Orissa High Court
Proceka Techsol Pvt. Ltd vs General Manager on 17 October, 2025
Author: Sanjeeb K Panigrahi
Bench: Sanjeeb K Panigrahi
Signature Not Verified
Digitally Signed
Signed by: BHABAGRAHI JHANKAR
Reason: Authentication
Location: ORISSA HIGH COURT,
CUTTACK
Date: 22-Oct-2025 15:32:00
IN THE HIGH COURT OF ORISSA AT CUTTACK
W.P.(C) No. 21112 of 2025
(In the matter of an application under Articles 226 and 227 of the
Constitution of India, 1950).
Proceka Techsol Pvt. Ltd., Keonjhar .... Petitioner(s)
-versus-
General Manager, Bank of India, .... Opposite Party (s)
Maharashtra and Ors.
Advocates appeared in the case through Hybrid Mode:
For Petitioner(s) : Ms. Adyasidhi Mishra, Adv.
For Opposite Party (s) : Mr. Tuna Sahu, Adv.
CORAM:
DR. JUSTICE SANJEEB K PANIGRAHI
DATE OF HEARING:-02.09.2025
DATE OF JUDGMENT:-17.10.2025
Dr. Sanjeeb K Panigrahi, J.
1. In this Writ Petition, the petitioner seeks a direction from this Court to quash the arbitrary classification of its Cash Credit account as Non- Performing Asset (NPA) on 15.05.2025 and to direct the Opposite Party Bank to restore normal operation of the account with consequential reliefs.
I. FACTUAL MATRIX OF THE CASE:
2. The brief facts of the case are as follows:
(i) The Petitioner company, incorporated on 21.02.2019 and recognized as a DPIIT Start-up, availed a Cash Credit (CC) facility of ₹10 lakh and a Page 1 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 Term Loan sanctioned on 30.11.2019 under MSME/CGTMSE. All term loans, including COVID-period loans, were later cleared, while the CC account continued.
(ii) The CC limit was renewed annually in December. It was last renewed on 17.12.2024 with renewal charges of ₹5,900 debited. Subsequently, penal charges of ₹391 were levied on 21.01.2025 by the new Branch Manager, who stated that the account was due for review. The Petitioner exchanged emails with the Branch and submitted documents in January 2025.
(iii) On 06.02.2025 the Branch raised queries and sought a renewal application; the Petitioner replied with documents on 07.02.2025. The Branch referred to a CIBIL score of 532, while the Petitioner produced a score of 656 for the same date. The Branch also mentioned reducing the CC limit. On 21.02.2025 the Branch informed the Petitioner that the renewal/review could not be completed.
(iv) On 03.06.2025 the Petitioner was unable to transact in the CC account and was informed that it had been classified as NPA on 15.05.2025 for "low turnover." A Recall Notice dated 31.05.2025 was issued though allegedly not received by the Petitioner. The Petitioner points to account activity including a ₹22,000 credit on 12.04.2025 and a ₹50,000 withdrawal on 28.04.2025.
(v) Insurance premiums were regularly debited from the CC account, including ₹5,118 on 18.01.2025. The Petitioner claims the Branch cancelled the policy unilaterally and credited back an amount on 07.04.2025. The Bank states the Petitioner itself had written that no mandate was given for insurance deduction.
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(vi) The Petitioner filed a representation on 23.06.2025 seeking revocation of NPA status. A complaint is also pending before the RBI Ombudsman.
(vii) The Bank in its objection affidavit denies the allegations of illegality and states the classification was based on a Memorandum of Changes from RBI auditors and inspections.
(viii) The Bank cites clauses in the sanction letter: Clauses 2 and 21 requiring 60% utilization within six months (utilization was allegedly ~25.82% in 2024-25, ~23.12% in 2023-24, and ~20.19% in 2022-23), and Clause 30 requiring prior approval before opening accounts with other banks (the Petitioner opened and used a PNB account).
(ix) The Bank refers to its Credit Policy (Advances) 2025-26 requiring minimum sales and turnover of ~₹40 lakh for a ₹10 lakh CC limit. It states the Petitioner's sales/turnover were below this threshold. SMECC recommended reduction of the CC limit, but the Petitioner did not agree.
(x) The Bank asserts non-compliance at review, citing non-submission of renewal application, rental agreement, CBD23, and statutory licences. Inspections allegedly found no physical unit or stocks, which the Bank states is reflected in the Petitioner's own pleadings.
(xi) The Bank maintains that the Petitioner's CIBIL score was 532 in December 2024, and despite assurances, no corrective action was taken.
(xii) The Bank argues disputed facts and contractual breaches are not suited for writ jurisdiction, especially since the matter is before the Ombudsman. It also relies on Clause 41 of the sanction letter, allowing discontinuance of facilities upon breach or misstatement. Page 3 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00
II. SUBMISSIONS ON BEHALF OF THE PETITIONER:
3. Learned counsel for the Petitioner earnestly made the following submissions in support of his contentions:
(i) NPA tagging of a CC account solely for low turnover is ultra vires RBI IRAC norms; CC can be classified NPA only if "out of order" for 90 days (exceeding limit/drawing power or no credits), which is refuted by on-
record credits/withdrawals and adherence to limits.
(ii) The Bank bypassed the RBI's Automation of IRAC mandate, classification must be system-driven without manual intervention, yet the Branch Manager allegedly engineered a manual NPA decision, rendering the action arbitrary, non-transparent, and illegal.
(iii) Absence of prior demand/eligible-limit communication, unexplained refusal to renew post-December-2024 renewal, and flip-flop requisitions of documents despite compliance show procedural impropriety, non- application of mind, and mala fides aimed at harassment.
(iv) Reliance on low CIBIL is factually wrong, Petitioner cites 656 on 06.02.2025, and the Bank's misclassification/reporting of the facility as Individual has distorted the Petitioner's credit profile, aggravating reputational and business injury.
(v) Unilateral cancellation of CC insurance despite regular premium debits breaches sanction terms and prudential/banking standards, exposing the unit to risk and evidencing negligent and capricious conduct by the Branch.
(vi) Internal circulars/LFAR observations cannot override RBI's binding prudential norms; audit advisories may warrant closer monitoring, not Page 4 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 NPA classification absent IRAC triggers; contractual clauses like repayable on demand do not govern asset classification.
(vii) Natural justice was breached: no meaningful notice, reasoning, or disclosure of material behind NPA tagging; refusal to share documents/reasons and post-facto recall without service vitiate the decision as arbitrary under Articles 14 and 19(1)(g).
(viii) The writ is maintainable notwithstanding alternate remedies/Ombudsman pendency since the impugned action is patently arbitrary, contrary to statutory directions (RBI Master Circulars), and inflicts continuing civil consequences; Whirlpool/ Harbanslal principles apply.
(ix) The pattern, penal charge, shifting review dates, sudden reduction talk without quantified drawing power, transactional blockade, and recall, demonstrates colorable exercise of power aimed at forcing down- sizing/extraction rather than lawful, system-driven IRAC compliance.
(x) Consequently, the Recall Notice dated 31.05.2025 and the NPA classification dated 15.05.2025 are liable to be quashed; the account must be restored to standard status, wrongful charges reversed, credit reporting corrected, and the representation of 23.06.2025 decided within a time-bound frame.
III. SUBMISSIONS ON BEHALF OF THE OPPOSITE PARTIES:
4. The Learned Counsel for the Opposite Parties earnestly made the following submissions in support of his contentions:
(i) Triggered by RBI auditor's MOC and branch inspections, not by any manual whim; statutory auditors are empowered to degrade status where regularization or performance is doubtful.
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(ii) Chronic under-utilization below the 60% threshold warranting pruning, failure to obtain prior approval before opening/operating a PNB account and transferring funds (diversion), and failure to meet bank policy yardsticks on sales and account turnover for a ₹10 lakh CC.
(iii) Inspections found no running unit and no stocks for months; absent a functioning unit and stock cycle, the CC structure is unjustified, strengthening prudential grounds for downgrading and recall.
(iv) Despite email intimations, essential review documents, renewal form, rental agreement, CBD23, licences, were not provided, and repeated requests to reduce/prune the limit were ignored.
(v) Low CIBIL remained unrectified despite assurances; taken with weak turnover/utilization, it supports conservative asset-quality treatment under internal policy and supervisory observations.
(vi) Clause 41 allows discontinuation upon breach/misstatement; the borrower has parallel recourse before the Ombudsman, and the matter turns on disputed facts suited to civil proceedings, limiting the scope for writ interference.
(vii) Given breaches, policy non-eligibility, absence of a functioning unit, and supervisory/audit flags, the recall dated 31.05.2025 and NPA tagging are justified; restoration to standard, reversal of charges, or mandamus on credit reporting should be declined.
