Allowed

Messrs Sajal Trading Company and Others v. Hdfc Bank Limited

DRT19 Mar 2026SA/147/2024

Case brief

AI extract

What is this about?

The Tribunal held that the bank illegally classified the applicant's loan account as NPA without referring the case to the Designated Committee as mandated by RBI guidelines. Consequently, the Tribunal quashed all recovery proceedings including NPA classification notices and possession notices issued by the bank.

What did the court decide?

The secrtization application was allowed and all proceedings initiated by the respondent under the Act including NPA classification notices and possession notices were quashed.

Messrs Sajal Trading Company and Others versus… — Contract and Commercial Disputes | DRT (2026)

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DEBTS RECOVERY TRIBUNAL-III, CHANDIGARH

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PRESIDED OVER: SH. MRIDULESH KUMAR SINGH

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SECURITIZATION APPLICATION NO.147/2024

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Date of Institution: 11.01.2024 Date of Decision: 19.03.2026

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M/s Sajal Trading Company, 13-8, Sohna Road, Dhauj, Ballabhgarh, Faridabad through its partner Sh. Madan Gopal S/o Sh. Gian Chand Goyal R/o House No.308, Sector 9, Faridabad (Haryana)

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Sh. Madan Gopal S/o Sh. Gian Chand Goyal, R/o House No.308, Sector 9, Faridabad (Haryana)

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Sh. Satpal Goyal S/o Sh. Gian Chand, R/o House No.308, Sector 9, Faridabad (Haryana)

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Sh. Vijay Kumar S/o Sh. Gian Chand, R/o House No.308, Sector 9, Faridabad (Haryana)

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Ms. Pooja Goyal W/o Sh. Vijay Goyal, R/o House No.308, Sector 9, Faridabad (Haryana)

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--Applicants

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Versus

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HDFC Bank Limited, Plot No. I-15, Ground Floor, Alpha IT City, Sector 101, Mohali 160062 (Punjab) through its Authorised Officer

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--Respondent

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Argued by: Sh. Diwan Sharma, Advocate for Applicants Sh. C.S. Pasricha, Advocate for Respondent

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FINAL ORDER

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(1) This Securitization Application was filed under Section 17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the Act’ for brevity) to set aside illegal classification of loan account as NPA on 29.09.2019, demand notice under Section 13(2) of the Act dated 27.12.2019 and possession notice under Section 13(4) of the Act dated 09.03.2020 being illegal, arbitrary and against the provisions of the Act and Security Interest (Enforcement) Rules, 2002 (hereinafter referred to as ‘Rules’ for brevity).

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(2) It was stated in the application that applicant is a partnership Firm engaged into the business of manufacturing and processing of mustard oil and have

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SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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its works at Village Ballabgarh, Faridabad; that it is a Small Scale Industry and copy of the said Certificate was issued by the District Industries Centre; that on 30.07.2018, respondent renewed the credit limits vide sanction letter pertaining to Cash Credit Limit of Rs.2.75 Crores; that thus, total loan sanctioned to the applicant No.1 was Rs.2.75 Crores; that account of the applicant Firm has been running well but in the year 2019, applicant Firm faced financial losses due to which applicants were unable to deposit the due installments of the loan, consequently the account of the applicants was became irregular; that on 27.12.2019 respondent had issued notice under Section 13(2) of the Act stating therein that loan account of the applicants was classified as NPA on 29.09.2019 in accordance with the guidelines issued by Reserve Bank of India; that further the said notice was issued calling upon the applicants to pay an amount of Rs.2,96,37,892/- with interest thereon @18% p.a. from 02.12.2019 within 60 days of the receipt of the notice; that it was further stated in the said notice that in case if, the demanded amount is not paid, the bank would proceed against the secured asset; that applicants wanted amicable solution of the dues by way of negotiated settlement under OTS or rehabilitation of the Unit, therefore applicant No.1 through applicant No.2 requested respondent to provide him a copy of its rehabilitation policy or OTS policy, if any; that respondent had told applicant No.2 that there was no rehabilitation or settlement/OTS policy in the bank and advised the applicant No.2 to pay the amount demanded as per notice dated 27.12.2019; that thereafter, on 09.03.2020 respondent had issued notice under Section 13(4) of the Act vide which symbolic possession of both the alleged mortgaged properties were taken over by respondent; that on 09.01.2020, applicants had filed an application under Right to Information Act, 2005 requesting Reserve Bank of India to inform as to the availability of settlement or rehabilitation policy as applicable to the loans granted by respondent so that the applicant Firm could apply for settlement or rehabilitation of its loan accounts; that Reserve Bank of India vide letter dated 07.02.2020 provided Circular dated 28.07.1995 ad

