WP/34084/2024 of AMR INDIA LTD. Vs RESERVE BANK OF INDIA on 25 February 2026

ORDER:

The case of petitioners is that Petitioner No. t has been maintaining a Cash Credit Account No. 2521O5OO0OOO43 with Respondent No. 2 bank for the last ten years, with a limit of Rs. 2096 crores, and in addition thereto, they had also availed a Bank Guarantee facility from Respondent No. 2 for an amount of Rs. 8 crores. The said Cash Credit Account has been periodically reviewed and renewed in accordance with the RBI guidelines and the existing credit facilities were extended up to 28.04.2025 uide sanction letter dated 15.05.2024. The said CC Account maintained with Respondent No. 2 Bank is utilised by Petitioner No. 1 for the purpose of meeting out its regular businer;s expenses; as such, the same is essentiat and vital for the continued functioning of Petitioners' business.

1.1. Petitioner No. t has been maintaining the said CC Account without any default and within the sanctioned limits for mo:^e than one year and the same is evident from the accounl- statement of Petitioner No. 1 with Respondent No. 2 Bank fcr the period october, 2023 to october, 2024. petitioner has not committed default including clause 2 of RBI Master circular on Prudential Norms. Unrelated to the above Account Petitionr:r No. t had executed a Master Lease Agreement dated

24. O3.2OL7 with SREI Equipment Finance Limited (,SREI',), wherein SREI would lease out construction equipment to petitione,r No. 1 pursuant to which separate Rental Schedules were to be executed from time to time in respect of equipment supplied under Master Lease Agreement.

1.2. It is stated, between 2OLZ and 2T .OZ .2022, Petitioner No. 1 addressed several letters to sREI highlighting the poor quality of the leased equipment and seeking repair / replacement thereof, while also informing SREI that its construct-ion activities were being adversely affected due to the supply of the sub-standard and non-functional equipment, resulting in substantial financial losses to petitioner. sREI, on the other hand, alleged that Petitioner No. t had defaulted in €1J

rental payments- Despite the poor quality of the leased equipment supplied by SREI, Petitioner No' 1 continued making periodical payments to SREI in respect of the various lease accounts maintained with it up to March, 2021' As such' there wasnooccasionforclassificationofanyoftheaccountsof Petitioner No. 1 with SREI as NPA in 2O2O'

1.3. Subsequently, an Arbitral Tribunal comprising of Hon,bre Justice Indira Banerjee (presiding Arbitrator), Hon'ble Justice Pranab Kumar chattopadhyay (co-Arbitrator) and Hon'ble Justice shyamlal Kanti chakrabarti (co-Arbitrator) was constitutedtoadjudicatethedisputesunderthesaidMaster Lease Agreement and SREI fited a claim against Petitioner No' 1 for Rs. 586,03,7 1,397f -, alleging default in payment of lease rentals in respect of assets detailed under 27 tental schedules includingthefourschedulesreferredtobyRespondentNo.2 bank in their imPugned e mails' Proceedings, Petitioner No' 1 Further, in the said Arbitral filed a counter claim for Rs. 739,40,00,OOO/- towards lease rentals paid for damaged / scrapped equipment, expenses incurred for equipment purchasedtoreplaceunworkableandirreparableequipment and loss of profits. The said proceedings before Arbitral Tribunal are pending and the matter is presently reserved for passing of the award .t L.4. While the matter stood thus, on 21.LO.2O24, Respondent No. 2 addressed e mail to Petitioner No.1, declaring Petitioner's Lease Loan Account No. 136532 as an NpA and the same has been purchased by the respondent bank. The contenl-s of e mail are as under: " Company's account rvith our bank has matched with list of accounts purchased from (M/s SREI Equipment Financial Ltd.) under 'commorL PAN'. Since your company account (account no 136532) turned NPA wittr the NBFCs, our bank also supposed to mark these accounts as NPA w.e.i. 30.09.20 under 'common PAN identifier' account." [) Simultaneously, Petitioner No. l's cc Account was frozen and Since Petitioner No. I had no idea as to how Respondent No. 2 Bank was concerne<l with the rental agreement between Petitioner No. 1 and SREI, the Petitioner No. 1 personnel immediately contacted the officials of Respondent No. 2, wtro in turn for the lirst time informed to the petitioner No. 1, that SREI had sold/ assigned the lease receivables in relation with Account No. 136532 tc,Respondent No. 2.

(k) Petitioner No. t had not received an-v notice of such assignment, contrary t: the terms of the Master Lease Agreement. Therefore, immediately after receiving the said email, Petitioner No. 1 addressed a letter dt. 2l.Lo.2o2+ to Respondent No. 2 informing that it had no knowledge of any such sale or assignment and bringing forth the fact that arbitral proceeding between tt.e parties are pending.

