Petitioners have submitted an application duly signed by all the petitioners on 31.03.2021, therefore, as the date of invocation their account was not standard, hence, the BOB has rightly declined to consider the same.

Observing that the Bank has already initiated the proceeding against the Petitioners under the SARFESI Act, the Court further held that the contentions put forth by the Petitioners regarding their account being declared NPA in violation of the master circular of RBI ought to be contested before the Debt Recovery Tribunal. With the aforesaid observations, the Court dismissed the writ petition.

Case Title : PRAMOD KUMAR SETHI S and ors v BANK OF BARODA and ors

Citation: 2022 LiveLaw (MP) 154

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