NPA Declaration on the 90th Day Is Not Premature: Delhi High Court

The Hon’ble High Court of Delhi, in the case of Canara Bank (Erstwhile Syndicate Bank) v. M/s Karishma Enterprises & Ors. (2025:DHC:10911-DB), decided on December 6, 2025, held that classification of a borrower’s account as a Non-Performing Asset (NPA) on completion of ninety days of continuous irregularity is fully compliant with the Reserve Bank of India’s (RBI’s) prudential norms and cannot be regarded as premature or illegal.

The dispute arose from credit facilities extended by the petitioner Bank to the borrower, secured by a mortgage of multiple immovable properties. The borrower’s overdraft and cash credit accounts became irregular and remained continuously in excess of sanctioned limits from December 31, 2012, onwards. As the account was not regularised at any point during the ensuing months, the Bank classified the account as an NPA on March 31, 2013, and thereafter initiated proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act, 2002. The borrowers challenged the Bank’s action on the ground that the account had been declared NPA prematurely, contending that the ninety-day period prescribed under the RBI norms had not elapsed. Accepting this contention, the Debts Recovery Appellate Tribunal (DRAT) set aside the Bank’s enforcement action, leading to the writ petition before the High Court of Delhi.

The Delhi High Court reversed the DRAT’s decision and held that the RBI prudential norms require a purely arithmetical computation of the ninety-day period of continuous irregularity. The Court clarified that the counting must commence from the date immediately succeeding the day on which the account first becomes irregular, and once the account remains continuously irregular throughout the entire ninety-day period, the Bank is duty-bound to classify it as an NPA. In such circumstances, declaration of the account as NPA on the ninetieth day itself does not amount to premature action.

The Court further emphasised that the Income Recognition, Asset Classification and Provisioning (IRACP) norms have statutory force under Sections 21 and 35A of the Banking Regulation Act, 1949, and banks have no discretion to defer classification once the regulatory threshold is met. Upon the Bank demonstrating continuous irregularity for the prescribed period, the burden shifts to the borrower to establish that the account was regularised, which the borrowers in the present case failed to do.

The judgment reinforces the mandatory nature of the RBI’s IRACP framework issued under the Banking Regulation Act, 1949.