IV. COURT'S REASONING AND ANALYSIS:
5. Heard Learned Counsel for the parties and meticulously analysed the documents placed before this Court.
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6. The Petitioner is a start-up company that had availed a cash credit facility of Rs. 10 lakh from the Respondent Bank in 2019, along with term loans under MSME schemes. By 2024, all term loans, including COVID-related loans, were repaid, and only the cash credit (CC) account remained operative. The CC limit was renewed annually, most recently on 17 December 2024. In January 2025, the Bank, through a new Branch Manager, raised issues regarding renewal of the CC account, even debiting a small penal charge on 21 January 2025 ostensibly for delay in review. The Petitioner provided requested documents and information for renewal in January-February 2025. Despite this, on 21 February 2025 the Branch informed the Petitioner that the account's renewal/review could not be completed. Shortly thereafter, on 15 May 2025, the Bank unilaterally classified the Petitioner's CC account as a Non-Performing Asset (NPA), citing low turnover in the account as the reason. The Petitioner discovered on 3 June 2025 that the account was frozen and was informed of its NPA status. A Recall Notice dated 31 May 2025 was issued by the Bank, purportedly sent, though the Petitioner denies receiving it, demanding repayment of the entire outstanding. This sudden NPA tagging and recall of a regularly renewed CC facility, despite the Petitioner's contention that the account was operating within limits and with recent transactions, has led the Petitioner to approach this Court under Article 226.
7. From the above pleadings, the first issue that arises is whether the present writ petition under Article 226 is maintainable in light of the Bank's objection about alternative remedies, the Ombudsman, and possibly the availability of DRT remedies, and the presence of disputed Page 7 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 questions of fact. This requires examining if the petitioner has shown a prima facie case of violation of law or arbitrariness that warrants the High Court's intervention notwithstanding alternate forums.
8. It is well-settled that the existence of an alternative remedy is not an absolute bar to the exercise of writ jurisdiction, especially when the impugned action is prima facie arbitrary, illegal, or in violation of fundamental rights or binding statutory directions. The Supreme Court in the case of State of H.P. v. Gujarat Ambuja Cement Ltd.1 affirmed that the rule of alternate remedy is a rule of discretion and self-restraint, not a rule of law. Where a public authority's action is challenged as ultra vires or lacking jurisdiction, or when requiring the petitioner to undergo the alternative remedy would result in palpable injustice, the High Court can intervene. The relevant excerpts are produced below:
"There are two well recognized exceptions to the doctrine of exhaustion of statutory remedies. First is when the proceedings are taken before the forum under a provision of law which is ultra vires, it is open to a party aggrieved thereby to move the High Court for quashing the proceedings on the ground that they are incompetent without a party being obliged to wait until those proceedings run their full course. Secondly, the doctrine has no application when the impugned order has been made in violation of the principles of natural justice. We may add that where the proceedings itself are an abuse of process of law the High Court in an appropriate case can entertain a writ petition. Where under a statute there is an allegation of infringement of fundamental rights or when on the undisputed facts the taxing authorities are shown to have assumed jurisdiction which they do not possess can be the grounds on which the writ petitions can be entertained. But normally, the High Court should not entertain writ petitions unless it is shown 1 (2005) 6 SCC 499.Page 8 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00
that there is something more in a case, something going to the root of the jurisdiction of the officer, something which would show that it would be a case of palpable injustice to the writ petitioner to force him to adopt the remedies provided by the statute."
9. In the present case, the Petitioner alleges that the Bank's classification of its account as NPA was in flagrant breach of the RBI's mandatory guidelines and thus ultra vires the Bank's statutory obligations under the Banking Regulation Act, 1949. RBI's Master Directions on asset classification issued under Sections 21 and 35A of the B.R. Act have statutory force and are binding on banks. An arbitrary deviation from these norms by a public sector bank would amount to a violation of Article 14 apart from being illegal. Therefore, the contention that this dispute is a purely private contractual matter is not entirely correct, it involves compliance with RBI's regulatory framework, which is very much a public law aspect.
10. Moreover, at the time of filing this writ petition, the Petitioner's grievance is that its account has been wrongly declared NPA and frozen, crippling its business. The available alternative remedies are of doubtful efficacy in granting timely relief. The Debt Recovery Tribunal (DRT) would be available only if the Bank proceeded under the SARFAESI Act by issuing a Section 13(2) notice and taking measures under Section 13(4). Here, it appears the Bank's Recall Notice of 31.05.2025 was a precursor to possible legal action but not per se a 13(2) notice under SARFAESI. Indeed, no such statutory notice is pleaded to have been issued yet. In absence of a formal SARFAESI proceeding, the DRT is not yet seized of the matter.
