same to the respondent as an attachment to the e-mail dated
February 7, 2022.
14. Mr. Abhrajit Mitra then drew attention of this Court to the various
documents disclosed by the bank in its affidavit-in-opposition and
submits that the respondent bank itself had taken certain measures
under MSME guidelines 2016 issued by RBI in favour of the
petitioner no. 1. Thus, the respondent bank had all along proceeded
and accepted the petitioner no. 1 as an MSME unit.
15. Learned Senior Advocate, Mr. Abhrajit Mitra appearing for the
petitioners then drew attention of this court at the RBI guidelines
under the notification dated May 29, 2015. He has also referred to the
RBI guidelines dated March 17, 2016. Referring to Clause 2 from the
said RBI guidelines of 2016, Mr. Mitra has further submits that the
revival and rehabilitation of MSME having loan limit up to 25 crore
will be in terms of the operative instructions mentioned in the said
2016 guidelines. Restructuring of loan accounts with exposure of
above Rs.25 crore will continue to be governed by the extent
guidelines on Corporate Date Restructuring (CDR). Referring to clause
2.1 from the said 2016 guidelines learned Senior Advocate submits
that before a loan account of an MSME enterprise turns into a non-
performing asset, the bank should identify incipient stress in the
account by creating three sub categories under the special mention
account category. In the instant case, the petitioner no. 1 was
declared as SMA-2 category. In order to enable first a resolution of
stress in an MSME account, the bank shall form committees for
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
stressed MSME enterprises by following a specific procedure
mentioned under Clause 3 of the said 2016 guidelines. All eligible
stressed MSME enterprises shall have access to the committee for
resolving stressed accounts in accordance with the regulations
prescribed in the framework. Provided that where the committee
decides that recovery is to be made as part of CAP, the manner and
method of recovery shall be in accordance with the existing policies
approved by the Board of Directors of the bank which has extended
credit facilities to the MSME enterprise, subject to any regulations
prescribed by RBI and extant statutory requirements. Any lender on
identifying an MSME account as SMA-2 or suitable for consideration
under the framework or on receipt of an application from the stressed
enterprise, shall forward the cases having aggregate loan limits above
Rs.10 lakh to the committee for immediate convening of meeting and
deciding on a CAP.
16. Referring to various provisions from said RBI guideline, 2016 Mr.
Mitra submits that ultimately the corrective action plan shall be
adopted by the committee and the entire procedure is a time bound
procedure, as described and stipulated under the said 2016
guidelines.
17. Mr. Abhrajit Mitra, Learned Senior Advocate appearing for the
petitioners submits that the said RBI guidelines of 2016 has a
statutory flavour and the procedures laid down there under are
required to be strictly followed for an MSME enterprise, like the
petitioner no. 1. In the instant case, the committee has not even been
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
formed to address the stress of the MSME enterprise. There was no
step to refer the case of the petitioner no. 1 before the committee by
the bank following the RBI guidelines. Mr. Mitra submits that before
issuing the said demand notice dated December 6, 2023 when the
account of the petitioner has been classified as SMA-2, it was a
bounden legal obligation of the bank to follow the procedure under
the said 2016 guidelines to address the stress of the petitioner no. 1
which is an MSME enterprise. By not following the said procedure
laid down under the 2016 RBI guideline the respondent bank had
acted illegally and without jurisdiction while issuing the said recall
notice dated December 6, 2023 and the subsequent steps taken
under the SARFAESI Act.
18. Mr. Abhrajit Mitra, Learned Senior Advocate submits the
instruction/directions issued by Central Government under Section 9
of the MSME Act and by the Reserve Bank of India have a statutory
force and are binding on the banking companies. The guidelines
framed are in 2015/2016 have statutory force. The respondent bank
is obliged in law to follow the procedure strictly as laid down there
under to address the stress of an MSME enterprise. In support, he
has relied upon the decision of the Hon'ble Supreme Court In the
matter of: Pro Knits vs Board of Directors of Canara Bank and
others (and connected files) reported at 2024 246 Comp Case
422: 2024 SCC OnLine SC 1864. He has also placed reliance on a
judgment of Andhra Pradesh High Court In the matter of : Sri
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
Rajalakshmi Traders vs. The Reserve bank of India and others
reported at 258 Comp Cases 163.