(l) rhree days later, on 24.ro.2o24, Respondent No. 2 addressed another er:ail increasing the list of NPAs and mentioning three new ,,loan accounts in addition to Account No. 136532 mentioned in email dt. 2l.Lo.2o2z.. References were made to contract Nos. 136574, 142331 and 142341. Irr the said email, it is noted that the four loan accounts were declared NPAs on o4.o8.2o2o b}'SREI. It is pertinent to reiterate that the Responden:s did not intimate Petitioner No. I about any such declaration for over four y(:ars. ,

(m) rln 01.11.2024, Petitioner No. 1 objected the said action and requested F:espondent No. 2 to upgrade the account with immediate effect.

\; Further, another email dated 04.11.2024 was sent enclosing invoices and clarifying that the SREI was merely an operational'creditor.

(n) On 26.11.2024, Petitioner No. 1 received another email from Respondent No. 2 referring to the four "loan accounts" and indicating the total principal outstanding amount in relation with the four Rental Schedules as on O4.O8.2O22 to be a total of Rs. 9,54,02,1 18/-- (o) on 27.11-2024, the Respondent No.2 addressed an email to Petitioner No. 1 stating as follows: "It is to inform you that the company has availed the following Credit facilities from our branch, Cash Credit: Rs 20.96 Crores; BG Limits: 8.00 Crores. Though the conduct of the above mentioned facilities of the company is satisfactory, due to status Company's accounts with M/s SREI Equipment Finance Limited which were part of the pool purchased by our bank from M/s SREI Equipment Finance Limited & as per the instructions of the Statutory nuaitors, M/s AMR India Limited credit facilities mentioned above were downgraded (NPA) on common PAN basis. However, company has informed that the Issue with M/s SREI finance Limited is under dispute and currently matter is under Arbitration, company has submitted relevant informaiion along with the request to upgrade the account. Further company's request is under process with our higher authorities'"

(p) tt is thus evident that the Petitioners were kept completely uninformed about the alleged assignment and NPA classification for more than four years, and were apprised of the same only after their CC account was suddenly frozen in October 2024- (q) Aggrieved by the impugned actions of the Respondent No' 2, and challenging the impugned communication dated 21.1O.2024, the Petitioners had approached this Court by filing the present Writ Petition'

1.5. It is stated, three days later, on 24.1O'2024, Respondent No.2 addressed another e mail increasing the list of NPAs and mentioning three new loan accounts in addition to Account No. 136532 mentioned in e mail dated 2L.LO.2O24; the four loan accounts were declared NPAs on 04.08.2020. on L.LL.2O24, petitioner No.l objected to the same and requested Respondent No.2 to upgrade the account with immediate effect.

, Another e mail was sent on 04. tl.2o24 providing copies of invoice,s and clarifying that SREI was merely an operational creditol-. Petitioner No.1 received another e mail from Respondent No.2 referring to the four loan accounts and indicating the total principal outstanding amount in relation with the four Rental Schedules as on 04.O8 .2022 to be a total of Rs.9,54,02,1181-. It is further stated, on 27 'll'2o24, Respondent No.2 addressed e mail to petitioner No.l stating that the conduct of the facilities of petitioner No.1 company were s:rtisfactory and the status of the credit facilities was downgraded to NPA due to the status of company's accounts with sR:EI and as per the instructions of statutory auditors.

1.6. It is further stated, petitioners till date have not been informed about any assignment of lease receivables from SREI t6 Respondent No.2. In case any such assignment was undertaken, SREI was bound to inform petitioner No.l of the same at; per Clause 16 of the Master Lease Agreement. In fact, Responrlent No.2 bank also never raised any invoices I ta>< invoices on petitioner No.l and as such there is no liability of petition,:r No.1 to Respondent No.2. In the absence of any such notice, oetitioner No.1 continued making payments to SREI in compliance with the Agreement. According to petitioner, the purportr:d declaration of certain assets as NPA on 04.O8.2O2O

I canonlybepremisedonfailureofsREltomakepaymentsto RespondentNo.2bankaspertheirinterseagreement; petitioner No- 1 is neither party nor privy to any such agreement and has not received any notice thereof. Therefore, petitioner No.1 account cannot be declared as NPA'

1.7. Respondent No'2 has categorically admitted that the bank had an ongoing and satisfactory credit relationship with petitioner No.1, therefore, as per its own record of recovery' there was no reason for Respondent bank to declare petitioner No.l account as NPA since no amount was overdue for more thang0daysasrequiredbytheMasterCircularonlncome Recognition,AssetClassificationProvisioningandotherRelated Matters-UCB,datedo2.o4.2o24.Furthermore,theactionof RespondentNo.2from2l'lO'2O24onwards'beingbasedona purported declaration of four loan accounts as NPA on o4.os.2o2oisbarredbylimitation.Themalafidesof Respondent No.2 are evident from the said delay'

1.8. tt is also stated, in this regard' Respondent No'1 issued.MasterDirective_ReserveBankoflndia(Transferof Loan Exposures) Directions, 2O2l' dated 24'09'2021 for the purpose of laying down a comprehensive' self-contained set of regulatoryguidelinesgoverningtransferofloanexposures' when loan transfers are resorted to by lending institutions for multitude of reasons rangirig from liquidity management, rebal.ncing their exposures or strategic sales. chapter [v, clause 66 of the said RBI Master Direction expricitly mandates that rvhere the transferee institution already has an existing exposr-lre to the borrower, the classification of the acquired exposure shall align with the classification of the transferee,s existing exposure.