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SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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24.10.2001 issued to all scheduled commercial bank and all India Financial Institution in respect of One Time Settlement of NPAs; that applicant No.1 came to know that on 17.03.2016, Reserve Bank of India had issued “Framework for Revival and Rehabilitation of Micro Small and Medium Enterprises”, in exercise of its powers under Section 25 & 35A of the Banking Regulation Act, 1949, whereby under Clause 2.1, all the lenders are required to identify incipient stress to an MSME category borrower, to whom loan of less than Rs.25 Crores has been granted and examine their case of rehabilitation by placing the same before Designated Committee to be constituted in terms of Clause 3.3 of the said guidelines; that as per Clause 3.3, Designated Committee is required to be constituted, which shall be competent to examine the cases for rehabilitation, pertaining to MSME enterprises; that as per Clause 2.1, it was mandatory for the respondent to place the matter before the Designated Committee before initiating any recovery measures against the applicant Firm; that on 28.11.2020, applicants informed respondent regarding the aforesaid guidelines and requested the bank to place the matter before the Designated Committee in terms of Clause 2.3 of the same, which enables the borrower to directly approach the bank to place the matter before the Designated Committee; that respondent did not comply with the mandatory directions issued by Reserve Bank of India vide Circular dated 17.03.2016 and neither Designated Committee was constituted nor the case of the applicants was referred to the Committee as per requirement of Clause 2.3 of the guidelines dated 17.03.2016; that thereafter, respondent had filed an application under Section 14 of the Act before District Magistrate, Faridabad for appointment of a Receiver to take the possession of the subject property, which was registered as Case No.417/SARFAESI Act/2020 and the Learned District Magistrate, Faridabad had issued notice dated 02.12.2020 to applicants for appearance on 29.12.2020; that thereafter, applicants had filed a Writ Petition No.2127/2021 challenging the SARFAESI action of the respondent on various grounds before Hon’ble High Court of Punjab and Haryana; that the said Writ

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4 SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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Petition has been decided by the Hon’ble High Court vide order dated 18.12.2023; that thereafter, the present SA has been filed by applicants as per the liberty given by the Hon’ble High Court. It was further submitted that the action initiated by respondent against applicants is not legal and against the provisions of the Act, therefore it was prayed that the present SA may kindly be allowed.

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(3) Reply filed by respondent.

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(4) It was stated in the reply that applicants have not approached this Tribunal with clean hands; that there is no intention of the applicants to tender/repay the dues of the bank and the applicant is only interested in delaying the recovery process of the bank; that loan account in question was classified as NPA on 29.09.2019; that notice under Section 13(2) of the Act was issued on 27.12.2019 demanding an amount of Rs.2,96,37,892/-; that applicants have failed to repay the said amount till date despite availing substantial time of over 4 ½ years; that respondent had also filed OA No. 883/2021 before DRT-II seeking issuance of judgment and RC for an amount of Rs.3,62,40,469.18p; that this SA is not maintainable for want of jurisdiction in this Tribunal; that applicants have erroneously and inadvertently invoked the jurisdiction of this Tribunal as in fact, the notices attached with the SA as Annexure A-3 i.e., demand notice and Annexure A-4 i.e., possession notice have been issued from Chandigarh for the properties situated within the territorial jurisdiction of the Hon’ble DRT-II, Chandigarh as both the properties are situated at Faridabad, Haryana and even if the jurisdiction is to be carved out from the Office of the HDFC Bank, the notices has been issued from Chandigarh, which again fall within the territorial jurisdiction of DRT-II, Chandigarh; that applicants had failed to satisfy as to how the SA fall within the territorial jurisdiction of this Tribunal as merely having an Office at Mohali does not make out any case or jurisdiction as the said plea otherwise is not plausible; that therefore this SA is liable to be dismissed on this short score alone for want of territorial jurisdiction; that huge amount is due and recoverable from the applicants and only to evade their