19. Learned Senior Advocate Mr. Abhrajit Mitra appearing for the
petitioners submits that the MSME guidelines 2016 is a revised
framework for revival and rehabilitation of MSME enterprises issued
by RBI for restructuring of loan account with sanctioned limits upto
Rs. 25 crores. It is the RBI guidelines 2016 which is applicable to the
petitioner no.1 as the sanctioned limit was Rs.12.20 crore. 2016
guidelines makes it mandatory for banks to immediately constitute a
MSME committee and makes such committee always accessible to
the MSME enterprises. MSME guidelines 2016 also does not require
any application or affidavit to be submitted by a MSME enterprise
and on the contrary it is the mandatory obligation of the bank to
forward a MSME account classified as SMA-2 to the MSME
committee, irrespective of any application from MSME enterprise.
Referring to the affidavit-in-opposition filed by the bank, Mr. Mitra
submits that it is not the case of the bank that the 2015 guidelines is
applicable to the petitioners and not the 2016 guidelines. It is also
not the case in affidavit pleaded by the bank that the petitioner no.1
should have applied along with an affidavit as per Clauses 1(3) and
1(4) of 2015 guidelines as a pre-condition for constitution of MSME
committee. He submits that it is a mandate under the 2016
guidelines that MSME borrower, as the petitioner no.1, shall have
access to the MSME committee for resolving the reported stress of
MSME accounts. Under Clause 3.5 of 2016 guidelines, a MSME at
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
any time can approach the MSME committee for resolving the stress
in the MSME. On November 24, 2023 the petitioner no.1 submitted
its restructuring proposal at page 210 to the petition. Even then the
bank did not constitute any MSME committee according to Clauses
4.2, 4.4, 4.5 and 4.6 of the 2016 guidelines and thus, the bank has
failed to act in strict compliance of the 2016 guidelines.
20. On the point of mala fide on the part of the bank Mr. Abhrajit Mitra,
learned Senior Advocate has submitted that despite there being
restructuring proposal submitted by petitioner no.1 and the surprise
inspection having been carried out by the bank on November 25,
2023 and after reaching to a conclusion by the bank that it is
possible to revive the petitioner no.1, on November 29, 2023 the
respondent-bank declared the account of the petitioner no.1 as NPA
and issued notice under Section 13(2) of SARFAESI Act.
21. In the light of the above, learned Senior Counsel Mr. Abhrajit Mitra
submits that declaration of NPA in respect of a MSME enterprise
without following the 2016 guidelines is illegal, wrongful and without
jurisdiction and therefore all the subsequent steps taken by the bank
in exercise of its power under SARFAESI Act are also bad in law and
without jurisdiction. The order of injunction should be made
absolute.
22. Ms. Deblina Lahiri, learned Advocate appearing for the respondent-
bank has referred to the various portions from the affidavit-in-
opposition filed by the bank. She submits that Corrective Action Plan
(CAP) was followed by the bank at SMA-0, SMA-1 and SMA-2 at the
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
bank level. From the several reports annexed to the affidavit-in-
opposition, it reveals that discussion were held between the
representatives of the parties, the visits of the factory, of the
petitioner no.1, the working capacity investment of the factory are all
mentioned in detail in the affidavit-in-opposition indicating that
petitioners were aware of the fact that the loan account was tending
towards to be classified as NPA. The petitioners were repeatedly
requested by the bank to pay the irregularity amount for the purpose
of restructuring the loan accounts of the petitioner no.1 but the
petitioner no.1 failed and neglected to pay the same though they have
assured the bank specifically time and again. The petitioners did not
reply to the notice issued by the bank under Section 13(2) of the
SARFAESI Act and thereby chose not to raise any objection with
regard to the demand of the bank and invocation of the provisions
under the SARFAESI Act. Thereafter possession notices were issued
under Rule 8 (1) of the Security Interest Rules for taking possession
of the secured assets then only to resist the steps taken by the bank
in exercise of its power under Section 13(4) of the SARFAESI Act, the
petitioners have filed the instant suit.