1.9. The Hon'ble supreme court in pro Knits a. Board. of Directors of canara Bankl held that such directions / circulars issued by Respondent No.l have statutory force and a.re m€:ndatory; non-compliance with the same would render action of a bank illegal. According to petitioner, the arbitrary classifir:ation of cash credit Account as NpA has caused irrepare-ble harm to the business operations and linancial health c,f petitioners. 2' The facts as pleaded by Respondent No. r, in its counter-affidavit, in brief, are as follorvs: In exercise of po\ryers conferred uncler Section 21 read with section 3sA of the Banking Regulation Act, !g4g, Respondent No. 1 issued various directives and guidelines includingl interest rate directives and guidelines to banks from time-to-time regulating payment of interest chargeable on loans '2o2qsccch tine sc 1864

and advances granted by banks to borrowers and payment of interest on deposits. Respondent No. 1 issued instructions uid.e RBI Master circular (Prudential Norms on Income Recognition, Asset classilication and Provisioning pertaining to Advances) dated April 02, 2024 and Master Direction Reserve Bank of India (Transfer of Loan Exposures) Directions, 2o2L dated september 24, 2o2r, to the banks in exercise of its powers under the provisions of Banking Regulation Act, lg4g. As the action of Respondent No. 2 is under challenge, it is for the said Respondent to substantiate and justify their action. No contentions have been made against RBI, hence, they do not call for any reply from this respondent for want of knowledge.

2. r. It is stated, RBI issued instructions to the banks in exercise of its power under the provisions of the Banking Regulation Act, 1949. As the action of Respondent No.2 is under challenge, it will be for that Respondent to substantiate their action. Petitioner has failed to pima facie demonstrate any cause of action or violation of any of his fundamental or legal right by this respondent, hence, the writ petition as against the respondent is devoid of merits.

3. The facts as pleaded by Respondent No. 2 Bank in their Counter Affidavit, in brief, are as follows: \ \

IU Respondent No. 2 had lawfully acquired petitioners, loan accounts from SREI Infrastructure Finance Limited under a Pool Purchase Agreement/Direct Assignment (DA) transaction, and since those accounts were already classified as NpA by SREI, ':he Bank was mandated under RBI guidelines to classify the erLtire borrower exposure as NpA. It is stated that Respondent No. 2 acquired r4s3 loans amounting to Rs. 2,',767.54 crores from M/s SREI Infrastructure Finance Limited as standard assets under a pool purchase Agreement, which included four accounts of petitioners, ,*,hich were subsequently classified as NPA by SREI.

3.1. Reliance has been placed on clause 4.2.T of the RBI Master circular on Prudential Norms to contend that asset classification is borrower-centric, requiring uniform classification of all facilities of a borrower. Accordingly. upon receipt of payout reports from SREI, Respondent No. 2 classified Petitionr:r No. l's accounts as NpA, including its direct lending accountl;.

3.2. It is further contended that RBI guidelines do not mandate prior borrower notification in DA transactions and that statutory auditors have validated the classification. Upon receiving the payout reports from SREI, the Bank classified AMryp assigned account as NpA in compliance with RBI

( ll prudential norms and consequently, all related accounts of the borrower, including direct lending accounts, were also downgraded. It was further contended that Direct Assignment (DA) framework requires the Bank (assignee) to independently classiff the asset based on its records and by applying prudential norms, not merely on the assignor's classification. The Bank classified AMR's accounts in its pool books as NPA with effect from August 4, 2O2O, based on the payout reports received from SREI. The subsequent action in 2024 was merely the alignment of AMR's asset classification in the Bank's direct lending books with the NPA status already reflected in its pool books. It is contended that any delay in such alignment does not imply any error on the part of the Bank nor does it create any right or equity in favour of Petitioner.

3.3. The facility documents between SREI and AMR India Ltd. explicitly include a clause allowing SREI to assign the accounts. Therefore, prior consent from AMR India Ltd. was not required at the time of assignment.

