Allowed

Ms Nanveeta Steels Pvt. Ltd. v. State Bank of India

DRT11 Feb 2026SA/472/2024

Case brief

AI extract

What is this about?

The Tribunal allowed the Securitisation Application, holding that the classification of the borrowers' loan account as NPA on 19.03.2021 was illegal as it violated Supreme Court interim orders and RBI norms regarding the 90-day NPA timeline and MSME restructuring benefits. Consequently, all SARFAESI measures were quashed.

What did the court decide?

The Securitisation Application allowed. Classification of loan account as NPA on 19.03.2021 declared illegal. All measures under Sections 13(2) and 13(4) of the Act quashed as null and void. Applicant

Ms Nanveeta Steels Pvt. Ltd. versus State Bank of India — Banking and Recovery | DRT (2026)

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tN THE DEBTS RECOVERY TRIBUNAL - II AT HYDERABAD

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DATED THIS THE 11TH DAY OF FEBRUARY, 2026

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PRESENT: SH, RAMESHWAR KOTHE, B.com., L.LB.^(Hons.),M.A' PRESIDING OFFICER

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SECURITISATION APPLICATION NO.472 OF 2()24

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lY/s Navneeta Steels Private Limited Rep by its Director Anuraag Agarwal S/o Sri Shanker Lal Agarwal Plot No. 152, D.No.8-2-293l82lPN/152 Road No.72, Prashasan Nagar Jubilee Hills, Hyderabad

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Sri An uraag Agarwal S/o Sri Shanker Lal Agarwal

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R/o Flat No.1903, 'C' Block, 19th Floor My Home Bhooja, Raidurgam Se rilinga m pa lly, Hyderabad 500032

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Sri Shanker Lal Agarwal

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S/o Mahaveer Prasad Agarwal R/o Flat No.1903, 'C', Block, 19th Floor My Home Bhooja, Raidurgam Serilingampally,Hyderabad500032^{.......Applicants.}

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Versus

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State Bank of India Stressed Asset Management Branch (SAMB-II) D.No.3-4-1013/A

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1't Floor, CAC, TSRTC Bus Station Kachig uda, Hyderabad Rep by its Authorized Officer

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State Bank of India SME Branch

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H.No.3-6-199, Flat No.302

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3'd Floor, Above Westside, Beside^{Minerva CoffeeShop} Himayathnagar, Hydera ba d^- 5000 29 Rep by its Authorized Officer . .. .Respondents... .Respondents..Respondents.

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. .. .Respondents... .Respondents..Respondents.

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Ld.Counsel for the Applicants :

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Mr. V. Ravinder

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Respondent Bank

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Mr.M. Narendra Reddy Learned designated senior counsel Along with Ms- Tarangini Pisipati Learned counsel

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.:ORDER:-

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The Applicants filed the present Securitisation Application uls.17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002^(hereinafter referred to as'SARFAESI Act 2002") to declare classification of loan account as NPA and all the SARFAESI proceedings initiated by the respondent bank against the application schedule property under Secs.13(2), 13(4) of the Act and Rules 8(6) and 9(1) of the Security Interest (Enforcement) Rules, 2002 ("Rules" hereinafter)

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The case of the applicants, briefly, is that 1st applicant is a private limited company, applicants 2 and 3 are owners/mortgagors for the loan to a tune of Rs.42 crores availed by 1st applicant. Though payments were regularly made till 2020, due to outbreak of Covid-19 and lockdown, business of applicant company went into losses. Through demand notice they came to know that account became NPA on 19.03.2021 which is against RBI guidelines and orders of Hon'ble Apex Court in Suo lvlotu WP (C) No.825 of 2020 dated 26.08.2020 cajendra Sharma vs. Union of India and another). Vide lnterim order dated 03.09.2020 Hon'ble Supreme Court categorically directed all the Banks/Fls not to declare NpA until further orders and the said orders were vacated only on 23,03.2027 whereas the applicants' accouql was classified as NpA

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on 19.03.2021. Further, respondents 1 and 2 could not have classified the account as NPA during the moratorium period on account of Covid-19 pandemic and the account was standard as on 31.08.2020. In spite of moratorium, applicants paid all payables to respondent bank. As per RBI Circulars dated 07.06.2019, 23.05.2020 as regards Covid-19 regulatory package-review of Resolution Timelines under the prudential framework on resolution of Stressed Assets, a categorical direction was given not declare any loan account as NPA till 31.08.2020. The 2nd respondent bank should have followed 90 day basic norm i.e., SMA-o, SMA-1, SI\4A-2 and thereafter provide a 30 days review petition making it a total of 120 days from the recurring of the first day of default and thereafter follow usual period of 180 days for resolution. GECL amount of Rs.6.96 crores credited on 28.72.2020 was immediately adjusted to CC account thereby CC account exceeded overdue limit as on 3t.72.2020.

