Supreme Court Orders Sponge-Iron Maker To Pay ARC Rs125 Crore More Within 12 Weeks To Fully Settle SBI’s Assigned Loan Debt

The appellant, a borrower from a consortium led by the State Bank of India (SBI), challenged the classification of its loan account as a non-performing asset (NPA) with effect from 16 October 2020 and SBI’s subsequent assignment of the debt to Respondent No. 2, an asset reconstruction company (ARC).

The appellant contended that the classification was premature in light of the RBI’s COVID-19 moratorium circulars and a revised term-loan repayment schedule.

After SBI issued an e-auction notice for the stressed loan exposure, the appellant challenged the NPA classification and proposed assignment before the Calcutta High Court. The Single Judge set them aside, but the Division Bench reversed that decision.

Before the Supreme Court, the parties’ submissions principally concerned whether the appellant owed Respondent No. 2 any amount beyond the ₹250 crores already paid. The Court had referred the question of additional liability to former Supreme Court judge Justice Anil R. Dave, whose report assessed possible returns on the investment.

The Court noted that the underlying validity of the NPA classification and assignment remained disputed.

The Court considered the RBI’s asset-classification framework and COVID-19 moratorium circulars, including the principle that a term-loan account may be classified as NPA only after the applicable period of default; the SARFAESI Act, 2002, including Sections 5 and 13; Section 19 of the Recovery of Debts and Bankruptcy Act, 1993; and Section 7 of the Insolvency and Bankruptcy Code, 2016.

In Transcore v. Union of India, the Court had held that SARFAESI remedies are additional to remedies under the DRT Act and that withdrawal of a pending DRT application is not a precondition to resorting to SARFAESI.

In ICICI Bank Ltd. v. Official Liquidator of APS Star Industries Ltd., it was held that a bank may transfer its debt asset and that, upon assignment, the borrower becomes liable to the assignee.

Bijnor Urban Cooperative Bank Ltd. v. Meenal Aggarwal was cited for the principle that a borrower cannot obtain a writ compelling a bank to grant a one-time settlement.

In resolving the dispute, the Court also relied on its equitable jurisdiction to balance the parties’ interests and do complete justice.

The Court did not decide whether the NPA classification or assignment was legally valid.

It noted the disputed circumstances surrounding the classification, the rapid sequence of recovery proceedings and assignment, and the appellant’s allegations about the source of the ARC’s funds; it also noted that Respondent No. 2 had not supplied requested financial information.

Given those circumstances, the appellant’s payments of ₹250 crores, the delayed payment schedule, the report’s suggested returns, and the need to balance the parties’ interests, the Court fixed a further payment of ₹125 crores as a pragmatic full-and-final settlement rather than deciding whether compensation should be based on the debt value or the acquisition value.

Upon receipt, the respondents must return the title deeds and release the securities and guarantees within four weeks; the pending NCLT and DRT proceedings are to stand disposed of in light of the settlement.

If the appellant fails to meet the payment deadline, the respondents may revive proceedings, and the appellant will not receive the benefit of the judgment.

The appeals were disposed of, with the validity of the NPA classification and assignment left open.