4. Heard learned senior counsel Sri Y.V. Ravi Prasad assisted by Sri Qazi Salar Masood Aatif, learned counsel for petitioners, M/s N. Legal, learned counsel for Respondent No.1 and sri B. Narasinga Rao, learned Standing counsel for Respondent No.2. \

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5. Learned Senior counsel contends that till date, Petitic,ners have not been informed of any assignment of lease receiviebles from SREI to Respondent No. 2 bank. In case any such rrssignment was undertaken, sREI was bound to inform Petitioner No. 1 of the same as per clause 16 of the Master Lease Agreement. Further, any assignment affected without compliance with the said clause is incomplete, and unenforceable. It is argued that clause 2.s.g of the RBI Guidelines on Securitization Transactions dated oz.os.2ol2 mandai-es that transfer of assets from selling bank must not contravene the terms and conditions of any underlying agreem(tnt governing the assets and all necessary consents from obligors (including from third parties, where necessary) should have br-'en obtained. Accordingly, Respondent No. 2 Bank without applying mind, had mechanically adopted sREI's NpA classific:rtion without issuing any prior notice to petitioners, solely b:rsed on the advice of its statutory auditors, in clear violation of the said Guidelines. Further, it was contended that contractual and regulatory regimes converge on the same fundamental requirement that no transfer or assignment can operate to the prejudice of the obligor behind its back without due notice.

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6. Learned senior counsel further contended that reliance on Clause 4.2.7 of the RBI Master Circular on Prudential Norms dated O1.O7.2O15 (latest as applicable is O2.O4.2O24) is wholly misplaced, as borrower-wise classification applies only within the same bank and cannot justify the importation of SREI's asset classification into Respondent No. 2's books. Further contended that, in the absence of a completed and notilied assignment, Respondent No. 2 had no privity of contract with respect to SREI receivables. Alternatively it was submitted that even assuming the assignment to be complete, Clauses 65 and 66 of the RBI Master Direction on Transfer of Loan Exposures dated 24.09.2021 require that acquired exposures assume the Same classification aS the borrower's existing exposure with the transferee bank, and thereafter be classilied solely based on the transferee's own record of recovery. Further it was also contended that the Master Circular 2024 is applicable only to the transactions among schedule commercial banks and not to the transactions involving to Non- Banking Financial companies.

7. Learned Senior Counsel also "rb*itttd that Petitioners'Cash Credit Account was a Standard Asset as on the date of acquisition, if &DY, and the precise date of such acquisition has neither been disclosed by Respondent No. 2- \ -\- \ i I I I I 1- ,,',,..; :.,.;ir,.l-,i'',.1 t t4 Bank nor is known to petitioners. It was pointed out that Respo:edent No. 2 has expressly admitted that loans acquired from siREI were standard at the time of acquisition. In these circurrrstances, it is contended that Respondent. No.2 could not have r'ltrospectively imported sREI's prior NpA classilication or adjustt:d its own books on the basis of a third part5r's asset classification, and that the impugned downgrading and freezing of Petil.ioners' cash credit Account is contrary to clauses 65 and 66 of the RBI Master Directions, ultra uires the RBI regulatory framework, violative of prudential norms and liable to be set rtside. It was also submitted that cash credit Account of the l"t petitioner was being regurarly renewed by the 2nd respondent every year, even after the alleged acquisition of SREI accounts said to have been declared NpAs on o4.og.2o2o. It is further submitted that the 2nd respondent is one of the consortium banks of the lst petitioner company and that in the two con:;ortium meetings held on 20.12.2023 and 2g.o3.2o24, the issue with regard to lease payments of sREI Equipments had come up for discussion and that all the consortium banks, including; the 2"d respondent bank, were apprised by the l"t petitione:: company of the reference of the dispute between SREI Equipments and petitioner to the Arbitral Tribunal, and that the matter is sub judice before the said Tribunal. It was contended

l5 that the 2"d respondent bank, despite being fully aware that the claims of SREI Equipments, including the four lease accounts mentioned in the impugned e mails, were in dispute and pending before the Arbitral Tribunal headed by Hon'ble Justice lndira Banerjee, would not have purchased the said lease accounts. Further, the 2"d respondent never put petitioners on notice regarding the said assignment, nor demanded for payment of lease rentals said to be due under the said four lease accounts. Further, it is strangely stated in the counter affidavit of the 2.d respondent that the bank classilied Petitioner Accounts as NPA on 04.08.2020, but the impugned e mail is only an intimation in 2024.

8. Learned counsel for Respondent No. I contended that Respondent No. t has been impleaded only as a formal party in its capacity as the regulator of the banking sector and that no substantive relief has been sought against it in the present Writ Petition. It was therefore, submitted that Writ Petition, insofar as it concerns Respondent No. 1, is liable to be dismissed, and that the merits of the case, including justification for the impugned actions, are to be answered by Respondent No. 2 Bank.