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The applicants challenged the classification of the account as NPA and action under Sec.13(4) and 14 of the Act, 2002 before Hon'ble High Court by filing WP No.38673 of 2OZZ and the same was disposed of on 18.12.2022 granting liberty to avail remedy provided under Sec.17 of the SARFAESI Act, 2002.

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After demand notice dated 25.03.2021, respondent bank issued possesslon notice dated 16.09.2021 which was not served through electronic mode of service u/r 8(2A), neither affixed on secured assets nor^published in two leading newspapers as^per Rules 8(1) and 8(2) of Rules, 2002. The respondent bank also failed to follow Rule 8(5) in obtaining correct valuation, Rules 8(6), 8(7)

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and 9(1) with regard to auction^{sale notice dated16.10.2024 fixing} auction on 30.71.2024. The^{respondentbank also did not extend} the benefit of one-time^{restructuringof existing loan to MSMEs as} per RBI guidelines though the applicant^{company wasentitled for} the same. Respondent bank^{was obligatedto implementthesame} as^{per judgement} of^{Hon'ble SupremeCourt in M/s Anglo Afghan} Agencies case reported in AIR^{1968 SC 718 and l'4ls Pro Knitsvs.} The Board of Directors of Canara^{Bank in civil Appeal No.(SLP(C)} No.7898 of 2024, decided^{on 01.08.2024 (paras 14 and 15). Hence} this SA to set aside entire action^{of the respondent bank as voidab} initio-

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The respondent bank filed^{reply statementalongwith} documents. The submissions of the^{respondent bank,briefly, are} that the account became NPA as^{per RBI norms, as the applicants} failed to adhere to the terms and conditions and stock statements turned nil. They failed to regularise the account despite^several reminders by providlng requisite documents. OA No.193/2021 against the borrower and^{guarantors including} the^{appllcantsherein} was decreed in favour of the respondent bank and^recovery proceedings are underway in RC No.322l2022. The charge is registered with CERSAL Respondent bank initiated Securitization measures against secured assets by issuing demand notice dated 25.03.2021 u/s 13(2) of the Act and the same was served vide postal receipts/postal tract reports. As no payment was received, respondent bank issued possession notice u/s 13(4), served on applicants, affixed on properties and also published in^'Mana Telangana' and 'Business Standard' on 18.09.2021. In order to prevent the bank from enforcing security in!,erest, ffi'*the applicants in

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connivance with their relatives got filed SA Nos.55/2 022, 261/2022, 335/2024, 344/2024 and atso Wp No.24919 of 2024. Consequent to dismissal of SAs 55 and 261 of 2022, the respondent bank refunded conditional amount at the request of applicants therein.

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Respondent bank obtained valuation from approved valuer and issued sale notice dated 14.08.2024, served, affixed and published on 15.08.2024. One property at Choutuppal was sotd in the auction and sale certificate was issued on 03.10.2024. Applicant was supported by sanctioning new limits in the form of CCECL, GFCL, SLC, GST(IND) and FITL based on avaitable inventory atong with mortgaged properties however as per the stock state of Dec2020 entire stock had been wiped off from April_2020 onwards and balance sheet reFlected a loss of Rs.53.96 crores. Applicant failed to produce evidence oF loss against total exposure of Rs.54.67 crores. Transactions worth more than Rs.59 crores was routed through other banks without informing the respondent bank and atso entered into MoU with M/s Saraswathi Steels Corporation represented by applicant as proprietor and resorted to misappropriate the funded limits.

