The Kerala High Court has ruled that courts cannot force banks or Non-Banking Financial Companies to regularise loan accounts classified as Non-Performing Assets. Such directions cannot be issued once proceedings under the SARFAESI Act have been initiated, especially regarding the specific stand taken by NBFC.
The case arose from a loan of Rs.1.69 Crore availed by Navayug India Facility Management Pvt. Ltd. from Cholamandalam Investment and Finance Company Ltd. The company had defaulted from June 5, 2023. The loan account was classified as a Non-Performing Asset on October 3, 2025 and notice was thereafter issued under Section 13(2) of the SARFAESI Act.
An NPA (Non-Performing Asset) is a loan on which the borrower has stopped making payments. In simple terms, when a person or company takes a loan from a bank and does not pay the interest or EMI for more than 90 days, the bank classifies that loan as an NPA. It is called “non-performing” because the loan is no longer generating income for the bank. For example, if someone takes a home loan and fails to pay the EMI for three continuous months, the account will be marked as NPA. High levels of NPA are a concern for banks because they reduce profits and affect the overall financial system.
The borrower approached the High Court, citing financial hardship. The Single Judge permitted repayment of the overdue amount of Rs. 15.9 lakh, together with accrued interest, cost, and allied charges and kept coercive proceedings in abeyance subject to compliance.
NBFC stated that it was not willing to extend any installment facility or restructuring since there was continuous default from June 5, 2023, and no bona fide intention to clear the overdue amounts.
The Division Bench allowed the appeal and observed that continuance of credit facilities as NPA would cause severe prejudice to banks or NBFCs, as provisioning requires them to set aside capital based on asset quality as per the guidelines issued by the Reserve Bank of India.
The Court held that the Single Judge had interfered with proceedings initiated under the SARFAESI Act without taking into consideration the specific stand of the lender and the question of maintainability.
The appeal was allowed. The earlier order was set aside, and the writ petition was dismissed.
The Court held that lending money by an NBFC during the course of a commercial transaction and under contract cannot be said to be performing a public function, which is normally expected to be performed by state authorities.
If action is taken under the SARFAESI Act, the borrower has to avail the statutory remedy under Section 17. No writ petition would lie, be maintainable or entertainable under Article 226 in such circumstances.
A Division Bench of Justices Anil K. Narendran and Muralee Krishna S. held:
“When the continuance of credit facilities as NPA will cause severe prejudice to bank/NBFC, as provisioning requires banks/NBFCs to set aside capital based on asset quality as per the guidelines issued by the Reserve Bank of India, No mandamus can be issued directing a bank/NBFC to accept the overdue amount in monthly installments, in respect of a loan account which has been classified as NPA, followed by the issuance of notice under Section 13 of the SARFAESI Act, disregarding the specific stand taken by the said bank/NBFC against regularisation.”
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