Wrongful or premature classification of a loan account as a Non-Performing Asset (NPA) can have serious consequences for borrowers—affecting their creditworthiness, triggering coercive recovery actions, and risking possession of their assets. However, Indian law offers borrowers effective legal remedies to challenge such misclassifications.
What is NPA as per RBI Guidelines?
According to the Reserve Bank of India (RBI), a loan account is classified as a Non-Performing Asset when:
- Interest or instalment of principal remains overdue for more than 90 days in case of term loans.
- The account remains out of order for more than 90 days in case of cash credit/overdraft.
Any deviation from these norms can be challenged as unlawful.
Grounds for Challenging Wrongful NPA Classification
Borrowers may contest the classification of their account as NPA under the following grounds:
Violation of RBI Norms: If the bank did not follow the 90-day overdue rule or failed to issue proper intimation, the classification is open to legal challenge.
Incorrect Calculation of Dues: Banks sometimes make errors in calculating EMIs, interest, or penalties, leading to unjust default marking.
Disputed Transactions or Charges: If you’ve raised disputes over charges, EMI dates, or reversals, and the same were ignored, you may have a case.
Non-compliance with RBI Circulars: RBI has mandated fair practices, including due notice and hearing before classifying a borrower’s account as NPA.
Legal Remedies Available to Borrowers
1. Representation to the Bank and RBI
Before initiating formal litigation, send a written representation to the bank along with supporting documents and request a review.
You can also approach the Banking Ombudsman or write to the RBI’s Consumer Education and Protection Cell.
2. File an Application Before DRT (Debt Recovery Tribunal)
Under Section 17 of the SARFAESI Act, borrowers can challenge the classification of their account as NPA if the bank proceeds to take possession under Section 13(4).
The grounds can include:
- Non-service or improper service of 13(2) and 13(4) notices
- Violation of natural justice
- Premature classification as NPA
The DRT can stay bank action and even set aside the proceedings.
3. Writ Petition Before High Court
If the bank’s action violates fundamental rights or RBI regulations, a Writ Petition under Article 226 of the Constitution may be filed before the High Court.
This remedy is especially effective when:
- The DRT is non-functional
- The matter involves gross procedural violations
- Urgent relief like a stay is needed
Practical Tips for Borrowers
- Maintain all communication with the bank including payment proofs, emails, and loan statements.
- Seek legal advice immediately after receiving any SARFAESI notice.
- Challenge the action within the prescribed timelines (usually 45 days under Section 17 SARFAESI).
Final Word
Wrongful classification of a loan account as NPA is not just a financial setback—it is a legally challengeable act. Borrowers must act quickly, assert their rights, and take appropriate legal steps through DRT or High Courts. With the right legal guidance, such misclassification can be set aside, protecting the borrower’s financial and legal interests.
About the Author
Advocate Ayush S. Jain is a practicing advocate at the High Court of Gujarat and the District & Sessions Courts of Ahmedabad and Gandhinagar. With special expertise in SARFAESI matters, DRT proceedings, civil and commercial disputes, Ayush regularly represents borrowers, guarantors, and business owners in protecting their rights against unjust recovery actions.
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