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SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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repayment obligation, the dilatory tactics is being adopted by the applicants; that the contention of applicants that applicant No.1 is Small Scale Industry is baseless as there is no industry running nor the applicants have placed on record anything to show as to whether there is any business activity going on; that loan account as admitted by the applicants was NPA since 29.09.2019 but even after lapse of nearly 5 years, the position of the account is still as before, which proves the malafide of the applicants, who are only interested to delay the recovery process of the bank without any repayment; that no proof regarding the running of the industry or business has been brought on record; that no request was made by applicants to bank regarding restructuring or for OTS; that in fact, restructuring and also the OTS is not a matter of right as has been held by Hon’ble Apex Court in various judgments; that nothing has been placed on record by applicants, depicting as to whether the Unit of the applicants is still working or closed as in case applicants requires restructuring for that unit must be in working condition supported by proof of running of electricity connection, GST etc., and production activity ought to have been laced on record, which are nonexistent in the entire SA; that Clause 2.3 of the Master Circular clearly dialect that the applicants too could initiate the process on its apprehension of its failure of business before classification of loan account as NPA; that account in question was declared as NPA in the year 2019, which means and implies that the default was well within the notice and knowledge of the applicants, which otherwise is evident from the facts that the applicants had alleged that applicants were suffering difficulties in effecting recovery from its debtors, which evident apparently is much prior to the declaration of the account as NPA; that however, the applicants failed to exercise in accordance with clause 2.3 thereof and filing the application or seeking restructuring after much water having been flown; that no case is made out in the entire SA to stall the recovery process of the bank especially looking into the malafide conduct of the applicants, who despite availing over 05 years since 2019 when account was classified

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6 SA/147/2024

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M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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as NPA, failed to repay the dues of the bank; there is no intention of the applicants to repay the dues of the bank. Therefore, applicants and not entitled to get any relief from this Tribunal and prayed that the present SA may kindly be dismissed.

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(5) Replication filed by applicants to the reply filed by respondent, wherein the contents of SA were reiterated and that of the reply to the SA were denied. (6) I have heard arguments advanced by Sh. Diwan Sharma, Advocate for Applicants and Sh. C.S. Pasricha, Advocate for Respondent and gone through the record carefully.

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(7) Sh. C.S. Pasricha, Advocate argued that the present SA is not maintainable for want of territorial jurisdiction of this Hon’ble Tribunal. It was further argued that this Tribunal has no jurisdiction to adjudicate the matter because notices under Section 13(2) & 13(4) of the Act were issued from Faridabad and Chandigarh and applicants are also residents of Faridabad, Haryana, which falls under the jurisdiction of DRT-II. It was further argued that applicants have failed to satisfy as to how the SA fall within the territorial jurisdiction of this Tribunal, therefore the present SA is liable to be dismissed on this score only. (8) Per contra , Sh. Diwan Sharma, Advocate argued that Branch Office of respondent bank at Mohali is maintaining the account in which debt claim is outstanding. It was further argued that the issue of jurisdiction and cause of action narrated by respondent has already been decided by this Tribunal vide order dated 27.05.2024, which has not been challenged by the respondent before Hon’ble DRAT or Hon’ble High Court and the same has been attained finality and this Tribunal has jurisdiction to entertain and adjudicate the present SA.

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(9) Order dated 27.05.2024 reveals that the above argument of Sh. C.S. Pasricha, Advocate was already adjudicated by this Tribunal in detail. It was admitted by both the counsel that no Appeal was filed against the said order before Hon’ble DRAT and the said order was not challenged before Hon’ble High Court, therefore the said order attained finality.

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7 SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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(10) Relevant portion of the order dated 27.05.2024 is as under: “Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provides the jurisdiction regarding filing the applications. Sub-section 1-A of Section 17 of the SARFAESI Act reads as under:“(1-A) An application under sub-section (1) shall be filed before the Debts Recovery Tribunal within the local limits of whose jurisdiction(a) The cause of action, wholly or in part, arises; (b) where the secured assets is located; or (c) The branch or any other office of a bank or financial institution is maintaining an account in which debt claimed is outstanding for the time being.” Perusal of above provision regarding jurisdiction of Tribunals clearly shows that any person may file his application before the Tribunal in whose jurisdiction cause of action wholly or in part arises or before the Tribunal where the secured asset is located or before the Tribunal in whose territorial jurisdiction the branch or any other office of a bank or financial institution is maintaining an account in which debt claim is outstanding for the time being.

