The High Court of Karnataka (Bengaluru Bench) has held that borrowers whose statutory appeal failed for non-compliance with Section 18 cannot reopen the recovery process through a belated challenge to the original NPA classification under Article 226. The Court said that the alternative-remedy rule, though discretionary, must be applied with greater rigour in bank-recovery matters.
The Court observed that the borrowers had not been remediless, as they actively pursued DRT proceedings, approached the High Court once, and then went to the DRAT. The DRAT proceedings failed only because the statutory pre-deposit under Section 18 was not met. The Court thus clarified that permitting them to then reopen the entire recovery process by tracing the grievance back to the original NPA classification would, in substance, accomplish indirectly what the statutory scheme did not permit directly.
The Court also noted the considerable delay in challenging the NPA classification, which was known to the borrowers when they first approached the DRT. Article 226, being discretionary, cannot ordinarily be invoked to challenge an antecedent cause of action after a litigant has pursued successive remedies against its consequential measures. The Court, however, did not adjudicate whether Canara Bank had complied with the MSME or COVID-19 restructuring frameworks.
Briefly, four cashew-processing concerns that had taken secured credit facilities from Canara Bank challenged the classification of their loan accounts as non-performing assets (NPAs) and the resulting SARFAESI proceedings. They alleged that the Bank had not properly considered their requests for restructuring and revival under the applicable MSME and COVID-19 resolution frameworks before classifying the accounts as NPAs.
The borrowers had challenged successive enforcement measures before the Debts Recovery Tribunal (DRT), but their applications were dismissed. Their appeal before the Debts Recovery Appellate Tribunal (DRAT) was subsequently dismissed for failure to comply with the statutory pre-deposit requirement. They then filed a fresh writ petition challenging the original NPA classification.
The Division Bench comprising the Chief Justice Vibhu Bakhru and Justice K.S. Hemalekha observed that the borrowers were aware of the NPA classification when they first challenged the Bank’s enforcement measures before the DRT. Relying on Supreme Court decisions, the Court reiterated that although the alternative-remedy rule is discretionary, High Courts must exercise particular restraint in bank-recovery matters where an effective statutory mechanism exists. It also noted the considerable delay in challenging the original NPA classification.
The Bench explained that borrowers who have pursued statutory remedies and whose appellate proceedings have failed for non-compliance with the Section 18 pre-deposit requirement cannot circumvent that requirement by subsequently invoking Article 226 to reopen the recovery process through a challenge to the original NPA classification. The Court held that allowing this course would permit indirectly what the statutory scheme did not permit directly, the “circuitous route” deprecated by the Supreme Court.
