M/S Olive Tree Retail PVT Tld And Anr vs. South Indian Bank LTD And Anr

Facts

The petitioners, M/s Olive Tree Retail Private Limited (a small enterprise) and its Managing Director, challenged a Notice dated 27.4.2022 issued by South Indian Bank classifying their accounts as Non-Performing Assets (NPA) and threatening action under the SARFAESI Act, 2002. The petitioners sought a declaration that the Bank's failure to restructure their three loans was arbitrary and contrary to RBI's Resolution Framework (R.F.) 2.0. The petitioners claimed they were eligible for restructuring under R.F. 2.0, which was a statutory duty for MSMEs. The Bank argued the writ petition was not maintainable against a private bank for a SARFAESI notice and was premature as no measures under Section 13(4) were invoked. The Bank also contended the petitioner was ineligible for restructuring under R.F. 1.0 and R.F. 2.0 due to issues with perfecting security interests.

Held

The Court held that the writ petition is maintainable against the private bank. Firstly, the notice was issued under Section 13(2) of the SARFAESI Act, and the stage for approaching the DRT (under Section 17(1) against measures under Section 13(4)) had not yet arrived. Secondly, the petition was not a SARFAESI action simpliciter but was premised on the Bank's statutory duty to enforce the RBI Circular R.F. 2.0, which has statutory force. The Court cited Federal Bank Ltd. vs. Sagar Thomas to support maintainability against a private bank for enforcing a statutory duty. On merits, the Court found that the petitioner no. 1 was eligible for restructuring under R.F. 1.0 and R.F. 2.0, and its accounts were standard assets as of 31.3.2021. The Bank's failure to consider the petitioner's applications for restructuring and ECLGS loan, made well within the stipulated timelines for R.F. 2.0, was contradictory to the Circular's purpose. The Court also found the Bank's stance on non-perfection of security interest to be unreasonable given the circumstances surrounding the petitioner's wife's death and subsequent legal proceedings. The Court concluded that the Bank precipitated events without proper application of mind. The impugned Notice dated 27.4.2022 and the letter dated 30.11.2021 were quashed. The Bank was directed to reconsider restructuring the loans under R.F. 2.0 and the ECLGS loan eligibility within 10 weeks.

Key Issues

1. Whether a writ petition is maintainable against a private bank for challenging a notice issued under Section 13(2) of the SARFAESI Act, 2002, especially when it involves the enforcement of an RBI Circular, and whether the petition is premature. - Petitioner's argument: The writ petition is maintainable because it seeks to enforce a statutory duty cast upon the Bank by the RBI Circular R.F. 2.0, and the cause of action arose prior to the stage where the Debts Recovery Tribunal (DRT) would be the appropriate forum (i.e., before Section 13(4) measures were invoked). The challenge is not merely to the SARFAESI notice but to the Bank's failure to consider restructuring under R.F. 2.0. - Respondent Bank's argument: The writ petition is not maintainable against a private bank concerning a SARFAESI notice, and it is premature as the Bank has not yet invoked measures under Section 13(4) of the SARFAESI Act. The petitioners should approach the DRT. 2. Whether the respondent Bank acted arbitrarily and contrary to the RBI's Resolution Framework (R.F.) 2.0 by failing to consider the restructuring of the petitioners' loans, and if so, whether the Notice dated 27.4.2022 is liable to be quashed. - Petitioner's argument: The Bank had a statutory duty to grant restructuring under R.F. 2.0, as the petitioner was an eligible MSME and had met all conditions. The Bank failed to consider representations made before the NPA declaration and before the Section 13(2) notice, thus acting contrary to the RBI Circular's intent. - Respondent Bank's argument: The petitioner was not eligible for restructuring under R.F. 1.0 or R.F. 2.0, and there were issues with perfecting the security interest, which prevented further credit facilities.