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NPA classification is not a step under Sec.13(4) oF the Act and hence challenge against the same is not within the scope of Sec.17 of the Act, 2002. The cited judgement in Wp No.825/2020 was disposed of on 27.77.2020 itself hence as on the date of classification of account of applicants, the stay was not existing. Further, the judgement is binding on the parties thereto and operates only in personam and not in rem, In the case of applicants default was not due to Covid-19 but failure to explain as to how

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stock statements^{turned nil especiallywhenthey were not of} perishable^{nature despite severaltetters/e-mailsfrom 03 12 2020 to} 18.03.2021.^{There are no violations on the part of the respondent} bank in^{followingthe due procedure of law The SA is liable to be} dismissed^{as not maintainableand devoidof merits'}

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8.HeardMr.V.Ravinder,learnedcounselfortheapplicantsand Mr.M.^{Narendra Reddy, Iearned designatedsenior counselalong} with Ms.Tarangini^{Pisipati, Iearned counselfor the respondentbank'} Perused the^{written arguments filed on behalf of both parties and} the material^{documents broughton record}

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Learned^{counselfor the applicants in reiterationof the version} as in the^{application,further contended that applicant company} suffered business^{lossesdue to the Covid-19 pandemic' the} respondent bank^{issueddemand noticedated 25'03 2021 without} granting time to recover^{from the losses' He malnly relied on orders} of Hon'bte^{Supreme Court in Writ Petition (Civil) No'825/2o2o in} Gajendra Sharma^{vs. ,tnion of India & Anr, dated o3'o9'2o2oto} contend that^{classifying of loan account of applicantcompanyon} 7g.o3.2o21 is^{against the directionof the Hon'ble SupremeCourt} not to declare the^{accountswhichwere not declaredNPAtill} 31.08.2020 till further^{orders and onlY vide order dated 23'03'2027} in Writ Petition^{(Civil) No.476/2O2O (Smalt Scale Industrial} Manufactuters Association^{(Regd.)vs,a.tnionof India & Ors'), said} interim relief was vacated.^{He denied the submission of the} respondent bank that^{WP No.825/2020 was closed on 27.77.2020} on the^ground that Hon'ble^{SupremeCourt did not vacate the} interim orders on 27.71.2020 and categorical order^vacatingthe fu*

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earlier order not classify the accounts as NpA was vacated only on 23.03.202L.

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Learned counsel further denied the averment of the respondent bank that non-production of stock statement was never shown as reason for classifying the account as NpA. In the demand notice dated 25.03.2021, the respondent bank stated that "fhe operation of and conduct of the above said financial assistance/credit facilities have become irregular and the debt has been classified as NPA on 19.03.2021".

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Learned counsel further stated that even as per moratorium granted by the RBI, the account of applicant was good and standard as on 31.08.2020. As per RBI Circulars dated 27.03.2020 and 07.06.20t9, the respondent bank should have followed the 90 days basic norm followed by 30 days review period and thereafter usual 180 days for resolution.

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The GECL loan amount of Rs,6.96 crores credited on 28.12.2020 was adjusted to the Cash Credit account on the very same day, without giving opportunity to the applicant to utilize the same, and the overdue limit exceeded only on 31,12.2020 hence the account ought not have been declared as NPA on 19.03.2021 without completion of mandatory 90 days as per RBI Master Circular and as per orders of Hon'ble Apex Court. The applicant company being MSME, the respondent ought to have extended benefit under relevant RBI Circulars. The respondent is bound to follow the RBI Circulars. Learned counsel relied on judgements,4f Hon'ble Apex

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Court in ,fr,/s Pro^{Knits vs. TheBoard of Directors of CanaraBank} (supra).

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It ls further^{contendedthat vide order dated 78 10} '2022 Hon'ble High Court for the^{Stateof Telangana at Hyderabad in WP} No.38673 of 2022^{grcnledliberty to the applicants to avail the} remedy provided under sec.17^{of the SARFAESIAct, 2002} categorically reiterating^{the decisiondated 72.10.2022passed in WP} No.35063 of 2OZ2 as to^{entitlementof borrowerto plead before the} DRT his defence^{againstSARFAESIaction including alleged violation} of RBI Guidelines^{leading to illegally classifying his account as NPA'} According to learned counsel,^{the SA is thus maintainable to} challenge all aspects^{including classificationof NPA.}

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Learned counsel for^{applicants also relied on judgementof} Hon'ble High Court for the sfate of^{Telanganaat Hyderabadin wP} No.72O87 of 2079^{(M/sRaus ConstructionsPvt. Ltd, and others vs.} Indian Bank, Hyderabad and^{others decided on 06.03.2020 with} regard to challenge series of^{steps and stated that Hon'ble suPreme} Court in K. Sreedhar^vs. M/s^{RausConstructionsPvt. Ltd & Ors. in} civit Appeat No.74O2 of 2022^decided on^{O5,O7,2O23,dealtwith} only the aspect of agricultural^{property and not other lssues.}

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Learned counsel further stated that^{besldes illegai} classification of NPA, the respondent bank^{has violatedRules 8(1),} 8(2), 8(2A), 8(s), 8(6), 8(7) and 9(1) of^{the Rules, 2002. With} these contentions, learned counsel sought for setting^aside all^the measures against the application schedule propertftyf!