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9. Learned Counsel for Respondent No. 2 vehemently opposeC the contentions made by Petitioners and contented that the Bank lawfully acquired Petitioners' four loan accounts from SREI Infrastructure Finance Limited under a Pool Purchase / Direct Assignment transaction and, based on payout reports receivecl from SREI, classified those accounts as NpA in accordance with RBI prudential norms. Relying on Clause 4.2.7 of the RBI Master Circular, it was submitted that asset classification is borrower-wise and, therefore, Petitioners' CC account and other facilities with Respondent No. 2 were also requirec. to be downgraded once any of the exposures of the borrower became NPA. Learned counsel further contended that the subsequent action taken in 2024 was only to align the classific:rtion in Bank's direct lending books with NpA status already reflected in its pool books and that any delay in effecting such alil;nment does not invalidate the classification nor create any equi[y in favour of Petitioners.

10. Learned Counsel for Respondent No. 2 further contended that facilities with SREI expressly permitted assignme:nt. without requiring further borrower consent; RBI guidelines do not mandate issuance of prior notice in Direct Assignme:nt transactions, and that Respondent No. 2, not being a party to the disputes or arbitration proceedings between l7 Petitioners and SREI, was nonetheless bound to classify the accounts strictly in conformit5r with RBI directives and prudential norms. 1 1. In the present Writ Petition, the primary question that arises for consideration is whether the 2'd respondent.bank is entitled to classify the cash credit Account of the lst petitioner company as a Non-Performing Asset (NPA), even though the said account is being maintained satisfactorily, solely on the ground that it has purchased certain defective accounts from a Non-Banking Financial Company (NBFC). For adjudication of the said issue, this court feels appropriate to examine the relevant provisions of Master Directions and Circulars issued by the Reserve Bank of India- RBI Guidelines on Securitization Transactions dated

07. os.2012 Section B : Guidelines on Transactions Involving Transfer of Assets through Direct Assignment of Cash Flows and the Underlying Securities 2.5.9. The transfer of assets from selling bank must contravene the terms and conditions of any underlying agreement governing the assets and all necessary consents from obligors (including from third parties, where necessary) should have been obtained'

l8 Master: Direction - Reserve Bank of India (Transfer of Loan Expos-:res) Directions, 2021, datec! 24.O9.2021 '

65. It the transferee(s), except ARCs, have no existing exposure to the borrower whose stressed loan account is acquired, the acqui::ed stressed loan shall be classified as ,,Standard', by the transl'eree(s). Thereafter, the asset classification status of the loan acqui'ed, shall be determined by the record of recovery in the books of the transferee(s) with reference to cash flows estimated at the time of transf:r of the loan.

66. In case the transferee(s), except ARCs, have existing exposllre to the borrower whose stressed loan account is acquired, the asset ,:lassification of the acquired exposure shall be the same as the existing asset classification of the borrower with the transferee. This treatment shall be applicable even if such acquisition is pursuant to the transfe:ree being a successful resolution applicant under the Insolvency and Bernkruptcy Code, 2016." Master circular Prudential norms on Income Recognition, Asset classifi<:ation and provisioning pertaining to Advances dated

02. o4.21)24 DEFINITIONS 2.1 Non-performing Assets (NpA) 2.1.1 An Asset, including a leased asset, becomes non-performing when it ceases to lSenerate income for the bank. 2.1.1 A non-performing asset (NpA) is a loan or an advance where:

(i) int,3rest and/ or installment of principal remains overdue for a period of more then 9O days in respect of a term loan, (iil th() account remains'out of order' as indicated. at paragraph 2.2 belo',v, in respect of an Overdraft / Cash Credit (OD/CC). (iiil -)he bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted.

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(iv) the installment of principal or interest thereon remains overdue for two crop seasons for short duration crops.

(v) the installment of principal or interest thereon remains overdue for one crop season for long duration crops.

(vi) the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitization transaction undertaken in terms of the Reserve Bank of India (Securitization of Standard Assets) Directions, 2021.

(vii) in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

2.1.3. In addition, an account may also be classified as NpA in terms of certain specific provisions of this Master Circular, including inter alia Paragraphs 4.2.4,4.2.9 and Part 82.

2.2. 'Out of Order' status

2.2.1. A CC/OD account shall be treated as'out of order'if:

(i) The outstanding balance in the cc/oD account remains continuously in excess of the sanctioned limit/drawing power for 90 days, or

(ii) The outstanding balance in the cc/oD account is less than the sanctioned limit/drawing power but there are no credits continuously for 90 days, or the outstanding balance in the cc/oD account is less than the sanctioned limit/drawing power but credits are not enough to cover the interest debited during the previous 9O days period.

2.2.2. The definition of "out of order" as at paragraph 2.2.1 above shall be applicable to all loan products being offered as an overdraft facility, including those not meant for business purpose and/or which entail interest repayments as the only credits.

