Delhi High Court Upholds Canara Bank's NPA Classification and Auction Process

Borrower's Consent to Sale of Mortgaged Property Waives Procedural Compliance under SARFAESI Act

In a significant ruling, the Delhi High Court on December 6, 2025, upheld the actions of Canara Bank (formerly Syndicate Bank) in classifying the loan account of M/s Karishma Enterprises as a Non-Performing Asset (NPA) and proceeding with the auction of mortgaged properties. The Division Bench, comprising Justices Anil Kshetarpal and Harish Vaidyanathan Shankar, overturned the order of the Debts Recovery Appellate Tribunal (DRAT) that had previously set aside the bank's actions.

The case, W.P.(C) 6494 of 2016, revolved around the bank's classification of the loan account as an NPA on March 31, 2013, following a prolonged period of irregularity. The court confirmed that the classification adhered to the Reserve Bank of India's prudential norms, which mandate a 90-day period of continuous irregularity before such a classification.

The judgment emphasized that the borrowers, M/s Karishma Enterprises, through explicit consent, had agreed to the sale of one of the mortgaged properties, effectively waiving strict procedural compliance under the SARFAESI Act. This consent was recorded in an order by the Debt Recovery Tribunal (DRT) on April 16, 2014, and reiterated during subsequent proceedings.

Despite the borrowers' challenges, the court found no evidence of mala fides or procedural prejudice. The auction, conducted under the SARFAESI Act, was deemed valid, with the borrowers having failed to regularize the account or demonstrate any procedural lapses that caused prejudice.

The ruling reinforces the principle that borrower consent can mitigate strict compliance with procedural norms, provided no harm is done. The court's decision is expected to provide clarity on the interplay between borrower consent and procedural requirements under the SARFAESI Act.

Bottom Line:

The classification of a loan account as a Non-Performing Asset (NPA) must adhere to the 90-day period of continuous irregularity as per the Reserve Bank of India's prudential norms. Borrower's express consent to the sale of mortgaged property can dilute strict procedural compliance under the SARFAESI Act.

Statutory provision(s): Banking Regulation Act, 1949, SARFAESI Act, 2002, RBI Prudential Norms, Section 13(2) of SARFAESI Act, Rules 8 and 9 of SARFAESI Rules.

Canara Bank (Erstwhile Syndicate Bank) v. M/s Karishma Enterprises, (Delhi)(DB) : Law Finder Doc Id # 2819340