Kolkata: Observing that public sector banks, which deal with public money, must strike a balance between commercial prudence and legal obligations, the Calcutta High Court has set aside the classification of four cold storage units as Non-Performing Assets (NPAs) by Punjab National Bank (PNB), holding that the bank failed to comply with mandatory Reserve Bank of India (RBI) directives and its own internal policies relating to MSME loan restructuring.
The bench of Justice Partha Sarathi Chatterjee also held that arbitrary or procedurally unfair conduct—even if commercially motivated—must be set aside. The petitioners, owners of four MSME-registered cold storage companies, had submitted multiple restructuring proposals between November 2019 and October 2020 after acquiring sick units at the behest of United Bank of India, which later merged with PNB. Despite being eligible under RBI’s January 1, 2019 circular—meant to assist stressed but standard MSME accounts—their proposals were neither properly considered nor formally rejected before their accounts were classified as NPAs in June 2020.
The court ruled that the bank’s decision to declare the accounts as NPAs without acting on the pending restructuring proposals was legally unsustainable. It also quashed the recovery notice issued under Section 13(2) of the SARFAESI Act, which had been published in a newspaper but not personally served on the borrowers.
Emphasising that RBI’s restructuring directives, issued under statutory authority, are binding on banks, the court criticised PNB for issuing a non-speaking rejection letter, failing to act on subsequent proposals and simultaneously pursuing recovery and insolvency proceedings without awaiting judicial determination.
The judge directed the bank to reconsider the restructuring proposals in accordance with RBI circulars and State Level Bankers’ Committee (SLBC) resolutions. An impartial individual or committee is to be appointed for this purpose, with the explicit direction that the officer against whom bias allegations were made should not be involved in the decision-making process.