2.3. 'Overdue'status

2.3. L. Any amount due to the bank under any credit facility is 'overdue' if it is not paid on the due date fixed brr the bank. The borrower accounts shall be flagg=d as overdue by the banks, part of their day-end processes for the due datt:, irrespective of the time of running such processes. 4.2 Guidelines for ciassification of assets

4.2.7. Asset Classilication to be borrower-wise and not facility-wise 4.2.7.1 It is difficult to envisage a situation when only one facility to a borrower'/one investment in any of the securities issued by the borrower becomes a problem credit/investment and not others. Therefore, all the facilities granted by a bank to a borrower and investment in all the securities issued by the borrower will have to be treated as NpA/Npl and not the particular facility/investment or part thereof w,hich has become irregular. L2- Before adverting to the principle issue relating to the povzer of Respondent No.2 Bank to classify the running cash credit Account as NpA, this court feels it appropriate to determine whether there exists any valid agreement or lawful purchase of the Loan Accounts by the 2.d respondent from SREI Equipmr:nt Financial Ltd. The directions issued by the Reserve Bank ol India under Sections 2r and 3sA of the Banking Regulation Act, 1949 are statutorily-binding on all banking compani,-'s and operate as part of the regulatory framework governinl3 their conduct. Such directions/instructions, so long as they remain in force, are required to be treated as law for the purposes of testing the legality of administrative actions taken by the banks.

As per the Master Direction Reserve Bank of India (Transfer of Loan Exposures) Directions, 2o2L, dated '; l.il r;!, " "__y .,/ ,/ 2t 24.09-2021, or any previous applicable instructions, it is sine qua non that any assignment or transfer of loan exposures must be effected through a valid contractual arrangement, and such agreement alone crystallizes the rights, liabilities and obligations inter se the transferor, transferee and the obligor.

14. [t is observed from the record that, on L2.I2.2O24, learned counsel for Respondent No. 2 represented before this Court that, "Respondent No.2 Bank purchased the loan accounts from M/s. SREI Equipment Financial Limited (SREI) through direct assignment of Cash Flows only to the extent of 9Oo/o of the economic interest in the loan accounts and that SREI continued to hold remaining LOo/o of the share in the loan accounts and also stated that the assignment of debt was not complete and that, therefore, there was no requirement to issue notice to the petitioners before marking the accounts as NPAS." This statement made by the counsel for the 2"d respondent on instructions, assumes significance that the Bank has not yet entered into any valid agreement or document to establish that there was a valid assignment or transfer, or even that there was any concluded direct assignment of Leased Accounts of SREI Equipment Finance Ltd. in accordance with RBI directions in favour of the 2"d Respondent Bank. \

15. Upon perusal of Clause 2.5.9. of the RBI Guidelrnes on Securitisation Transactions dated or.os.2ol2, it is evid:nt that transfer of assets by the transferor, must not contran'ene the terms and conditions of the underlying agreement governing the assets and all necessary consents from obligors (including from third parties, where necessary) should have been obtained. Even assuming that assignment had taken place, there is nothing on record to demonstrate that such ar;signment was in compriance with clause 2.5.9 of the RBI ciuidelines on Securitization Transactions dated a7-05-21)12, and, on the contrary, petitioners have categorically stated ()n aflidavit that they did not receive any intimation whatsoever from either the transferor or the transferee regarding the alleged assignment, and the said fact is not denied by ths !'ra Respondent Bank in its counter affidavit and, on the contrary, mentioned that no intimation of assignment need to be given. Even during the consortium meetings held in 2023 and 202'4, the alleged assignment was never disclosed by the 2nd respondsnl. This conduct of the 2nd Respondent raises serious coubts regarding the very existence of the assignment deed or document by SREI.

16. Learned Senior counser appearing for petitioners h^ave J.ral'n our attention to clause 16 of the Master Lease

f../ z5 Agreement between petitioner No. 1 and SREI Equipment Finance Limited, wherein it is expressry provided that, ,,Lessor mag sell and/ or assign or transfer all or ang Lessor,s rights and/ or obligations und.er this Agreement and./ or to the Equipment or grant a security interest in the Equipment to a seatred Party or Assignee- (rpon such assigrument or creation of seatity interest, tressor shail send. a notice in the agreed format.,,

In fact, petitioners have specificalry contended that no such notice was ever received by them, either from Respondent No. 2 or from SREI Equipment Finance Limited. Also, Respondent No. 2 has neither established that any notice in the agreed format was in fact, issued in compriance with clause 16, nor produced any documentation pertaining to the alleged assignment. The 2rd respondent failed to furnish any relevant evidence to establish that there is a valid assignment. Further, the 2"d respondent does not contain any information as to the date of assignment. petitioner was kept in suspended animation, except for stating that the 2.d respondent purchased the right to collect lease amounts from SREI, which accrued to it through different lease agreements. [n fact, the contentions of the 2nd respondent at the time of granting interim order are recorded by this court, which state that assignment was not fully completed and was still in progress. Thereafter, in the count3r affidavit, the 2nd respondent statect that SREI has assigr ed its lease agreernents and that it has accrued the right to collect the lease amounts. As the contentions in the counter afl-rdavit of the 2nd respondent are inconsistent and not suppo::ted by any va.lid document, and in view of the contrary contentions raised by the 2*d respondent in its counter affidavit, it is <lifficult to accept the version of the 2nd respondent regarding a valid assignment for the collection of rentals under the fourr loan accounts mentioned in the impugned emails. In view ol' the foregoing discussion and in the absence of any convinc'ing evidence, this court firmly holds that the alleged assignnrent is shrouded in serious doubt, and its very veracity is queslionable and doubtful and the same is not in existence.