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Per contra, learned designated senior counsel at the very outset said that since the impugned auction sale did not occur, the SA itself has become infructuous and accordingly SA is liable to be dismissed.

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Learned senior counsel further contended that the interim order dated 03.09.2020 in wp (c) No.825 of 2o2o did not continue I23.03.2021 since the very Wp was disposed of on Z7.II.2OZO whereafter the account was classified as NpA on 19.03.2021 followed by initiation Securitization measures. The final orders were passed in wp No,476 of 2o2o (2o2t (a) scc stt) with specific holding that "interim relief granted earlier not to declare the accounts of respective Borrowers as NPA stands vacated,, and the same was reiterated by Hon'ble Supreme Court in the case of State of UP vs. Prem Chopra, 2024 (12) SCC 426 vide para 24 that on disposal of the writ petition the interim orders come to an end. Since the applicants are not parties in WP (Civil) No.825 of 2O2O or WP No.476 of 2O2O hence the applicants cannot be permitted to seek undue advantage out of interim orders passed by Hon'ble Supreme Court. Learned senior counsel further submitted, the account was classified as NPA for various reasons including nonfurnishing of stock statements or for stocks becoming nil against the agreed terms and for no explanation thereof despite repeated letters/emails. Hence, the classification of account as NPA on 19.O3.2027 is lawful and valid, their challenge to NPA classification is mlsconceived, untenable in law and liable to be rejected.

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The applicants and their close family members filed several Securitization Applications in abuse of^process of law, and most of

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them were^{dismissed. Hon'ble DRT-1, Hyderabad upheld the action} of the bank^{under Sec.14of the Act while dismissingSA Nos 55 and} 261 of 2022.^{The Appeal No.9Oof 2024 filed by Smt'Navneeta} Agarwal, the^{daughterof 3rd applicant challengingthe order in SA} No.26f l2OZ2^{was also dismissed by the Hon'ble DMT, Kolkata vide} order dated^{03.10.2024 and confirmed the measuresof the bank} under sec.14^{0f the Act.}

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The respondent^{bank obtained proper valuationin respectof} secured assets,^{followed due procedureof law right fromdemand} notice to e-auction^{sale notices. He referredto the documents} placed on record by the respondent^{bank as proof of such} compliance.

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With the above contentions,^{learneddesignated senior counsel} sought for dismissal of^{the SA with exemplarycosts.}

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Now the^points that arise^{for consideration are:} -

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(i) Whether the Tribunal can examine the legality of^NPA classification under^{section 17} of^{the SARFAESI Act?}

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(ii) Whether the declaration of the Applicants' account^as NPA on 19.03.2021 is in violation of^{bindingSupreme} Court orders?

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(iii) Whether non-compliance with RBI Covid regulatory framework and MSME restructuring^{guidelinesvitiates} the SARFAESI measures?

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(iv) Whether the consequential measures under Sections 1i(2) and 13(4) and Rules I & 9 are sustainable?

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fZ1v,^

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(v) ro what retien (//"{Vtt

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Point No.(i):-

Admittedly the impugned auctlon did not take^place hence all the contentions pertaining to the auction sale and relevant Rules 8(5),8(6),8(7) and 9(1) ofthe Rules 2002, need no consideration and SA has become infructuous insofar as auction is concerned.

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The applicants contend that the classification of the account as NPA is contrary to interim directions of the Hon'ble Supreme Court and violative of RBI^prudential norms, thereby rendering the^entire SARFAESI proceedings void ab initio. fhe Respondent^Bank contends that NPA classification is not a "measure" under^Section 13(4) and hence cannot be challenged under Section 17.^This contention is rejected. It is settled law that the DRT,^while exercising^jurisdiction under Section 17, is empowered to examine whether the measures taken under Section 13(4) are in accordance with the Act and Rules. If the very foundation for^{invokingSection} 13 i.e., lawful classification as NPA is in^question, the entire action collapses. Further, the Hon'ble High Court in^{WP No.38673} of²⁰²² granted liberty to the Applicants to raise all contentions including violation of RBI^guidelines leading to^{illegal NPA classificationbefore} this Tribunal. As such, the challenge to NPA classification^{is withln} the scope of Section 17.

