Bank Not Required to Give Notice Before Classifying Account as NPA: Kerala HC

In a significant clarification regarding debt recovery procedures, the Kerala High Court ruled that neither the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 nor its associated rules mandate a prior notice to a borrower before classifying their account as a Non-Performing Asset (NPA). The Court emphasized that statutory remedies under the Act must be pursued before the appropriate tribunal rather than through writ petitions.

Justice M.A. Abdul Hakhim, while presiding over a single-judge bench, dismissed a writ petition filed by a senior advocate challenging SARFAESI proceedings initiated by the State Bank of India. The Court observed that the petitioner had rushed to the High Court immediately upon receiving a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, bypassing the statutory mechanism for filing representations or objections.

NPA Classification Does Not Mandate Prior Notice

The primary legal contention raised was whether a bank must serve a notice before an account is officially classified as an NPA. The Court rejected the petitioner's reliance on precedents concerning fraud classification, noting that the legal requirements for NPA classification are distinct.

The Court, in its reasoning, observed: "Neither the SARFAESI Act nor the Rules made thereunder mandate notice to the borrower before classifying the account as a non-performing asset. Accordingly, I find that the Writ Petition filed by the Petitioner is not maintainable and the same is liable to be dismissed."

Disputed Dues and Statutory Remedies

Addressing the petitioner's concerns regarding the exact quantum of the debt, the Court held that such factual disputes involving evidence cannot be adjudicated under Article 226 of the Constitution of India. Instead, the legality of the measures taken by the secured creditor should be contested before the Debts Recovery Tribunal (DRT) under Section 17 of the Act. The Court noted that despite being granted interim protection for mediation, the petitioner had not made any payments to demonstrate bona fides.

The Court has following directions:

"Accordingly, this Writ Petition is dismissed giving liberty to the Petitioner to submit his Representation/Objection to Ext.P12 Notice within a period of two weeks from the date of receipt of a certified copy of this judgment and in case of submission of such Representation/Objection by the Petitioner, the Competent Authority of the Respondent Bank is directed to consider the same in accordance with law."

Background:

The dispute originated from a home loan of Rs. 16 lakhs availed by the petitioner's late wife in 2011. Following her demise in 2015, the petitioner continued repayments until a default occurred. The State Bank of India issued a notice under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 on September 23, 2024. The petitioner challenged this notice, arguing that the bank failed to credit certain transfers and that the account could not be classified as an NPA without prior notice, citing State Bank of India and Others v. Rajesh Agarwal and Others ( "(2023) 6 SCC 1": 2023 CaseBase(SC) 209) and Saidalavi v. Reserve Bank of India ( "2026 (3) KLT 66": 2024 CaseBase(KER) 19624). The bank countered that the petition was not maintainable as it arose from contractual obligations and involved alternative statutory remedies. The Court ultimately upheld the bank's position, clarifying the procedural requirements of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 while granting the petitioner a brief window to file a formal objection with the bank.

Case Details:
Case No.: WP(C) NO. 35287 OF 2024
NeutralCitation: 2026:KER:34985
Case Title: ADV. K BALACHANDRAN vs. CHIEF MANAGER, STATE BANK OF INDIA & OTHERS
Appearances:
For the Petitioner(s): SRI. N.K. SUBRAMANIAN, SHRI. ATHUL TOM, SRI. K. RAMKUMAR (Senior Counsel)
For the Respondent(s): SRI. AMAL GEORGE (Standing Counsel), SRI. RIYAL DEVASSY (Government Pleader)

Source: 2026 CaseBase(KER) 277