Alternatively, even assuming that there is any assignrrrent or sale of lease accounts by the 2rd respondent from M/s sFrEI Equipment Finance Ltd. took place, no power or authority for such action uias traceable under the Master Guidelines issued by the RBI, as referred to in the preceding paragraphs. Guideline No. 2.s.9 of the RBI Guidelines on securitization Transactions dated oz.os.2o12 specifically states that transfer of assets by a selling bank must not contravene the term:; and conditions of any underrying agreement governing such assets on the necessary consent from the obligors, ;41 :: { ""/

including third parties, must be obtained. Accordingly, this statutory provision imposes a mandatory obligation on the 2"d respondent bank to verify whether M/s SREI Equipment Finance Ltd. complied with Clause No. 16 of the Master Lease Agreement dated 31.03.2017 executed with the l"t petitioner company. Further, an implied obligation seems to have been imposed upon the 2nd respondent bank under Regulation No. 2.5.9, requiring that the consent of obligors, including third parties, if any, should likewise have been obtained. [n the present case on hand, although the 2"d respondent, in its e mails dated 21.10.2024 and 2+.1O.2O24, asserted that SREI Equipment Finance Ltd. had declared the four loan accounts of the 1st petitioner as NPA on O+.O8.2O2O, the 2"d respondent bank failed to bring the same to the notice of petitioner company for the last five years and despite the alleged NPA classification, the 2"d respondent continued to renew the cash credit account of the 1."t petitioner company from time to time.

19. Further, the 2nd respondent also stated in the counter, they also classified petitioner Accounts maintained by them including C.C. Account as NPA on 04.O8.2O2O and the impugned e mail dated 21.10.2024 is only a consequential intimation. This contention of the 2nd respondent clarified that ignoring the said alleged classificatio4, they have renewed the c.c. A<:count of the lst petitioner all these years. The contention of the 1l"d respondent is tot-ally perverse and casual. Hence, after a lapse of five years, the 2nd responcient bank is estoppecr from declaring the satisfactorily-maintained cash credit account of petitioner as NPA on account of its purchase of the alleged NpA accoun -s

20. It is relevant to mention here that the 2nd responcent bank by its e mail dated 27.10.2024, specifically acknowledged that cash credit account of the lst petitioner, which has been sanctioned by it, had been operating and maintained satisfactorily. In light of the said admission of the 2"rt re:;pondent bank, the action of the 2nd respondent to declare the said accounts as NpA is totaly arbitrary, high- handed, and indicative of a complete non-application of mind, as well as misinterpretation and misapplication of the relevant regulations. Apart from that, as per Regulations 65 and 66 of the RBI Guidelines on securitization Transfers, 2o!2, the 2",r responde,nt bank must treat any loan accounts acquired as "standarrl accounts" and intimate the same to the borrowers regarding; the outstanding, if any, available in the said acquired accounts, and inform them to clear it within a specified time. In the present case, the 2"d respondent bank had neither informed petitioner about the date of assignment nor about any outstanding, if any, due in the accounts alleged to have been acquired. In addition to that, the 2.d respondent bank, having fully aware about pendency of the arbitral claim between SREI Equipment Finance Ltd. and the lst petitioner, acquired the said four loan accounts and thereby, proceeded to purchase the said disputed accounts solely by relying upon the statements of SREI Equipment Finance Ltd. and its auditors, thereby unnecessarily declared the satisfactorily-running cash credit account of the l"t petitioner as NPA. [n fact, such a power is also not available to the 2"d respondent. 2L. Further, what is meant by NPA, when an account will become overdue, and how the same is to be declared NPA, are clarified under Regulation 2 of the RBI Master Circular, 2024, which has been extracted in the preceding paragraphs. The lst petitioner's case can not fall under the sAid Regulation for declaring NPA. Petitioners had placed before this Court a Master Circular, i.e., RBI Master Circular on Prudential Norms on Income Recognition, Asset Classification, and Provisioning pertaining to Advances dated O2.O4.2O24. In the opening page of the said Circular, it is specifically stated that the Master Circular applies exclusively to transactions among commercial banks only. Clause No. 4.2.7 of the said Master Circular states as follows: I

4.2.7. Asset Classification to be borror.ver-wise and not facility-wise 4'2.7.1 It is difficult to envisage a situation when only one facility to a borrou'er/one investment in any of the securities issued by the borrou'er becomes a problem credit/rnvestment and not others. Therefrlre, all the facilities granted by a bank to a borrower and investrnent in all the securities issued by the borrower will have to be treated as NPA/NPI and not the particular facility/investment or part thereol which has become irregular."