23. Ms. Deblina Lahiri, learned Advocate appearing for the respondent-
bank then refers to the irregularity notices dated September 18,
2023, November 17, 2023 and November 20, 2023 served upon the
petitioners by the bank at pages 151 to 156 to the affidavit-in-
opposition (volume II) and none of those notices was replied to by the
petitioners. The loan recall notice dated December 6, 2023 was served
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
upon the petitioners by the bank through its Advocate's letter at
pages 282 to 284 to the affidavit-in-opposition. The letter was replied
to by the petitioner no.1 through its Advocate's letter dated December
14, 2023 at page 285 to the affidavit-in-opposition, where the
petitioners never stated that it is an MSME enterprise or never raised
any objection with regard to the violation of 2016
guidelines/framework
24. She submits that notice was then issued dated February 3, 2024
under Section 13(2) of SARFAESI Act at page 122 to the petition. No
objection was submitted by the petitioners in terms of Section 13(3A)
of the SARFAESI Act. On March 18, 2024 at pages 291 to the
affidavit-in-opposition a further demand notice for repayment of loan
was served by the bank's Advocate upon the petitioners but the
petitioners did not reply thereto. On April 2, 2024 the respondent-
bank had initiated a recovery proceeding under Section 19 (1) of the
Recovery of Debts due to Banks and Financial Institutions Act, 1993,
before the jurisdictional Debt Recovery Tribunal, Kolkata, the same is
pending. On May 3, 2024 in exercise of its power under Section 13(4)
of the SARFAESI Act read with Rule 8 (1) of the Security Interest
Rules 2002, a possession notice was served for taking possession of
the secured assets at pages 127 to 129 to the petition. On May 5,
2024 an email was sent by petitioner no.2 to the respondent-bank
with a revised proposal for reconstruction of loan account at page 300
to the affidavit-in-opposition. The loan reconstruction proposal is
available at pages 193 to 209 to the affidavit-in-opposition. Ms.
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
Deblina Lahiri, learned Advocate appearing for the respondent-bank
submits that in the said loan reconstruction proposal there was no
reference of the petitioners being an MSME enterprise. The proposal
was also not under the framework/2016 guidelines. At no point of
time the petitioners claimed any benefit of any framework neither did
they apply to avail of the framework/2016 guidelines.
25. Referring to a letter dated July 11, 2024 at page 301 to the affidavit-
in-opposition, Ms. Deblina Lahiri, learned Advocate appearing for the
respondent-bank submits that a letter was issued by the petitioners
acknowledging the revocation of the restructuring proposal and the
petitioners further assured the respondent bank that they were in
process of bringing investors to support the company. Prayer was also
made by the petitioners for 60 days extension on and from July 11,
2024 to finalize the infusion of funds and the petitioners requested
the bank not to proceed against the petitioners in the meantime. She
submits that on October 8, 2024 the respondent served one letter
upon the petitioners at page 176 to the petition requesting to
handover the physical possession of the mortgaged property to the
bank and immediately thereafter on November 21, 2024 the instant
suit was filed.
26. Ms. Deblina Lahiri, learned Advocate appearing for the respondent-
bank then submits that the notification dealing with the
framework/2016 guidelines has to be read to make its terms effective
and meaningful. Although, in the sequence of the framework
identification by banks or creditors comes first, it is immediately
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
followed by identification of enterprises. An MSME enterprise may
choose to voluntarily initiate proceeding under the framework if it
reasonably apprehends failure of its business or its inability or likely
inability to pay debts and before the accumulated losses of the
enterprise equal to half or more of its entire worth. The obligation of
MSME does not end there that for initiation of proceeding under the
framework, the application has to be verified by an affidavit by an
authorized person of the enterprise and upon receipt of a request, the
lender bank is mandatorily bound to proceed in terms of the
framework and to constitute a committee to identify the incipient
stress in the account. The framework is to be read harmoniously to
ensure that a right under the MSME Act is not destroyed by the
SARFAESI Act or vice versa.
