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Supreme Court asked RBI whether banks should notify borrowers of interest rate changes and provide Annual Loan Statements.
The Supreme Court Bench, consisting of Justice Sanjiv Khanna and Justice S.V.N. Bhatti, has decided to stay the enforcement of the High Court's judgment pending further proceedings. The Bench has directed the Reserve Bank of India (RBI) to clarify its procedural obligations concerning loan documentation, interest rate changes, and the provision of annual account statements. Meanwhile, ongoing legal processes under the Recovery of Debts and Bankruptcy Act and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act will proceed as per the law.
This matter involves a Special Leave Petition filed by Punjab National Bank challenging a Punjab and Haryana High Court decision that quashed a demand notice issued under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The High Court had ordered the bank to reclassify the borrower’s non-performing asset (NPA) account as standard and adjust the "wrongly and excessively charged" interest against the outstanding amount, also imposing a cost of one lakh on the lender.
The Supreme Court has granted condonation of delay, allowing the case to proceed. Notices have been issued to the respondents, with a returnable date set for January 2024. Mr. Rahul Gupta, counsel for Guru Nanak Engineering Works (respondent no. 1), has acknowledged receipt of the notice on their behalf. Notices to the RBI and the Ministry of Micro, Small, and Medium Enterprises, who are proforma respondents, will be served through all available methods, including personal delivery.
The RBI is required to file an affidavit within four weeks of notice service, addressing whether there are any circulars or instructions that mandate the provision of documents when loans or guarantees are given, and if so, their specifics; whether banks must notify borrowers in writing of any interest rate changes; and whether banks must provide annual statements of loan accounts with detailed information.
Guru Nanak Engineering Works must file a counter affidavit or reply within four weeks from the date of the order. A rejoinder affidavit or response to the RBI’s affidavit and Guru Nanak Engineering Works’ counter affidavit may be filed within four weeks after receipt of these documents.
The Supreme Court has stayed the operation of the High Court's judgment dated 09.08.2022 in CWP no. 19472/2020 (O&M), indicating that the judgment will not be enforced while under review. The impugned judgment is not to be considered a precedent. Proceedings under the Recovery of Debts and Bankruptcy Act, 1993, and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, will continue as per the law. Contempt proceedings have been stayed until the next hearing, and the Court has not made any comments on the merits of the case at this stage.
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