90‑Day Irregularity under RBI IRACP Norms Established: Delhi HC Upholds Canara Bank’s NPA Classification as Lawful [Read Order]

The Delhi High Court has upheld Canara Bank’s decision to classify the loan account of respondents as a Non‑Performing Asset (NPA), holding that the bank’s action strictly conformed to the Reserve Bank of India’s prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP).

The Court found that the borrowers’ overdraft (OD) and cash‑credit (CC) accounts had remained continuously irregular for the full 90‑day period mandated under the RBI framework, leaving no scope to allege premature or unlawful classification.

The dispute arose from a credit facility of ₹100 lakh sanctioned in favour of the borrower in 2007, secured by a mortgage of three properties. Over time, the borrowers defaulted, and by 31 December 2012, their OD and CC accounts had exceeded sanctioned limits.

The bank issued repeated reminders in early 2013, but the borrowers failed to regularise the account. On 31 March 2013, the bank classified the account as NPA. The borrowers later challenged this classification before the DRT and DRAT, alleging that the bank had acted prematurely and without completing the mandatory 90‑day period.

The Division Bench comprising Justice Anil Kshetrapal and Justice Harish Vaidyanathan Shankar rejected this contention after undertaking a detailed analysis of the RBI’s IRACP norms, which have statutory force under Sections 21 and 35A of the Banking Regulation Act, 1949.

The Court reiterated that under these norms, an OD or CC account becomes an NPA when the outstanding balance remains continuously in excess of the sanctioned limit or drawing power for more than 90 days. The computation is purely arithmetical and begins from the day immediately following the date on which the account first becomes irregular.

Applying this framework, the Court noted that the borrowers’ account was already irregular as of 31 December 2012. There was no evidence that the account was brought within sanctioned limits at any point during January, February, or March 2013.

Therefore, the 90‑day period commenced on 1 January 2013 and ran through 31 March 2013. The Court emphasised that 31 March 2013 constituted the 90th day, and classification on that date or immediately thereafter fully satisfied the regulatory requirement. The borrowers failed to produce any material showing regularisation, infusion of funds, or servicing of interest during this period.

The Court also clarified that the burden of disproving NPA classification lies on the borrower once the bank establishes continuous irregularity. In this case, the contemporaneous bank statements demonstrated persistent excess throughout the relevant period, and the borrowers did not discharge their burden.

The Court observed that even if one were to assume arguendo that classification on the 90th day was marginally early, the borrowers had not shown any attempt to cure the irregularity on the following day, rendering the challenge academic.

Yet another issue that was under the consideration of the court was whether the borrowers could challenge the auction of the mortgaged property after having expressly consented to it. The record showed that on 16 April 2014, the borrowers themselves submitted before the DRT that auctioning one mortgaged property would be sufficient to satisfy the bank’s dues.

Acting on this submission, the DRT directed the bank to auction only one property, which was sold for ₹2.14 crore, far exceeding the recovery demand of ₹1.06 crore.

The High Court held that once the borrowers voluntarily assented to the sale, they effectively waived objections relating to valuation, publication of sale notices, reserve price, and compliance with Rules 8 and 9 of the SARFAESI Rules.

These procedural safeguards exist primarily for the borrower’s benefit, and consent operates as a waiver unless prejudice or mala fides is shown. The DRAT, the Court held, erred in ignoring this explicit consent and the borrowers’ conduct.

The High Court concluded that Canara Bank’s NPA classification was lawful and that the borrowers’ later objections to the auction were untenable in light of their own consent. Accordingly, the DRAT’s order was set aside, and the DRT’s findings were restored in favour of Canara Bank.

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