27. She further submits that upon receipt of a notice under Section 13(2)
of the SARFAESI Act, if the petitioners in its response under Section
13(3A) asserts that it is an MSME enterprise and claims the benefit of
the framework/2016 guidelines citing reasons supported by an
affidavit, then it would be mandatory upon the lending bank to look
into such claim instead of proceeding under SARFAESI Act. In
support, learned Counsel has relied upon a decision of the Hon'ble
Supreme Court In the matter of: Shri Shri Swami Samarth
Construction & Finance Solution and Another vs. Board of
Directors of NKGSB Co-op. Bank Ltd. and Others reported at
2025 SCC OnLine SC 1566.
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
28. On the point of balance of convenience and/or inconvenience, Ms.
Deblina Lahiri, learned Advocate appearing for the respondent-bank
submits that a party to a suit where there is a prayer for damages,
can be an adequate relief in the event plaintiff succeeds. Damages
can be an adequate compensation to the plaintiffs if they succeed in
the suit and injunction should ordinarily not be granted. In support,
she has relied upon a decision of the Hon'ble Supreme Court In the
matter of: Best Sellers Retail (India) Private Limited vs. Aditya
Birla Nuvo Limited and Others with A.C. Thirumalaraj vs.
Aditya Birla Nuvo Limited and Others reported at (2012) 6 SCC
792.
29. While dealing with the decision of the Hon'ble Supreme Court In the
matter of: Pro Knits (Supra) learned Counsel Ms. Deblina Lahiri
submits that while creating special categories under special loan
account categories, the bank must have some authenticate and
verifiable materials with them as produced by the concern MSME
enterprise to show that loan account is of the enterprise is under the
MSME Act. The framework enables the MSME enterprises to
voluntarily initiate proceeding under the said framework by filing an
application along with the affidavit of an authorized person.
Encumbrance on the part of the MSME enterprise also to produce
authenticate and verifiable documents/materials for substantiating
its claim of being MSME enterprise before its account is classified as
NPA.
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
30. She further submits that if at the stage of classification of loan
account of the petitioners as NPA, the petitioners does not bring to
the notice of the concerned bank that it is a MSME enterprise and if
such an enterprise allows the entire process under the SARFAESI Act
to be carried out by the bank without any challenge or if no challenge
is filed before any judicial forum, such an enterprise could not be
permitted to misuse the process of law for thwarting the action taken
under the SARFAESI Act by taking plea of being a MSME enterprise
at a belated stage.
31. In the matter of : Sri Rajalakshmi Traders (Supra) the glaring
distinguishing feature is that the MSME enterprise had submitted an
objection under Section 13(3A) of the SARFAESI Act where it has
specifically pleaded its MSME status and asked for referring it before
the committee under the framework for debt restructuring.
32. On the point of delay Ms. Deblina Lahiri submits that throughout
upto the stage of invocation of Section 13(4) of the SARFAESI Act, the
petitioners never objected to despite knowing that the restructuring
proposal has been rejected by the bank and then when the bank
proceeds to take steps against the mortgaged property for taking
possession in exercise of power under SARFAESI Act then only the
suit has been filed. There had been a gross delay on the part of the
petitioners. On this ground, the injunction should not have been
granted and should be vacated forthwith.
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
33. In the light of the above, learned Advocate Ms. Deblina Lahiri submits
that the order of injunction already passed should be vacated and the
petition for injunction should be dismissed.