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It is established law that applicant is master of his own cause and he may file his application for any relief before any of the Tribunals mentioned above. Since the record shows that office of the respondent is at Mohali, Punjab and is maintaining the applicant’s account in which debt claim is outstanding therefore there is no force in the arguments of Sh. C.S. Pasricha, Advocate that this Tribunal has no jurisdiction for adjudicating this SA.”

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(11) In light of above, it appears that this Tribunal has the territorial jurisdiction to entertain the present SA. (12) Sh. Diwan Sharma, Advocate further argued that applicant No.1 is MSME Unit and account of applicants was classified as NPA illegally on 29.09.2019 in light of Circulars issued by Reserve Bank of India. It was further argued that the account was classified as

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8 SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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NPA without referring the matter to the Designated Committee in violation of Circular dated 17.03.2016 ( Annexure A-6 ) issued by Reserve Bank of India. It was further argued that in terms of guidelines referred in clause 2.2, clause 3.3 and clause 4.2 neither respondent has followed the terms and conditions nor any notice was ever issued by the Committee to the applicants. Therefore, the classification of loan account as NPA is illegal.

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(13) Per Contra , Sh. C.S. Pasricha, Advocate argued that respondent has followed all the legal provisions before initiation of action under the Act. It was further argued that Unit of the applicants is MSME but the loan account of applicants was classified as NPA on 29.09.2019 strictly in compliance of Rules and guidelines issued by Reserve Bank of India. It was further argued that nothing has been placed on record by the applicants as to whether the Unit of applicants is still working or closed. Therefore, there is no illegality committed by respondent in classification of loan account as NPA or the matter was not referred to Designated Committee.

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(14) Circular dated March 17, 2016 is annexed as Annexure A6 with the SA. As per this Circular it was binding upon the respondent to refer the matter of applicants to the Designated Committee constituted under this Circular before classification of account as NPA.

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(15) It was not denied by learned counsel for respondent that Unit of the applicants is not MSME. There is no evidence on record that case of the applicants was ever referred to Designated Committee in terms of Circular dated 17.03.2016 issued by Reserve Bank of India providing framework for revival and rehabilitation of MSMEs. It is admitted fact that Circulars issued by Reserve Bank of India are binding upon the Banks/FIs.

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(16) Sh. Diwan Sharma, Advocate placed reliance upon the judgment passed by Hon’ble Supreme Court of India titled as Central Bank of India Vs. Ravindra 2002 (1) SCC 367 and Sardar Associates Vs. Punjab and Sind Bank 2009 (8) SCC 257 , in which it was held that the guidelines issued by the

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9 SA/147/2024

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M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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Reserve Bank of India in terms of Section 21 and Section 35-A of the Banking Regulation Act, 1949 are binding and mandatory.

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(17) As far as the argument advanced by Sh. C.S. Pasricha, Advocate that applicants have not placed any proof that Unit of applicants is still running, Sh. Diwan Sharma, Advocate argued that Reserve Bank of India has issued Circular on March 17, 2016 and account of applicants was classified as NPA on 29.09.2019 and it was not contended that Unit of applicants was not running on 29.09.2019.

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(18) As per above referred Circular of Reserve Bank of India, respondent was duty bound to refer the matter to Designated Committee before classification of loan account as NPA on 29.09.2019. Therefore, it hardly makes any difference as to whether the Unit is still running or not.

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(19) In the considered opinion of this Tribunal, respondent has classified the account as NPA without referring the matter to Designated Committee. Therefore, the said action was illegal.

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(20) Sh. Diwan Sharma, Advocate further argued that respondent has wrongly classified the account of applicants as NPA on 29.09.2019 because there was no 90 days default in continuation as per RBI Circular. It was further argued that before classifying the account as NPA on 29.09.2019, respondent had never issued any prior notice to applicants. Therefore, classification of loan account as NPA is illegal. It was further argued that loan account of applicants was classified as NPA on 29.09.2019 in violation of Section 2(1)(O) of the Act. It was further argued that it was mandatory on the part of the respondent to classify the account as substandard, doubtful or loss and intimate the same to the applicants before issuing the notice under Section 13(2) of the Act.

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(21) Per contra , Sh. C.S. Pasricha, Advocate argued that the account of applicants was classified as NPA in strict compliance of Rules and there is no illegality in it. It was further argued that there is no requirement under any law to issue advance notice to borrowers and guarantors regarding the classification of account as NPA.

