New Delhi: While dismissing a special leave petition filed by a company that defaulted on its very first loan instalment, the Supreme Court took the opportunity to record its strong displeasure over the double standards allegedly followed by banks, including the State Bank of India (SBI), in sanctioning loans.
The Court observed that banks tend to be casual and lax while extending large loans to bigger entities, but become excessively demanding and subject ordinary people seeking small personal loans to tedious procedures that, in certain cases, border on harassment.
The observations were made by a bench comprising Justices Ahsanuddin Amanullah and R. Mahadevan while hearing a petition filed by M/s Bhaskar International Private Limited and others against a direction issued by the Punjab and Haryana High Court. The High Court had directed the administration to hand over physical possession of the company’s properties to SBI under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
In 2019, the company availed a loan of ₹8.09 crore from SBI. Within five to six months of receiving the funds, it defaulted on the very first instalment and did not repay a single rupee thereafter. The account was accordingly declared a Non-Performing Asset (NPA) in July 2019.
SBI initiated possession proceedings under Section 14 of the SARFAESI Act, and the District Magistrate, Yamuna Nagar, passed an order in favour of SBI in May 2024. When the district administration failed to implement the order, SBI approached the Punjab and Haryana High Court, which directed the authorities to hand over physical possession to the bank within two months. This direction was challenged before the Supreme Court.
Before the Court, senior counsel appearing for the petitioner company argued that the NPA classification within barely five to six months of the loan being sanctioned was arbitrary and contrary to SBI’s own policy. He further submitted that the company had since offered to repay the entire principal amount, that the offer had not yet been finally considered by SBI, and that the company was in a position to restart operations if granted some assistance. Counsel contended that taking possession at this stage was therefore premature.
On the other hand, SBI’s senior counsel submitted that a borrower who takes a commercial loan with open eyes and then fails to repay even a single instalment has little standing to complain. She also pointed out that the company had itself approached the Debts Recovery Tribunal-II, Chandigarh, by filing a Securitisation Application, where it had also sought interim relief, but no interim order had been granted in its favour. She urged the Court to dismiss the petition.
The Supreme Court noted three distinct failings: first, that defaulting on the very first instalment after availing a loan of more than ₹8 crore could not be glossed over; second, that the offer to repay only the principal amount came six years after the loan was availed and was, in the Court’s words, “frankly, too little too late”; and third, that the company appeared to be using the present proceedings merely to buy time, having already approached the DRT without pressing its interim prayer there.
However, the Court did not let SBI escape criticism. It observed that a borrower being unable to repay even the first instalment clearly indicated that the bank officials had failed to conduct a proper assessment of the borrower’s repayment capacity before sanctioning the loan.
The Court then broadened its observations to banks in general, noting a pattern that it said was increasingly coming to its notice: large loans to bigger entities are sanctioned with ease and minimal scrutiny, while ordinary people approaching banks for small personal loans are subjected to heightened conditions and cumbersome procedures that, in certain cases, amount to borderline harassment.
The Court also recorded its displeasure over such practices while noting that it would reserve specific directions on the issue for a more appropriate case. It clarified that it was not suggesting any dilution of loan norms, as that domain falls within the purview of the Reserve Bank of India and the banks themselves. However, it observed that procedures for loan applicants could certainly be made fairer and more accessible, particularly at the recovery stage.
The Court further observed that concessions and incentives should be structured in a manner that gives maximum benefit to those at the lowest rung of the social and financial ladder. The bench requested SBI’s senior counsel to convey these observations to the bank at the appropriate level.
Ultimately, the Court declined to grant special leave and dismissed the petition. However, it granted the petitioner company a final opportunity to press its interim relief application before the DRT, if it had not already done so. By way of extraordinary indulgence, the Court also directed that status quo be maintained with respect to the properties for two weeks to facilitate that process.
SBI was directed not to precipitate the matter during this period. The Court clarified that its order would neither aid the petitioners on merits nor prejudice SBI’s case before any forum.
Case Title: M/s Bhaskar International Private Limited & Ors. v. State Bank of India & Ors.