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11. The other remedy invoked, the RBI Ombudsman, is a consumer redressal mechanism, not a judicial forum; its pendency does not oust the jurisdiction of constitutional courts, especially since Ombudsman recommendations are not binding orders and cannot directly adjudicate legality of an action. Given that the Petitioner asserts a breach of RBI guidelines by the Bank and ongoing harm to its fundamental right to carry on business under Article 19(1)(g), the case fits within the recognized exceptions where a writ can be maintained despite alternative avenues. This Court also notes that the petition raises legal issues about the interpretation of RBI norms which can be addressed on the basis of admitted documents, such as account statements, RBI circulars, sanction letter terms, without delving into any complex fact adjudication. Thus, it is not a mere contract dispute best left for trial, but a matter of whether the Bank acted within the bounds of public directives.
12. In M.J. Betty and Ors. v. Union Bank of India2, a case with strikingly similar facts where a bank had classified standard cash credit accounts as NPA in an arbitrary manner, the High Court entertained the writ and granted relief, observing that when a bank's action is patently arbitrary or in violation of RBI's guidelines, the Court would not relegate the borrower to the DRT or other remedy, since such action goes to the root of the bank's jurisdiction to act. The Court held as follows:
"My examination in this case was to be limited extent whether the bank has acted arbitrarily in classifying the accounts as NPA and whether there was violation of the guidelines issued by the Reserve Bank of India. My finding is 2 WP(C) No. 27563 of 2007(F).Page 10 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00
that the bank has not placed materials to satisfy the court that the guidelines issued by the Reserve Bank of India has been complied with and that this power has been exercised in an arbitrary manner. When an act is complained to be without jurisdiction or when there is arbitrary exercise of power, this Court is entitled to examine the correctness of the same in exercise of its power under Article 226 of the Constitution of India."
13. It was further observed that insisting on an alternative remedy in face of clear illegality would amount to the court shirking its responsibility, especially where the arbitrariness has immediate serious consequences for the petitioner's business and employees. This Court is in respectful agreement with this approach. Here too, if the Petitioner's contentions of illegality are borne out, it would be a case of palpable injustice to drive the Petitioner to protracted alternate proceedings while its start- up venture suffocates under a frozen credit line. Thus, the writ petition is held maintainable for a decision on merits.
14. The next issue that needs to be addressed is the legality of the NPA classification. Before testing the facts, it is necessary to recall the regulatory framework. As per RBI's Master Circular- Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances dated 01.04,20223 issued by Reserve Bank of India a bank advance is classified as NPA if, in the case of an overdraft or cash credit (OD/CC) account, the account remains out of order for more than 90 days. An account is treated as out of order if (a) the outstanding balance remains continuously in excess of the sanctioned limit or drawing power, or (b) if within the preceding 90 days, there are 3 Master Circular - Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances.
Page 11 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 no credits in the account or if the credits are not sufficient to cover the interest debited over that period.
15. In simpler terms, for a CC account to be an NPA, it must effectively be in a state of persistent irregularity, either overdrawn beyond limit, or idle with interest unpaid for 90+ days. By contrast, low turnover or minimal utilization is not a criterion under the RBI norms. Indeed, a borrower's decision to not fully utilize a sanctioned limit does not by itself signal default; if anything, it may indicate a lesser credit risk since the borrower is not drawing excess funds. RBI's guidance cautions that asset classification should be based on objective status of accounts and not be accelerated or postponed due to subjective factors.
16. The Supreme Court in Mardia Chemicals v. Union of India4, noted that RBI has laid down clear guidelines specifying the terms, conditions and circumstances in which a debt is to be classified as NPA, leaving no room for whimsical deviations. Banks are bound to follow these norms in letter and spirit when classifying assets. In this backdrop, any deviation from the 90-day out-of-order norm, or any manual intervention that is not in line with the system's criteria, must be examined with great caution.
17. On the material presented, the Court finds considerable force in the Petitioner's submission that the account did not satisfy the NPA trigger conditions as of 15 May 2025. The Bank has not produced any document, such as a statement of account or a Non-Performing Asset computation sheet, showing that the account was out-of-order for 90 days. On the contrary, the Petitioner has shown that there were 4 (2004) 4 SCC 311.
