Grounds to challenge NPA Defination:
NPA DEFINATION: DELEGATED LEGISLATION
The classification of Loan account as NPA in SARFAESI Act is of paramount importance for initiating action for recovery of loans by the Banks for enforcement of its "security interest" under the provision chapter III of the Act.
Section 2(p) of SARFAESI Act prescribes publication in Official Gazette.
Under sub section (o) of section 2 of the SARFAESI Act,2002, the authority to define NPA is delegated to RBI. RBI has defined NPA at clause 2 of its Master Circular NoRBI/2011-12/66 : DBOD.No.BP.BC.12/21.04.048/2011-12 dated. July 1, 2011
Thus RBI is a delegated authority for defining NPA.
RBI has issued Master circular defining NPA. This circular is not published in Official gazatte. In such a situation: Whether the ratio laid down by the Honourable Supreme Court in Harala Vs. State of Rajasthan reported in AIR 1951 SC 467 is applicable in respect of the RBI Masater circular.
Does the definition of NPA in the RBI master circular satisfy the rigor of law?
1. The delegated legislation requires to be published in the Gazzette of India
The Supreme Court has settled the issue by holding that publication in Official Gazette is a mandatory requirement in Harla v. State of Rajasthan, AIR 1951 SC 467. The sub-delegate should not act beyond the scope of the power delegated to him, the sub-delegation should not be vague and should be canalized, and sub-delegated legislation should be mandatorily published to be operative. (Narendra Kumar v. Union of India, AIR 1960 SC 430)
2. The delegated legislation should be consistent and uniform in its application.
Skeletal Legislation: ‘Skeletal legislation’ denotes a statute which delegates legislative power without laying down sufficient policy for the guidance of the delegatee. While such legislation should be invalid as it violates the principles of delegation, in modern practice there are a number of statutes which lay down only the barest possible policy guidance and leave enormous discretion to the delegatee not only on matters of detail, but also on matters of policy choice. Courts sometimes uphold skeletal legislation, which can only be justified on the ground of expediency.
The delegated authority must only implement stated policy, but if there is abdication of legislative power by transferring policy formulation role to the delegate, then there is excessive delegation, which will be invalidated by the court. (Mahe Beach Trading Co. v. Union Territory of Pondicherry, (1996) 3 SCC 741)
Put simply, the test is to examine whether the policy has been fixed by the legislature, and the delegated authority has been given sufficient guidance and channeliation for exercise of power of delegated legislation (Consumer Action Group v. State of Tamil Nadu, (2002) 7 SC 425). This guidance may be found in the enabling provision which permits delegation, subject-matter, scheme, other provisions of the Statute including its preamble, and the facts and circumstances in the background of which the Statute is enacted.
The stated purpose of NPA in the master circular of RBI is to implement prudential norms. Since the comming into force of the SARFAESI Act, RBI has been modifying its prudential norms by issuing master circulars from time to time. The treatment of NPA differs in its application depending on the nature of loan. The master circular provides guidelines for classification of “asset” as NPA, which is used by the Banks to enforce their security interest.
Eg. For a same amount of loan granted to an agriculturist, the date of NPA would differ if the loan were to be granted for Trading activity.
The present definition of NPA in master circulars issued by RBI lacks an element of certainty required for adopting it as a delegated legislation for the purpose of SARFAESI Act.
Conclusion: NPA defined by RBI in its master circular would be a skeletal legislation for the purpose of SARFAESI Act.
Also Refered :
Law Commission Of India Report:
The 16th Report on the General Clauses Act, 1897
Chapter 12 (pages from 76 to 86)