Case Law

Calcutta High Court: A CC/OD Account Cannot Be Classified as NPA Without Actual 90-Day Overdue or “Out of Order” Status — SARFAESI Notice Quashed

Published 18 Aug 2026· Updated 18 Aug 2026· 4 min read

Executive Summary: The Calcutta High Court, in Benimadhab Construction Private Limited & Anr. v. Reserve Bank of India & Ors. (W.P.A. No. 23190 of 2025, 2026 TAXSCAN (HC) 1302, decided 12 August 2026), has quashed a bank’s notice under Section 13(2) of the SARFAESI Act, holding that a Cash Credit/Overdraft (CC/OD) account cannot be classified as a Non-Performing Asset unless the account is actually overdue for more than 90 days or is genuinely “out of order,” as required by the RBI’s Master Circular on income recognition and asset classification. Justice Krishna Rao found on the account statements themselves that neither condition was satisfied at the time the bank declared the account an NPA.

Background / Facts

The petitioners, Benimadhab Construction Private Limited and another, held a ₹1.5 crore loan from the respondent bank, periodically renewed and last sanctioned till 31 December 2024. In January 2025, the bank asked the petitioners to deposit ₹7 lakh to avoid NPA classification; the petitioners deposited ₹9.25 lakh between 30 January and 27 February 2025 and continued monthly payments of ₹1 lakh through May 2025. Despite these payments, the petitioners learned their account had been classified as an NPA, and the bank subsequently issued a notice under Section 13(2) of the SARFAESI Act.

The Court’s Reasoning

Justice Krishna Rao examined the actual statement of accounts and found that the bank had declared the account an NPA on 28 January 2025, yet only advised the petitioners to pay ₹7 lakh the very next day, 29 January 2025. From the account statements, the petitioners had deposited a total of ₹9,14,000 between 30 October 2024 and 28 January 2025. Applying the RBI’s Master Circular dated 2 April 2024, the Court held that neither was any amount overdue for more than 90 days, nor could the account be treated as “out of order” — meaning neither of the two statutory triggers for NPA classification under the RBI framework was actually satisfied. The SARFAESI notice premised on that classification was accordingly quashed.

Why It Matters

NPA classification disputes are a recurring flashpoint for CA practices advising MSME and mid-sized corporate clients. This ruling is a directly useful, fact-specific illustration of how courts will scrutinise the actual account statement against the RBI’s Master Circular’s precise 90-day-overdue or “out of order” tests, rather than deferring to the bank’s internal classification decision.

Key Takeaways

A CC/OD account can be classified NPA only if it is actually overdue for more than 90 continuous days, or is genuinely “out of order,” per the RBI’s Master Circular dated 2 April 2024.
Courts will independently examine the actual account statement against these two tests rather than defer to the bank’s internal classification.
Inconsistent bank conduct — such as declaring NPA status and then, the very next day, offering a curing payment option — can itself undermine the bank’s classification.
A SARFAESI Section 13(2) notice premised on an invalid NPA classification is liable to be quashed.
Reduced drawing power due to non-submission of stock/book-debt statements is a separate operational issue from the specific statutory NPA tests.

Practical Implications

Firms advising clients facing NPA classification or a SARFAESI notice should, as a first diagnostic step, obtain the complete account statement for the relevant period and independently verify against the RBI Master Circular’s 90-day-overdue and “out of order” definitions — rather than accepting the bank’s classification at face value.

Action Checklist

On any NPA classification dispute, obtain the complete account statement and independently test it against the RBI Master Circular’s 90-day-overdue and “out of order” criteria.
Document any inconsistency in the bank’s own conduct or communications around the classification date.
Where a SARFAESI Section 13(2) notice has been issued on a disputed classification, assess whether the underlying NPA classification itself can be challenged, citing Benimadhab Construction.
Advise clients to maintain timely monthly stock/book-debt statement submissions.

Relevant Sections / Rules / Case Citation

RBI Master Circular on Income Recognition, Asset Classification and Provisioning, dated 2 April 2024
Section 13(2), SARFAESI Act, 2002
Calcutta High Court: Benimadhab Construction Private Limited & Anr. v. Reserve Bank of India & Ors., W.P.A. No. 23190 of 2025, 2026 TAXSCAN (HC) 1302, decided 12 August 2026 (Justice Krishna Rao)

FAQs

Q: Can a bank classify an account as NPA simply because drawing power was reduced for non-submission of stock statements?
A: Not by itself, per this ruling — NPA classification specifically requires the account to be overdue for more than 90 days or genuinely “out of order.”

Q: If a SARFAESI notice has already been issued, is it too late to challenge the underlying NPA classification?
A: Not necessarily — in this case, the Court quashed the Section 13(2) notice precisely by revisiting whether the underlying NPA classification was valid in the first place.

Prepared by Finoscape Editorial Team — contact@finoscape.com. This article is for general informational purposes and does not constitute legal or financial advice. NPA classification disputes are highly fact-specific and should be independently assessed against the applicable RBI Master Circular and account records with a qualified professional.