Exhaustion of SARFAESI Remedy Required Before Writ Challenge - RBI 2023 Guidelines Withdrawal Irrelevant | SARFAESI Act : Calcutta HC

The Calcutta High Court set aside a writ petition challenging the classification of loan accounts as NPA, holding that the borrowers could not approach the High Court under Article 226 when a statutory remedy under the SARFAESI Act was available, and that the RBI’s 2023 Fair Lending Guidelines, the basis of the petition, had been withdrawn in 2025.

Background & Facts

The Dispute

• The appellant is South Indian Bank Limited, a scheduled commercial bank.
• The respondents are Propello Innovations Private Limited, a micro-small-medium enterprise (MSME), and its director.
• The borrowers obtained credit facilities from the bank in 2013.
• In 2020, the loans were restructured on the pretext of a financial crisis caused by the global downturn and the stoppage of LOUs.
• Further renewal of the credit facilities was granted in 2020 citing the Covid-19 pandemic.
• In November 2023, the bank issued a renewal sanction order that increased the rate of interest on the borrowers’ accounts.
• On 19 June 2024, the bank emailed the borrowers stating that their accounts would be declared Non-Performing Assets (NPA).
• On 28 June 2024, the bank demanded the borrowers deposit funds to keep the accounts out of the NPA category; the borrowers complied by depositing money on 28 and 29 June 2024.
• On 8 July 2024, the bank formally declared the accounts as NPA and debited penal interest and additional interest.
• The borrowers filed a writ petition on 1 October 2024, alleging that the debiting of penal interest violated the RBI’s Fair Lending Practice - Penal Charges in Loan Accounts Guidelines dated 18 August 2023 and that the NPA classification was arbitrary.

Key Facts

• Loan amount: over Rs. 10 crores outstanding, of which Rs. 9.2 crores had been repaid by the borrowers.
• Recall notice: the bank issued a recall notice invoking a bank guarantee for Rs. 9 crores.
• Statutory notices: a notice under Section 13(2) of the SARFAESI Act was issued on 17 August 2024; the borrowers responded under Section 13(3)(A) on 8 January 2026, well after the statutory period.
• The bank also issued a possession notice under Section 13(4) on 8 January 2026 and a paper publication on 10 January 2026.
• An application under Section 17 of the SARFAESI Act (SA 522 of 2026) was filed before the Debts Recovery Tribunal (DRT) seeking quash of the notices and injunction.

Procedural History

• 1 Oct 2024: Writ petition filed in the High Court.
• 26 Feb 2026: Single Judge dismissed the writ, holding the bank violated the RBI Guidelines.
• 15 Jul 2026: Appeal (MAT 743 of 2026) heard before a Division Bench.
• 7 Aug 2026: Judgment delivered (2026:CHC-AS:1220-DB).
• Cross-appeal (COT 56 of 2026) filed by the borrowers was also disposed of.
• Application under Section 17 pending before the DRT.

The Parties' Positions

• Appellant bank: argued that the writ petition was not maintainable because the borrowers had an effective statutory remedy under the SARFAESI Act; also contended that the RBI Guidelines were no longer in force.
• Borrowers: contended that the bank had arbitrarily levied penal interest without prior intimation, violating the Guidelines, and that the NPA classification was unlawful.

Relief Sought

• Quash of the penal interest debits and additional interest.
• Injunction restraining the bank from acting upon the Section 13(2) and Section 13(4) notices.
• Set-aside of the paper publication and recall notice.
• Costs in favour of the bank.