34. In reply, Mr. Abhrajit Mitra, Learned Senior Advocate appearing for
the petitioner while distinguishing the judgment of the Hon'ble
Supreme Court In the matter of: Shri Shri Swami Samarth
Construction & Finance Solution and Another (Supra) has
submitted that the said judgment was rendered on 2015 MSME
guideline under which there was a specific requirement for filing an
application by the MSME entrepreneur as a pre-condition for
formation of MSME committee. He further submits that 2016 MSME
guideline is a revised framework for revival and rehabilitation of
MSME enterprise for reconstructing the loan account with a
sanctioned limit upto Rs.25 crores, which is applicable for the
petitioner no.1. 2016 guideline is mandatory for the bank to
immediately constitute MSME committee to make such committee
always accessible to MSME enterprise. 2016 guideline does not
require an application with or without affidavit to be submitted by the
MSME enterprise and on the contrary it is the mandatory obligation
of the bank to forward an MSME account classified as SMA-2, to the
MSME committee irrespective of any application from the enterprise.
35. While distinguishing the judgment In the matter of: Best Sellers
Retail (India) Private Limited (Supra) learned Senior Advocate Mr.
Mitra submits that money claim raised by the petitioner is on account
of loss and damages already suffered by them for respondent's non-
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
compliance of MSME guideline 2016. The right of petitioners to
compel the respondent-bank to act as per the 2016 guideline is an
independent right, which is prospective in nature. The claim of
damage and the claim for injunction are not mutually exclusive.
36. On the plea of delay taken by learned Advocate Ms. Lahiri, the
petitioners submit that immediately when the recall notice was issued
and steps were taken under the SARFAESI Act, the petitioners have
filed the instant suit, as accordingly to the petitioners' step taken
under the SARFAESI Act was illegal and without jurisdiction, as the
bank has not complied with the mandate under the 2016
guideline/framework before initiating steps under SARFAESI Act.
Decision :
37. After hearing the rival contentions of the parties and on perusal of the
materials on record, it appears to this Court at the threshold that, the
plaintiffs had availed of and obtained loan/credit facility/financial
assistance from the respondent/bank. The documents disclosed by
the plaintiffs/petitioners on record show that the plaintiffs is a
registered MSME enterprise. The plaintiff no.1 had availed of the
financial assistance finally to the extent of Rs.12.02 crores, inter alia,
against creation of equitable mortgage. The plaintiffs/petitioners had
admitted default in paying of the loan and as such from time to time
made several representations/proposals before the bank including
restructuring of its defaulted loan account by a letter dated November
24, 2023. The admitted fact is also that on November 29, 2023 the
account of the petitioner no.1 was declared as NPA. The loan recall
IA No.GA-COM/1/2024,
In CS-COM/813/2024
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notice was issued on December 06, 2023. On February 03, 2024 the
bank had issued notice under Section 13(2) of the SARFAESI Act to
which no objection was submitted by the petitioners under Section 13
(3A) of the SARFAESI Act. The bank then issued notice under Section
13(4) read with Rule 8(1) of the Security Interest Rules, 2002 dated
May 03, 2024 and the possession notice was served for taking
possession of the mortgaged assets/Security Interest. Admittedly, the
petitioners did not challenge the steps taken by the bank under
Section 13 of the SARFAESI Act or otherwise.
38. The RBI guideline of 2016/framework, as the parties hereto have
admitted is applicable in the facts of this case, undoubtedly has a
statutory flavour which is applicable for the petitioner no.1, being an
MSME enterprise.
39. On a plain reading of the said 2016 RBI guideline, it appears, prima
facie to this Court that the said 2016 guideline, inter alia, prescribes
certain obligations both on the MSME enterprise as well as on the
bank. The loan account of the petitioner no.1 had been categorized as
SMA-2 which is required to be mandatorily examined for Corrective
Action Plan (CAP) by the specific branch of the bank itself under the
authority of the branch manager or such other officials designated in
this regard. Clause 2.3 of 2016 guideline, inter alia, provides that any
MSME borrower may voluntarily initiate proceeding under the
framework, if the enterprise reasonably apprehends failure of its
business or its inability or likely inability to pay debts or there is
erosion in the net-worth due to accumulated losses to the extent of
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
50 per cent of its net-worth during the previous accounting year, by
making an application to the branch or directly to the MSME
committee wherever applicable. When such a request is received by
the lender/bank, the account should be referred to the committee
and the committee should examine the account for a suitable CAP. All
eligible MSME enterprises shall have access to the committee for
resolving the stress in its accounts according with the framework.
