NPA Loan And Rescheduling: Supreme Court 2020 in Canara Bank v. Leatheroid Plastics Clarifies Bank's Right To Recover
The Supreme Court in Canara Bank vs M/S Leatheroid Plastics Pvt Ltd held that a Bank can initiate recovery proceedings against a borrower even after rescheduling the loan account. The Court on 20.05.2020 clarified that rescheduling is a concession, not a waiver of Bank's rights. Practically, what we have seen is that borrowers take benefit of rescheduling and then claim Bank cannot take action. Supreme Court said banking stability and public money protection are paramount. This blog explains Canara Bank v Leatheroid on NPA, loan default, and RBI norms.
Facts: Loan Account Turned NPA; Bank Rescheduled And Later Initiated Recovery
Canara Bank had sanctioned loan to M/S Leatheroid Plastics Pvt Ltd. The borrower defaulted and the account became NPA. As a goodwill measure, Bank rescheduled the loan and granted time to repay. However, borrower again defaulted. When Bank initiated recovery action, borrower approached court contending that after rescheduling, Bank cannot take coercive steps. The core dispute was whether rescheduling kills Bank's right to recover. The Supreme Court in Canara Bank v Leatheroid 20.05.2020: Banking business involves public money. Banks cannot be made helpless. A common mistake borrowers make is treating rescheduling as settlement. Canara Bank v Leatheroid says no. For Banks, document every rescheduling with clear terms.
NPA And Recovery: Bank's Discretion Under Banking Regulations And RBI Norms
An NPA account means principal or interest remains overdue for 90 days. Once NPA, Bank has to make provisions and also recover. The Supreme Court in Canara Bank v Leatheroid held: Rescheduling is an internal decision of Bank. It does not extinguish debt or Bank's legal right. If borrower defaults again, Bank can revert to original terms and initiate recovery. Court emphasized: "Banking system stability is in public interest." RBI guidelines give discretion to Banks to restructure, but that discretion cannot be used against Bank.
Impact On Banking Sector: Loan Recovery Process Strengthened
After Canara Bank v Leatheroid, Banks got clarity:
Reschedule pannalum Bank can take SARFAESI/DRT action later
NPA norms must be followed strictly
Public money protection is above individual borrower hardship
The Supreme Court in Canara Bank v Leatheroid 20.05.2020 balanced borrower relief with Bank's commercial rights.
Conclusion
Canara Bank vs M/S Leatheroid Plastics Pvt Ltd establishes that npa loan recovery supreme court 2020 jurisprudence supports Banks. Supreme Court 20.05.2020 held rescheduling does not bar recovery. NPA accounts can be pursued legally. As the law stands, Banks must follow RBI norms but have full right to recover public money. For borrowers, rescheduling is a chance, not immunity. For Banks, maintain proper records. The Supreme Court’s ruling in Canara Bank v Leatheroid strengthened loan recovery law during Covid time.
