SC upholds amendment in law on NPA classification by creditors

SC upholds amendment in law  on NPA classification by creditors

The Supreme Court has upheld the constitutional validity of an amendment to the provision of the securitisation law authorising the creditor to classify the account of a borrower as Non Performing Asset (NPA) in accordance with the Reserve Bank of India (RBI) guidelines and directions.

The apex court rejected the plea that the amendment was untenable and bad on account of “excessive delegation of essential legislative function”.

A bench of Justices J Chelameswar and S A Bobde said making any attempt to define the expression NPA valid for millions of cases of loan transactions of various categories, lent or made by different categories of creditors, would “not only be an impracticable task but could also simply paralyse the entire banking system”.

The court confirmed the constitutional validity of the amended definition of the expression NPA under Section 2(1)(o) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002.

Dealing with a batch of petitions, the court directed the borrowers to pay costs to the respective creditors at one per cent of the amount outstanding on the date of the notice.

Even though different institutions like State Bank of India, National Housing Bank are bodies created under different laws of Parliament enjoying a large amount of autonomy, those were still subject to the overall control of the RBI, the bench said.

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