40. Clause 4.1 of 2016 guideline, inter alia, provides that any lender on
identifying MSME account as SMA-2 or suitable for consideration
under the framework or on receipt of an application from the stressed
enterprises, shall forward the cases to the committee to decide on a
CAP. The stressed enterprises having aggregated loan limit above
Rs.10 lakh can also directly file an application for CAP to the
committee or to the largest lender for onward submission under the
advice to all its lenders. The said 2016 guideline then provides for the
mechanisms and procedures to be followed by MSME committee for
CAP of an MSME enterprise.
41. On reading various clauses from the said 2016 guideline, prima facie,
it appears to this Court that, the petitioner no.1 being an MSME
enterprise also has an obligation to be vigilant about its stressed loan
account to avail of a proper CAP under the said 2016 guideline. Since
the time of default, at all material times the petitioner no.1 was aware
of its stressed loan account that the same had become irregular.
From time to time, repeatedly, the irregularity notices dated
September 18, 2023, November 17, 2023 and November 20, 2023
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
were issued by the bank upon the petitioners and the petitioners
failed and neglected to reply thereto. Neither prior to the stressed loan
account become irregular the petitioners informed the bank nor
subsequently informed the bank that the petitioner no.1 is an MSME
enterprise and the bank would have to exercise the provisions under
the said 2016 guideline for a proper CAP for the stressed loan
account of the petitioner no.1. In reply to the recall notice dated
December 06, 2023 issued by the petitioner no.1 by the
respondent/bank, the petitioners through its reply dated December
14, 2023 replied thereto but had not claimed any benefit or right as
an MSME enterprise under the said 2016 guideline, neither raised
any objection with regard to the alleged violation of the framework
under the said 2016 guideline by the bank. The petitioners did not
raise any objection under Section 13 (3A) of the SARFAESI Act after
receiving the notice issued by the bank dated February 03, 2024
under Section 13(2) of the SARFAESI Act. Petitioners have not
challenged the SARFAESI action initiated by the bank.
42. On a reading of the said 2016 guideline it also, prima facie, appears
to this Court that there is a reciprocal obligation on the part of both
the MSME borrower and the lender bank under the said framework.
The admitted fact is that irrespective of default on the part of the
petitioners in repaying loan granted by the bank to the extent of
Rs.12.02 crores. The recall notice issued by the bank dated December
06, 2023 contained a claim for a total sum of Rs.11,38,76,556.83/-
and together with interest it is Rs.11,94,46,227.83/-. The notice
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
dated February 03, 2024 issued by the bank under Section 13(2) of
SARFAESI Act contains the claim for a sum of Rs.12.02 crores, as
would be evident from pages 117, 120 and the relevant possession
notices at pages 128 and 129 to the petition. The Coordinate Bench
had passed an unconditional order of injunction dated December 16,
2024 restraining the bank from giving any effect or further effect to
the said recall notice dated December 06, 2023 which was extended
from time to time and still is in existence.
43. The said 2016 guideline/framework had received a judicial
consideration before the Hon'ble Supreme Court In the matter of:
Pro Knits (Supra), when the Hon'ble Supreme Court had opined and
held that the said guideline/framework has a statutory force and is
binding on all the banking companies. The Hon'ble Supreme Court
had also observed as under :-
"16. We may hasten to add that under the "Framework for
Revival and Rehabilitation of Micro, Small and Medium
Enterprises", the banks or creditors are required to identify the
incipient stress in the account of the Micro, Small and Medium
Enterprises, before their accounts turn into non-performing
assets, by creating three sub-categories under the "Special
Mention Account" Category, however, while creating such sub-
categories, the Banks must have some authenticated and
verifiable material with them as produced by the concerned
Micro, Small and Medium Enterprise to show that loan account is
of a Micro, Small and Medium Enterprise, classified and
registered as such under the Micro, Small and Medium
Enterprises Development Act, 2006. The said Framework also
enables the Micro, Small or Medium Enterprise to voluntarily
initiate the proceedings under the said Framework, by filing an
application along with the affidavit of an authorized person.