22. In fact, the 2nd respondent bank relied upon the said regulation/clause of the Master circular to declare the 1st petitionr:r's satisfactorily-running cash credit account as NpA. After a careful reading of the language deployed in the said regulation/clause, it is clear that it cannot come to the rescue or justily the 2n,t respondent's action in declaring the 1st petitioner's cash credit account as NpA. In fact, the said Regulations are applicable only to loan transactions pertaining to transf:rs, acquisitions or similar activities among commercial banks, but not to transactions with NBFCs. In fact, the Master circular specifically states that it applies only to transactions among c,)mmercial banks. In addition to that, it is specifically stated in the Regulation No. 4.2.7 that if any loan account or facility granted by a commercial bank becomes irregular or a problem r:redit, all other loans or facilities granted by the same commercial bank to the borrower must also be treated as NpA to maintain uniformity, as the asset classification is borrower-wise and not facility-wise. In view of this, the power under Clause No. 4.2.7 of the Master Circular could be used by the 2nd respondent only in respect of any further loans granted to the petitioner company apart from the cash credit facility, but however, it is not applicable to transactions between the 2"d respondent and SREI, which is not a commercial bank, but an NBFC.

23. According to the counter affidavit, it is the case of the 2"d respondent that they have granted cash credit facility to the lst petitioner, which is running satisfactorily and that since they purchased the alleged NPA loans from a Non-Banking Finance Company (SREI Equipment Finance Ltd.), they have declared the cash credit facility granted by them as NPA. In fact, such a power is not traceable under Clause 4.2-7 of the Master Circular, as stated supra, since the power available under the said clause cannot be extended to purchased loan accounts from NBFCs, as it is impliedly stated in the said clause that any loans granted to the borrower by the commercial bank do not include any loan acquired from an outside agency or NBFC. Hence, the power exercised by the 2"d respondent bank is ultra uires to the RBI Regulations. Apart from that, the lst Respondent (RBI), who has also filed counter affidavit, does not \ I I I

i0 support the impugned action of the 2.d respondent, except to state r-hat the obligatiorr of the 2,,d respondent to sustain its action under challenge.

Thus, thc- )tt<t responrlent has not provided any proper explanation nor produced any supporting material to substantiate the impugned e rnail dated 2r.1o.2o24 as well as the subsequent e mail dated 24.Lo.2a24. Further, since a disputr: is pending before the Arbitral Tribunal, the 2nd responrlent ought not have purchased those disputed loans from slRE[, an& based on the same, cannot declare the satisfactorily-running cash credit accr.runt of the 1"t petitioner as NPA. Ttre 2"d respondent is expected to be vigilant ancl expected to act irr due diligence before passing such an impugned order, as the .<iame has serious repercussions on banking business as it strai;:rs the banker-customer relationship, and ultimately results in loss to the banking sector. In view of the foregoing discussion, the action of tlr. 2nd respondent is wholly unsustainable, high-handed, and apart from arbitrary.

Hence, in view of the foregoing discussions and the statutor-.r guidelines discussed supra, the proceedings issued by the 2"d llespondent rhrough e mail dated 21.10.2024 cannot be sustainec, hence the same is hereby declared as invalid, ultra uires, an,1 arbitr&ry.

3l

26. Accordingly, the Writ petition is allowed setting aside the e mail dated 2L.1O.2O24 issued by the 2"a respondent in classifying the 1st petitioner's cash credit Account as NpA, with a specific direction to restore the said cash credit Account No. 252105oooooo43 of the l"t petitioner company forthwith. No costs.

27. ConJequently, the miscellaneous Applications, if any shall stand closed. / To, //TRUE COPY//

1. The RESERVE BANK OF lNDlA, 6-1-56, 65, Saifabad, Khairatabad, Hyderabad - 500 004 Central Office Building, Shahid Bhagat Singh Ma SD/. C. DEEPIKA ASSISTANT REGISTRAR SECTION OFFICER Road, National Highway elangana, lndia Also, at. , Fort, Mumbai - 400001, rg ft/aharashtra :

2. One CC to SRl. BENDI RAVITEJA Advocate [OPUC]

3. One CC to MiS. N LEGAL HYDERABAD Advocate [OPUC]

4. One CC to SRl. SRINIVAS CHITTURU,STANDING COUNSEL IOPUC]

5. Two CD Copies BIU GJP I \

e q HIGH GI)URT DATED:2510212026

ORDER

WP.No.3i4084 of 2024 I ALLOWING THE WRIT PETITION WITHOUT COSTS r\ 0 THE S 1 1 ilA8 7n7fr * t O *