Borrowers facing recovery frequently attack the root of the action: the classification of the account as a non-performing asset. If the NPA tag falls, the SARFAESI notice built on it falls too. In C.O. 4276 of 2023, decided on 24 September 2026, Justice Dinesh Kumar Sharma of the Calcutta High Court examined such a challenge — a power-technology company’s grievance that its account was tagged NPA in December 2010 despite the bank having disbursed only part of the sanctioned term loan and having, it alleged, ignored an agreed moratorium. The challenge failed, and the reasons repay study by any borrower contemplating a classification dispute.
The facts
The company obtained sanction of a ₹70 lakh term loan and ₹1.4 crore cash credit from IDBI Bank in 2009, secured by a mortgage of property. Its case was that only ₹28 lakh of the term loan had been disbursed by December 2009, that full EMIs of roughly ₹4.12 lakh were nonetheless charged, and that an agreed nine-month moratorium was violated. The account was classified NPA in December 2010; a SARFAESI demand notice followed in August 2012. The borrower’s challenge failed before the Debt Recovery Appellate Tribunal, and it invoked the High Court’s supervisory jurisdiction.
The court’s reasoning
RBI norms have statutory force
Asset classification is not a matter of the bank’s whim or the borrower’s equity: it is governed by the RBI’s prudential guidelines — here, the directions of 1 July 2010 — which the court held carry statutory force. An account meeting the overdue criteria is classified NPA as a matter of regulatory obligation.
The borrower’s own defaults
The renewal documentation the bank required had not been furnished within the stipulated time. A borrower asking equity of the court must first show compliance with its own obligations under the facility documents.
Restructuring is not a right
The plea that EMIs ought to have been restructured to match partial disbursement was rejected: “the bank is a trustee of public funds”, and repayment obligations operate strictly per the contract unless varied by a sanctioned restructuring.
The trustee-of-public-funds formulation matters beyond rhetoric: it is the reason courts lean against judicially rewriting facility terms. Relief against classification must be found within the regulatory framework — not in a general appeal to hardship.
Attacking an NPA classification: what actually works
| Ground | Prospects |
|---|---|
| Overdue computation contrary to RBI norms (e.g., misapplied 90-day rule) | Viable — requires account statements and a precise reconciliation |
| Classification during a sanctioned restructuring or documented moratorium | Viable — the sanction letter and modification documents are decisive |
| Partial disbursement grievances without a corresponding contract term | Weak — courts treat disbursement disputes as claims for damages, not as vitiating classification |
| General hardship, COVID-era stress, or commercial expectation of leniency | Weak — addressed, if at all, by regulatory schemes, not by judicial reclassification |
Lessons for borrowers and guarantors
The judgment maps the practical route for stressed corporate borrowers. First, contemporaneity: objections to disbursement shortfalls, EMI structure or moratorium breaches must be raised in writing when they occur — a paper trail built after the NPA date reads as afterthought. Second, forum discipline: Section 17 SARFAESI proceedings before the DRT are where the classification battle is fought on evidence; supervisory jurisdiction will not re-appreciate concurrent findings. Third, the restructuring path is procedural: seek it formally, obtain sanction, and comply — an unsanctioned expectation of restructuring has no legal weight. Guarantors and mortgagors, who often awaken only at the possession stage, should track the account’s classification history early, since their defences largely rise or fall with the borrower’s.
Core holding: NPA classification conforming to RBI’s statutory-force guidelines will not be disturbed on grievances about disbursement or hoped-for restructuring; the contract, the regulatory norms and the borrower’s own compliance record decide.
This article is for general information only and is not legal advice. Classification and enforcement disputes are document-driven and deadline-bound; borrowers should seek advice at the first sign of stress.
Frequently Asked Questions
What was the borrower’s core grievance?
That of a sanctioned term loan of ₹70 lakh (with ₹1.4 crore cash credit), only ₹28 lakh had been disbursed by December 2009, yet the bank charged full EMIs of about ₹4.12 lakh and, according to the borrower, disregarded a nine-month moratorium — leading to an NPA classification in December 2010 and a SARFAESI demand notice in August 2012.
Why did the challenge fail?
The court found the classification conformed to the RBI’s prudential guidelines, which it held possess statutory force; the borrower had failed to furnish documentation required for renewal within stipulated timeframes; and the plea that EMIs should have been restructured could not override the contract. The Debt Recovery Appellate Tribunal’s findings were affirmed.
Can NPA classification ever be successfully challenged?
Yes, but on narrow grounds: demonstrable non-conformity with the RBI’s asset-classification norms (for instance, misapplied overdue computation), classification during a period protected by a binding restructuring or moratorium, or manifest arithmetical error. General grievances about the banking relationship rarely suffice.
What forum hears such disputes?
Primarily the DRT under Section 17 SARFAESI once enforcement begins, with appeal to the DRAT; writ or supervisory jurisdiction is exceptional. This case reached the High Court after the borrower failed before the appellate tribunal.