Calcutta High Court Quashes NPA Tag on Cash Credit Account: Deposits During 90-Day Window Prove Account Was Never "Out of Order"

Case Background and Overview

Case Name: Benimadhab Construction Private Limited & Another Vs Reserve Bank of India & Ors. (Calcutta High Court)

Court: Calcutta High Court

Petition: WPA No. 23190 of 2025

The Calcutta High Court delivered a significant ruling in favour of a borrower company by setting aside both the Non-Performing Asset (NPA) classification and the consequential notice issued under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as "SARFAESI Act"). The judgment provides important clarity on how banks must apply the RBI's Master Circular dated 2nd April, 2024 before classifying a Cash Credit (CC) account as an NPA.

The petitioner, Benimadhab Construction Private Limited, is an MSME that had been availing a cash credit facility since 2012. The loan was periodically renewed, with the last renewal sanctioning an amount of Rs. 150 Lakhs valid through 31st December, 2024. When the respondent bank classified the account as NPA on 28th January, 2025 and followed it up with a Section 13(2) SARFAESI notice on 19th June, 2025, the petitioners moved the Calcutta High Court challenging both actions.

Facts of the Case

The Loan Facility and Renewal History

Benimadhab Construction Private Limited had been maintaining a Cash Credit (CC) account with the respondent bank since 2012. The facility was subject to periodic renewals, and the most recent sanction had fixed the limit at Rs. 150 Lakhs, renewable for one year until 31st December, 2024. As per the terms of the December 2023 sanction letter, it was mutually agreed that the drawing limit would be reduced by Rs. 1 lakh every month throughout the renewal tenure.

NPA Declaration and SARFAESI Notice

On 29th January, 2025, the bank sent an email directing the petitioner company to deposit Rs. 7,00,000/- immediately, warning that failure to comply would result in the account being classified as NPA. However, by a curious contradiction, the Section 13(2) SARFAESI notice issued on 19th June, 2025 revealed that the bank had already classified the account as NPA on 28th January, 2025 — a full day before the email demanding the deposit was sent.

Following the bank's email of 29th January, 2025, the petitioners deposited Rs. 9,25,000/- between 30th January, 2025 and 27th February, 2025. Additionally, the petitioner company continued making payments of Rs. 1,00,000/- per month through May, 2025 towards the cash credit dues.

Upon learning in June, 2025 that the account had been marked as NPA, the petitioners sent a detailed reply on 6th August, 2025 to the Section 13(2) SARFAESI notice, requesting the bank to review the NPA status, regularise the account, and comply with applicable RBI and MSME guidelines.

Arguments Advanced by Both Parties

Petitioners' Submissions

Counsel for the petitioners argued that: