Omission Of NPA Date In SARFAESI Demand Notice Is Technical Error, Recovery Action Not Invalid: DRAT Chennai

The Debts Recovery Appellate Tribunal at Chennai has observed that mere omission to mention the date of classification of a loan account as a Non-Performing Asset (NPA) in a demand notice issued under the SARFAESI Act is only a technical lapse and does not invalidate the recovery proceedings initiated by the bank.

Chairperson Justice G. Chandrasekharan observed,

“Mere omission to mention the date of classification of account as NPA in the Demand Notice, is only a technical error by oversight. For this technical error, SARFAESI measures cannot be undone.”

The ruling came in an appeal filed by Satyam Educational Trust and others challenging the possession notice issued by Bank of Maharashtra under the SARFAESI Act in relation to mortgaged properties. The trust had earlier approached the Debts Recovery Tribunal, Madurai by filing a securitisation application against the possession notice dated March 25, 2014, which was dismissed on April 30, 2015.

Before the appellate tribunal, the borrowers argued that the demand notice dated December 18, 2013, was defective because it did not specify the date on which their loan account had been classified as an NPA. They contended that this omission rendered the SARFAESI action illegal and that the bank ought to have recalled the notice and issued a fresh one with correct particulars.

Rejecting the contention, the tribunal observed that although the demand notice did not mention the exact date of NPA classification, the records showed that the account had been classified as NPA after the borrowers failed to service the loan for more than 90 days. The tribunal said:

"The default for more than 90 days and the legal consequence of classification of account as NPA are very well established by Respondent Bank."

The tribunal also noted that the borrowers themselves had acknowledged the loan facilities and the rescheduling of repayment, and that there was irregular payment even after restructuring.

Holding that the defect in the demand notice was only technical and had not caused any prejudice to the borrowers, the DRAT upheld the bank's action under the SARFAESI Act and dismissed the appeal, affirming the order passed by the Debts Recovery Tribunal, Madurai.