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Point No.( iil:-

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The important and main contention of^{applicants is that the} respondent bank classified the account against the^{interim order} dated 03.09.2022^passed by the^{Hon'ble SupremeCourt in WP (C)}

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No.825 of 2020. According to respondent bank, the said Writ Petition was finally disposed of on 27.17.2O2O itself and hence NPA classification on 19.03.2021 is not against the interim orders. It is undisputed that the Applicants' account was standard as on 31.08.2020. The Hon'ble Supreme Court in wP (c) No.a25/2o2o (caiendra Sharma v. Union of India) vide order .tated O3.O9.2O2O directed that accounts not declared NPA till 31.08.2020 shall not be declared NPA until further orders. The Applicants' account was classified as NPA on 19.03.2021. However, Hon'ble Supreme Court had taken up WP (C) No.825 of 2020 along with several other Writ Petitions and Interlocutory Applications. wP (c) No,476 of 2o2o (Small Scale Industrial Manufacturers Association (Regd,) v, Union of India) is one of them. The order daled 27 -77-2020^passed by the Hon'ble Supreme Court in WP (C) No.825 of 2020 did not expressly vacate the interim direction that accounts which were not declared NPA till 31.08.2020 shall not be declared NPA till further orders. The categorical vacation of interim relief occurred only on 23.03.2021 in Sma Scale fndustrial Manufacturers Association (ReEd.) v, Union of India (2027) A SCC 577, wherein the Hon'ble Supreme Court recorded that "the interim relief granted earlier stands vacated." Until express vacation, the interim order continued to operate. It is settled law that directions of the Hon'ble Supreme Court under Article 142 are binding on all authorities under Article 141 of the Constitution. Thus, classification of the accog{'tt on 19.03.2021 was

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not reear. V/lffiitX (_..'

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Point No.(iii):-

RBI'S Master Circular on prudential Norms on Income Recognition, Asset Classification and provisioning (IRAC norms) mandates that an account can be classified as NpA only after remaining overdue for more than 90 days. Applicants demonstrated that GECL amount of Rs.6.96 crores was credited on Zg.f2.2O2O, same was adjusted by bank on same day, overdue exceeded only on 37.12.2020, even assuming 31.12.2020 as date of default, 90 days would expire only at the end of lvlarch 2021. Whereas, the respondent bank failed to produce overdue computation establishing completion of 90 days prior to 19.03.2021. It is setued taw that banking actions must stricUy conform to RBI directives. Therefore, premature classification is against RBI directives.

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The l't applicant is an MSME unit. RBI issued special Covid regulatory packages and restructuring framework for plSMEs (Circulars daled 27.03.2020, 23.05.2020 etc.). In pro Knits v. Board of Directors, Canan Bank (Civil Appeal arising out of SLq(C) No.7898 of 2024, decided on O7.O8,2O24), the Hon'ble Supreme Court reiterated that banks are bound by RBI circulars and cannot act arbitrarily in denying benefits available under statutory regulatory framework. However, applicants have not substantiated their contention that the respondent rejected their proposal for 7l:fi$ '' 't restructuring as per RBI Circula ts. (U../\.\x

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Point No.(iv):-

The respondent^{bank relledon dismissalof earlierSAs and} DRAT order in^{AppealNo.9O of 2024.However,legality of NPA} classification was neither^{conclusivelyadjudicatednor validatedin} those^{proceedings. An action void ab initio cannot be curedby} subsequent^proceedings.

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In view of the^{above discussion, it is held that the applicants} made out valid^{grounds to set aside all the measuresof the} respondent bank against the^{applicationschedule property'} Accordingly, the Securitisation^{Application deservesto be allowedby} declaring that the^{classificationof the Applicants' loan accountas} NPA on 19.03.2021 as illeqal^{and quashingall consequential} measures under Section 13(2) and^{13(4) of the Act, 2002 as null} and void.

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Point No,(v):-

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In the result, the Securitization Application is allowed by declaring that the classification of the Applicants' loan account as NPA on 19.03.2021 as illegal and quashing all consequential measures under Sections 13(2) and 13(4) of the Act, 2002, as null and void.

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