Delhi HC restrains Canara Bank from flouting SC’s NPA relief order

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October 21, 2020 3:45 AM

ROPP argued that based on the restructuring scheme it had taken steps to sell his assets and fulfil its obligations and the bank should be stopped from backing out of the restructuring scheme now.

“This is a classic case of how the government policies for MSMEs are not being passed on to the benefit of the sector,” says a lawyer associated with the sectoral issues.“This is a classic case of how the government policies for MSMEs are not being passed on to the benefit of the sector,” says a lawyer associated with the sectoral issues.

The Delhi High Court (HC) has restrained PSU lender Canara Bank from taking any coercive action against an MSME, whose accounts were declared as non-performing assets (NPA) last year, despite the Supreme Court directions that any accounts declared as NPAs till August 31 shall not be declared as the same till further orders.

While seeking quashing of the Reserve Bank of India’s (RBI) circular declaring its account as NPA vide letters of July 13 and August 31, Delhi-based Ravi Offset Printers and Publishers (ROPP) has also challenged the “arbitrary, illegal and fraudulent action of Canara Bank” cancelling one-time restructuring and withdrawal of all the benefits so extended.

Justice Jayant Nath while seeking a response from the RBI and others restrained Canara Bank from taking any coercive steps against the petitioners till the next date of hearing, which is November 19. “In the meantime, the petitioners shall also not alter the position of the charged assets,” the HC order stated.

“This is a classic case of how the government policies for MSMEs are not being passed on to the benefit of the sector,” says a lawyer associated with the sectoral issues.

RBI had on January 1 last year issued guidelines on restructuring of MSME accounts that had become stressed, thereby allowing one-time restructuring of existing loans that were classified as “standard” without a downgrade in asset classification. A Sanction Memorandum was also executed by Canara Bank December 31, 2019, whereby it had restructured the credit facilities extended to ROPP. While the central bank also issued guidelines on February 11, 2020, extending the one-time restructuring scheme to MSMEs whose exposure did not exceed `25 crore as on January 1, 2020, the lender, however, on July 13 recalled the restructuring scheme given to the publisher on December 31 because it was not eligible for OTR scheme for advances.

ROPP argued that based on the restructuring scheme it had taken steps to sell his assets and fulfil its obligations and the bank should be stopped from backing out of the restructuring scheme now.

ROPP counsel Abhinav Mukerji argued that the lender’s action in retrospectively declaring the account of his client to be NPA was impermissible and contrary to the settled principles of law. “The bank’s action is tainted with mala fide as it has sought to renounce and rescind its obligation, which has operated to the prejudice of the company and has opened up the possibility of initiation of action under Sarfaesi Act which is illegal and not maintainable in the light of already implemented restructuring,” the counsel said, adding that the Covid-19 lockdown had also severely affected its liquidity and operations.

The SC too had on September 3 directed that the accounts that were declared an NPA till August 31 shall not be declared as NPA till further orders, he said.

The RBI and the Finance Ministry have failed to take action against the Canara Bank for misusing its dominant position and for taking recourse to coercive measures and for putting in place an appropriate regulatory mechanism to prevent misuse, the petition stated.

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