Page 12 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 transactions in April 2025, including a credit of ₹22,000 on 12.04.2025, which would count as a fresh inflow. There is also evidence of a debit/withdrawal of ₹50,000 on 28.04.2025, which the Bank allowed, indicating the account was operational till that date. Even if the turnover was modest, the presence of a credit in April means the account was not continuously idle for 90 days prior to mid-May. The Bank's main contention is that because the Petitioner allegedly had no stock or reduced drawing power, the account should be treated as out- of-order.
18. However, critically, the Bank never communicated any revision of drawing power (DP) or margin to the Petitioner. The Bank's emails and letters in January-February 2025, as placed on record, do not mention any immediate DP reduction; rather, the correspondence was about renewal documentation and a proposal to reduce the sanction limit going forward. The Bank itself did not carry out any reduction of the sanctioned limit by 15.05.2025, the sanction remained ₹10 lakh. Thus, on 15.05.2025, the sanctioned limit and the drawing power (in the absence of a communicated lower DP, would both be ₹10 lakh. The Bank has not asserted that the Petitioner's outstanding ever exceeded ₹10 lakh. Iin fact, given under-utilization, the outstanding was likely much lower. Therefore, criterion (a) for out-of-order outstanding in excess of limit/DP is not met on the known facts.
19. As to criterion (b) no credit for 90 days or insufficient to cover interest, the Bank fails to establish this. The Petitioner's account had a credit in April, and even considering mid-February to mid-May, the gap is around 60-70 days, not 90. There is no evidence that the credits during Page 13 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 this period were insufficient to cover interest. Since interest accrues on the utilized amount, low operation would mean lower interest. A ₹22,000 credit in April could easily cover multiple months' interest. The Bank could have clarified this through the account statement but chose not to. Hence, the account could not have been classified as NPA as of 15.05.2025 under RBI norms.
20. The Bank's reliance on the RBI auditor's Memorandum of Changes (MOC) and internal inspections is misplaced. While the RBI may direct reclassification during inspections, such directions must still conform to RBI's prudential norms. Normally, MOCs address cases where banks failed to mark genuine NPAs, not where performing accounts are downgraded for low turnover. The Bank has not produced the MOC or any RBI communication to show such a direction. Even if RBI advised closer monitoring or recall, that does not justify premature NPA classification. The Bank's internal policy or sanction conditions, such as sales targets or utilization clauses, cannot override RBI's IRAC norms. Contractual terms cannot replace the 90-day overdue rule; even a demand loan must be treated as NPA only after that period lapses.
21. The Punjab & Haryana High Court in Amar Alloys Pvt. Ltd. v. SBI5 made it clear that banks must adhere to RBI's binding norms and cannot utilize internal policies or ex post facto rationale to justify a classification that is not supported by the objective status of the account. In that case, the bank had declared an account NPA citing an audit report that questioned the company's financials despite no payment default; the High Court set aside the NPA classification for want of due notice and 5 SCC OnLine P&H 571.
Page 14 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 lack of evidence of default. Similarly, the Kerala High Court in M.J. Betty (supra) noted that the existence of ample security and periodic payments meant the bank acted arbitrarily in classifying the account as NPA, and it quashed the action, instructing the bank to strictly reapply RBI's norms. The common thread is that RBI's criteria are the final word, subjective assessments of "risk" cannot translate into an NPA tag until an actual default as per those criteria occurs.
22. In the present case, the Bank's grievances about the Petitioner's conduct, low usage, another bank account, etc. might very well justify a decision to end the relationship. For instance, the Bank could have formally notified the Petitioner that it will not renew the facility further and will cancel the limit, requiring the Petitioner to pay off the outstanding. That is essentially what a recall means. Notably, the Bank did issue a Recall Notice on 31.05.2025, though, curiously, after it had already classified the account as NPA on 15.05.2025. Had the Bank first recalled the facility with reasonable notice and then, upon non-payment of the recalled amount, classified the account as NPA after 90 days of default on that demand, it would be acting within its rights. What the Bank cannot do is put the cart before the horse: label the account as NPA in mid-stream, without prior demand and without the account being out-of-order for 90 days, effectively to force the Petitioner's hand. Such action is ex facie arbitrary and contrary to the RBI's uniform and consistent asset classification policy.
23. The Petitioner's argument on natural justice is that no opportunity was given before taking the impugned action. It is true that neither the RBI guidelines nor any law explicitly requires a bank to issue a show-cause Page 15 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 notice to a borrower prior to classifying an account as NPA. However, the facts here are quite different. This is not a case of an admitted default where the borrower is merely complaining of lack of hearing; here the very foundation of the classification, whether the account was irregular at all, is in dispute and, as found above, the Bank's action seems inconsistent with the norms. In such a scenario, the absence of any form of notice or communication assumes significance as further evidence of arbitrariness. The Bank never informed the Petitioner that it considered the account ineligible for renewal or that it was treating it as irregular for XYZ reasons. On the contrary, the Bank's officials were, till February 2025, exchanging emails with the Petitioner in a manner that gave no inkling of an imminent NPA tagging, they asked for documents, mentioned CIBIL issues and even talked of limit reduction, but did not say that the account would be frozen or classified as NPA forthwith.
