Writ Courts Cannot Force NBFCs To Regularise NPAs After SARFAESI Notice: Keral High Court

The Kerala High Court has held that courts cannot compel 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 diregarding the specific stand taken by NBFC.

Setting aside an order granting instalment relief to a defaulting borrower, 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.”

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.

It reiterated that 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.

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. There was continuous default from June 5, 2023. The loan account was classified as a Non-Performing Asset on October 3, 2025. Notice was thereafter issued under Section 13(2) of the SARFAESI Act.

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, in eight equal monthly installments and kept coercive proceedings in abeyance subject to compliance.

In its counter affidavit, the NBFC had specifically 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.

Allowing the appeal, the Division Bench 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. This is without prejudice to the borrower's right to invoke the statutory remedy under the SARFAESI Act at the appropriate stage.

For Appellants: Advocate K. Parvathy