South Indian Bank Limited v. Propello Innovations Private Limited & Ors.

What happened

The borrowers had credit facilities from the appellant bank from about 2013, which were restructured and renewed in 2020. In November 2023, a renewal sanction increased the rate of interest, and by an e-mail of 19 June 2024 the bank notified them of an impending NPA declaration. A section 13(2) notice was issued and the borrowers answered under section 13(3A) only on 8 January 2026; the bank took symbolic possession under section 13(4) after the writ petition (filed 1 October 2024) and publicised it on 10 January 2026. The borrowers filed SA 522 of 2026 under section 17 before the DRT, seeking to set aside the section 13(2) and 13(4) notices. The Single Judge held on 26 February 2026 that the bank violated clause 3(vii) of the RBI's Fair Lending Practice – Penal Charges in Loan Accounts Guidelines of 18 August 2023 by realising penal interest, and that the writ was maintainable since the Guidelines were challenged. The borrowers argued that over ₹10 crores had been paid, penal debits caused the NPA status, and their restructuring proposals were ignored; the bank had recalled a bank guarantee for ₹9 crores. A One Time Settlement proposal accepted on 30 August 2025 was withdrawn after the borrowers defaulted.

Questions before the court

• Should the High Court have entertained a writ against SARFAESI recovery on alleged breach of RBI guidelines when the DRT remedy was available?

Why the court ruled this way

Loans are public money, and the Act is a complete code with a statutory appeal to the DRT and the Appellate Tribunal, which can set aside illegal action and grant consequential relief (paragraphs 8 and 9). Article 226 relief is discretionary, and the Supreme Court in United Bank of India v. Satyawati Tondon and later cases said the rule of exhausting the statutory remedy applies with greater rigour to bank recovery (paragraphs 10 to 12). With notices under sections 13(2) and 13(4) issued and a section 17 application pending, this was not a case for the writ court, and the violation of RBI circulars was itself a ground in the DRT application; the Single Judge's treatment of maintainability was cryptic (paragraphs 13 to 15). The Division Bench also found that the RBI had withdrawn the 2023 Guidelines on 28 November 2025 and absorbed them in its 2025 Directions, a material fact not placed before the Single Judge, which made the premise of the writ and the judgment flawed (paragraphs 17 and 18). Whether the bank is amenable to Article 12 and whether it charged a higher interest were not matters to decide in this proceeding (paragraph 20). A borrower has no enforceable right to have a settlement proposal considered, and the RBI Integrated Ombudsman Scheme does not apply to recovery or NPA classification (paragraphs 22 and 23).

Controlling point

The writ petition should not have been entertained, and the borrowers' remedy lies before the DRT.

Order and next steps

The appeal was allowed, the connected application CAN 2 of 2026 was disposed of, WPA 25431 of 2024 was dismissed because of the statutory remedy and the cross-appeal COT 56 of 2026 was dismissed. All merits points were left open to be decided by the DRT without being influenced by this order. Costs were assessed against the borrowers, payable to the bank within eight weeks, failing which it may be included in the bank's claim without interest.

Practical implications

A borrower contesting SARFAESI action or NPA classification on alleged breach of RBI norms should raise it in the section 17 application before the DRT instead of going to the writ court, and should check whether the guideline relied on is still in force.

Limits of this ruling

• The Court expressly left open every merits question, including penal charges and the interest rate, for the DRT, and did not hold that a writ is barred in every SARFAESI-related matter.