'Even The Bald Want A Haircut': Calcutta High Court Slams Borrowers' Repeated Bid To Sell Secured Assets

The Calcutta High Court has criticised borrowers of South Indian Bank for repeatedly seeking permission to sell all their immovable properties without the bank's interference, calling the attempts “commercially imprudent” and “mischievous”.

A division bench of Justice Ravi Krishan Kapur and Justice Chaitali Chatterjee (Das) observed,

“The repeated attempts of the borrowers to seek permission to sell all their immovable properties without any interference from the appellant bank is not only commercially imprudent but also mischievous inasmuch as it usually does not fetch the true and realizable value of such assets. In such circumstances, there is also no equity which the borrower can claim in seeking a One Time Settlement. In a society which is governed by the Rule of Law, citizens must be made to adhere to their consciously undertaken contractual obligations. Aberrations have now become the Norm. And even the bald want a haircut which the system merrily bestows on them.”

The court made the observations while allowing South Indian Bank's appeal against a February 26, 2026 order of a single judge. The single judge had held that the bank violated the Reserve Bank of India's Fair Lending Practice-Penal Charges in Loan Accounts Guidelines and, in effect, stalled the recovery proceedings.

The dispute arose from credit facilities availed by Propello Innovations Private Limited, an MSME, and its director from South Indian Bank in 2013. The loans were restructured in 2020 after the borrowers cited a severe financial crisis caused by the global downturn and stoppage of letters of undertakings.

The facilities were further renewed in 2020 on the ground of the Covid-19 pandemic. The borrowers later sought a reduction in the rate of interest, including penal interest. In November 2023, the bank's renewal sanction order increased the rate of interest on their accounts.

On June 19, 2024, the bank notified the borrowers of an impending NPA classification. It asked them to deposit funds to service their accounts and keep them outside the NPA category.

The borrowers deposited money on June 28 and 29. The bank thereafter debited their accounts towards penal interest. The accounts were subsequently declared NPA on July 8, 2024.

The borrowers challenged the penal interest and additional interest before the high court. They alleged that the charges violated the RBI guidelines and also challenged the NPA classification.

The bank had issued a notice under Section 13(2) of the SARFAESI Act on August 7, 2024. The borrowers responded under Section 13(3-A) on January 8, 2026, and also approached the Debts Recovery Tribunal (DRT) under Section 17 of the Act.

The single judge held the writ petition maintainable because the borrowers had challenged the bank's action on the ground that it violated the RBI's penal-charge guidelines. The judge also found that the bank had violated the guidelines by realising penal interest from the borrowers' accounts and, in effect, stalled the recovery proceedings.

South Indian Bank challenged the order. It argued that the writ petition should not have been entertained because the borrowers had an alternative statutory remedy under the SARFAESI Act.

The borrowers maintained that the RBI guidelines had statutory force. They also argued that the consequential NPA classification could not have been adjudicated in proceedings under Section 17 of the Act.

The high court rejected the borrowers' contention that the writ petition could be entertained despite the statutory remedy under the SARFAESI Act. It noted that the borrowers had already approached the DRT under Section 17 and had specifically raised the alleged violation of RBI circulars in that proceeding.

The bench also noted that the borrowers had continued to enjoy the principal and interest on an amount exceeding ₹10 crore. It observed that the time consumed before the trial court and the high court had impeded the recovery process.

A separate issue concerned the RBI guidelines relied upon by the borrowers. During the appeal, the RBI disclosed that the Fair Lending Practice-Penal Charges in Loan Accounts Guidelines dated August 18, 2023 had been withdrawn with effect from November 28, 2025.

The guidelines had been absorbed into the RBI Commercial Bank/Responsible Business Conduct Directions, 2025. The bench held that the 2023 guidelines, which formed the “bedrock” of the single judge's judgment, had therefore become obsolete and redundant.

The court noted that this material fact had not been brought to the single judge's attention. It also had not been incorporated into the pleadings by the parties, including the bank and the RBI.

The bench described this as a “glaring infirmity”. It held that the entire premise of the writ petition and the resulting judgment was “fundamentally flawed and erroneous”.

The borrowers also argued that the private bank was amenable to writ jurisdiction. They alleged that the bank had charged a higher rate of interest than the sanctioned rate.

The bench observed that a writ petition may, in appropriate circumstances, lie against a private authority for enforcement of statutory obligations of a public nature.

However, the court held that the dispute over whether the bank had charged a higher rate of interest could not be decided in the writ proceedings. It said the issue was more appropriately dealt with by the DRT under Section 17 of the SARFAESI Act.

The bench also rejected the borrowers' claim that the bank had failed to consider their settlement proposals. It noted that the bank had accepted an OTS proposal submitted by the borrowers on August 30, 2025. The proposal was later withdrawn after the borrowers defaulted.

The court held that there was no vested right to have an OTS proposal considered.

The court further observed that the borrowers' repeated attempts to sell their properties without the bank's interference were commercially imprudent. It found that such sales usually do not fetch the true and realisable value of the assets.

The bench held that there was no equity which the borrowers could claim in seeking an OTS. It also observed that citizens must adhere to their consciously undertaken contractual obligations.

The bench further rejected attempts to bypass the SARFAESI mechanism by impleading the RBI or third parties. It observed that creating an “illusion of a cause of action” in this manner should not be encouraged.

The court rejected the bank's contention that the borrowers had a remedy under the RBI Integrated Ombudsman Scheme, 2021. It held that the scheme applies only to services provided by a regulated entity and does not cover recovery of debts or classification of an account as NPA.

The court observed that recovery disputes between lenders and borrowers should not be interfered with through writ proceedings when Parliament has provided a specific statutory mechanism for resolving such disputes.

"The solution being not to tinker in such commercial matters involving a lender and a borrower when the legislature has provided a specific mechanism for appropriate redressal. Needless to remind ourselves that the mantra is one of ease of doing business and not ease of doing fraud. This is not to undermine the recent legislative changes which have drastically reduced the number of defaulters in the country. Ultimately, it is only “We The People Of India” who suffer", it noted.

The high court allowed South Indian Bank's appeal. It dismissed the borrowers' writ petition and cross appeal.

The court left all issues on merits open for adjudication by the DRT. It directed that the tribunal should not be influenced by the high court's order.

The court also imposed ₹5 lakh in costs on the borrowers. The amount is payable to the bank within eight weeks, failing which it can be included in the bank's claim against the borrowers without interest.

For Appellant: Senior Advocate Prabal Kumar Mukherjee, Advocate Anirban Pramanick,

For Borrower: Advocates Deepan Sarkar, Shahrukh Raja, Deepti Priya

For RBI: Senior Advocate Utpal Bose, Advocates D. K. Kundu, Arjun Basu, Aditi Biswal