24. Then, without warning, the Petitioner suddenly lost operation of its account in June. Even the Recall Notice of 31.05.2025, which the Petitioner says was never delivered, came after the deed was done, and that notice too cites the account already classified as NPA. The upshot is that the Petitioner was effectively kept in the dark and hit with a fait accompli. While this might not amount to a procedural illegality in the strict sense, given the regulatory framework's silence on pre-NPA notice, it certainly offends Article 14 if the action itself was not based on the prescribed criteria.
25. Without going so far as to judicially mandate a prior personal hearing for every NPA decision, this Court is of the view that at minimum, the Bank must demonstrate scrupulous adherence to transparency and Page 16 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 RBI's norms in reaching such a decision, to satisfy the constitutional requirement of non-arbitrariness. In the present case, the Bank has failed that test. The lack of any contemporaneous explanation or disclosure to the Petitioner reinforces the conclusion that the action was arbitrary and cannot be sustained.
V. CONCLUSION:
26. In light of the above analysis, the Court answers the principal question in the Petitioner's favor. The classification of the Petitioner's cash credit account as NPA on 15.05.2025 was not in accordance with the RBI's IRAC norms and was effected in an arbitrary manner. It was not preceded or justified by any of the objective default conditions required for such classification. The Bank's action, therefore, was ultra vires the RBI guidelines, issued under statutory authority, and violated the Petitioner's rights.
27. This conclusion, however, should not be misunderstood as the Court interfering with the Bank's commercial discretion to decide whether to continue a credit facility. The Bank is certainly entitled to review the performance of a borrower's account and even to reduce or discontinue limits if the borrower's conduct so warrants, but any such decision must be implemented in the correct legal manner. If the Bank believes the Petitioner's business is not generating the required turnover or has breached covenants, it may seek to cancel the limit and recall the outstanding, thereafter treating any non-payment as a default. What the Bank cannot do is shortcut the process by misusing the NPA classification tool. The Respondent Bank's frustration with the Petitioner's account conduct did not justify it skirting the rules. If Page 17 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 anything, the Bank's recourse could lie in enforcing the contractual terms, such as seeking repayment citing clause 41 of sanction, but even that needed to be done properly with notice and time, which it attempted belatedly. In sum, the impugned NPA classification and related recall action cannot stand in the eye of law.
28. Given the finding that the NPA classification is unsustainable, the normal consequence would be to quash that decision and restore status quo ante. This Court will not permanently dictate the classification, that is for the Bank to decide in accordance with the law, but the impugned classification having been vitiated, it must be reopened and decided afresh properly.
29. It is brought to the Court's notice that the Petitioner has a complaint pending before the RBI's Banking Ombudsman regarding this matter. The reliefs granted herein concern the legal validity of the Bank's action. The Ombudsman may take note of this judgment's findings. If the Ombudsman process results in any facilitative resolution or recommendation consistent with the above directions, the same may be given effect to, but obviously no ombudsman decision can override or dilute the binding directions issued by this Court. The Petitioner, having approached both fora, should not seek overlapping reliefs, now that this Court has decided the core issues, the Petitioner may confine the Ombudsman plea to any ancillary compensation or such issues if they survive.
30. The Writ Petition is allowed to the extent above. The impugned NPA classification of the petitioner's account and the consequential recall notice are hereby quashed. The Opposite Party bank is directed to Page 18 of 19 Signature Not Verified Digitally Signed Signed by: BHABAGRAHI JHANKAR Reason: Authentication Location: ORISSA HIGH COURT, CUTTACK Date: 22-Oct-2025 15:32:00 reassess the petitioner's account strictly in accordance with the applicable RBI norms and principles of fairness within the stipulated timeline. Pending such reassessment, the petitioner's account operations shall remain restored to the position as they stood prior to 15.05.2025, with the account treated as standard in the interim.
31. Interim order, if any, passed earlier stands vacated.
(Dr. Sanjeeb K Panigrahi) Judge Orissa High Court, Cuttack, Dated the 17th October, 2025/ Page 19 of 19