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10 SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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(22) Sh. Diwan Sharma, Advocate has placed reliance upon the judgment passed by Hon’ble Jharkhand High Court in the matter M/s Stan Commodities Pvt. Ltd. Vs. Punjab and Sind Bank, 2009 AIR JHAR 14 in which Hon’ble High Court has observed as under:

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“ 28. In view of the provisions of the guidelines of the RBI, the petitioner was entitled to be informed and any doubt or dispute was to be settled between the creditor and the borrower through any specific internal channel within one month from the date on which the account would have been classified as NPA. Even if there was no internal channel to settle such dispute/doubt, the petitioner was entitled to be informed and to get an opportunity to explain or represent against the intended classification of his account as NPA.

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29. The provision of the guidelines providing for some specific internal channel for settling the doubt in asset classification is akin to the requirement of the principals of natural justice, which according to the Supreme Court in Smt. Menka Gandhi Vs. Union of India (AIR 1978 SC 597) , must be read and followed even if, the provision is silent to that regard. The respondent being a Public Sector Bank are expected to follow the just, fair/prescribed procedure to meet the requirement of law and Article 14 of the Constitution of India.”

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(23) Sh. Diwan Sharma, Advocate further placed reliance upon the judgment passed by the Division Bench of Hon’ble High Court of Punjab and Haryana at Chandigarh in CWP No.6306/2007 titled as Bhupinder Singh Vs. State Bank of Patiala and Others, wherein it was observed as under:

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“It is only when the account of the borrower became sub-standard, doubtful or total loss, then the account of a borrower becomes classifiable as NonPerforming Asset and it is only then the Act came into operation. Clause (o) of sub-section (1) of section 2 of the Act defines Non-Performing Asset which means an asset or account of a borrower which has been classified by the Bank as sub-standard, doubtful or loss asset. In the instant case the respondent bank in spite

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11 SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD.

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of the direction, has not placed on record the account of the borrower where the same was classified by the Manager of the respondent bank as sub-standard, doubtful or loss asset. Merely, on the basis of the aforesaid list, in our opinion it cannot be held that the account of the petitioner was declared as NPA legally.”

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(24) Admittedly, applicants were not informed before classifying their account as NPA and no opportunity of settlement of the controversy/doubts regarding classification of the assets were given. Therefore, the account of NPA classification cannot be said to be justified in light of above case law cited by leaned counsel for applicants.

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(25) In the instant case the respondent has not placed on record the details regarding account of the borrower where the same was classified by the Manager of the respondent bank as sub-standard, doubtful or loss asset. Therefore, in my opinion it cannot be said that the account of the applicants was declared as NPA legally in light of above case law cited by learned counsel for applicants.

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(26) Sh. Diwan Sharma, Advocate further argued that since loan account of applicants was classified as NPA by respondent in contravention of the provisions of the Act and guidelines issued by Reserve Bank of India, therefore issuance of notice under Section 13(2) & 13(4) of the Act are also bad in law.

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(27) Per contra , Sh. C.S. Pasricha, Advocate argued that loan account of applicants was classified as NPA in accordance with law.

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(28) As discussed above that loan account of applicants was classified as NPA in contravention of Circular issued by Reserve Bank of India and therefore, the said classification was illegal.

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(29) In light of above, there is force in the above argument of Sh. Diwan Sharma, Advocate.

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(30) No other point was argued/pressed. (31) After considering all facts, circumstances as well as after perusal of record and as discussed above, it clearly shows that account of applicants was classified as NPA illegally and matter of applicants was not referred to Designated Committee before classification of NPA.

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12 SA/147/2024 M/S SAJAL TRADING COMPANY AND OTHERS VS. HDFC BANK LTD. (32) Therefore, all proceedings initiated by the respondent under the Act are hereby quashed and SA is allowed. It is made clear that respondent may initiate fresh proceedings under the Act as per law. Record be consigned to record room after due compliance. Date: 19.03.2026 Pronounced by me in the open Tribunal. (MRIDULESH KUMAR SINGH) Presiding Officer, DRT-III, Chandigarh

Messrs Sajal Trading Company and Others v. Hdfc Bank Limited

Case brief

What is this about?

What did the court decide?

Messrs Sajal Trading Company and Others v. Hdfc Bank Limited

Case brief

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What did the court decide?

What the court decided

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