Therefore, the stage of identification of incipient stress in the
loan account of Micro, Small and Medium Enterprise and
categorization under the Special Mention Account category,
before the loan account of Micro, Small and Medium Enterprise
turns into Non-Performing Asset is a very crucial stage, and
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
therefore it would be incumbent on the part of the concerned
Micro, Small and Medium Enterprises also to produce
authenticated and verifiable documents/material for
substantiating its claim of being Micro, Small and Medium
Enterprises, before its account is classified as Non-Performing
Asset. If that is not done, and once the account is classified as
Non-Performing Asset, the banks i.e. secured creditors would be
entitled to take the recourse to Chapter III of the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002 for the enforcement of the security
interest.
17. It is also pertinent to note that sufficient safeguards have
been provided under the said Chapter for safeguarding the
interest of the Defaulters-Borrowers for giving them opportunities
to discharge their debt. However, if at the stage of classification
of the loan account of the borrower as Non-Performing Asset, the
borrower does not bring to the notice of the concerned
bank/creditor that it is a Micro, Small or Medium Enterprise
under the Micro, Small and Medium Enterprises Development
Act, 2006 and if such an Enterprise allows the entire process for
enforcement of security interest under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002 to be over, or it having challenged such action
of the concerned bank/creditor in the court of law/tribunal and
having failed, such an Enterprise could not be permitted to
misuse the process of law for thwarting the actions taken under
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act, 2002 by raising the plea of
being an Micro, Small and Medium Enterprise at a belated stage.
Suffice it to say, when it is mandatory or obligatory on the part of
the Banks to follow the Instructions/Directions issued by the
Central Government and the Reserve Bank of India with regard
to the Framework for Revival and Rehabilitation of Micro, Small
and Medium Enterprises, it would be equally incumbent on the
part of the concerned Micro, Small and Medium Enterprise to be
vigilant enough to follow the process laid down under the said
Framework, and bring to the notice of the concerned Banks, by
producing authenticated and verifiable documents/material to
show its eligibility to get the benefit of the said framework."
44. The said 2015 notification had also received judicial consideration
before the Hon'ble Supreme Court In the matter of: Shri Shri
Swami Samarth Construction & Finance Solution and Another
(Supra). In the said judgment while dealing with the said 2015
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In CS-COM/813/2024
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notification, the Hon'ble Supreme Court had also taken note of In the
matter of: Pro Knits (Supra) and observed as under :-
"5. The Notification detailing the framework, more particularly
paragraph 1 and its sub-paragraphs, have to be read together to
make its terms effective and meaningful. Although, in the
sequence of the framework "Identification by Banks or Creditors"
comes first, it is immediately followed by "Identification by the
Enterprise". In terms of sub-paragraph 2, any Micro, Small or
Medium Enterprise may choose to voluntarily initiate proceedings
under the framework if it "reasonably apprehends failure of its
business or its inability or likely inability to pay debts and before
the accumulated losses of the enterprise equals to half or more of
its entire net worth" (emphasis ours). The obligation of the Micro,
Small or Medium Enterprise does not end there. For initiation of
proceedings under the framework, the application has to be
verified by an affidavit of an authorised person and upon receipt
of a request, the lending bank/secured creditor is mandatorily
bound to proceed in terms of the framework and to constitute a
committee to identify incipient stress in the account.
6. The way Mr. Nedumpara urges us to read the Notification and
the terms of the framework, if accepted, would lead to the
conclusion that every lending bank/secured creditor under
the Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act would be obliged to find out
in every event of continuing default, likely to give rise to
classification of the relevant account as NPA, whether the
borrower is an Micro, Small and Medium Enterprise to which the
framework applies, whether its business has failed or whether it
is suffering from any disability to pay its debts; and upon
receiving a response, to apply the terms thereof by, inter alia,
including the account in the Special Mention Account for the
claim for a corrective action plan to be considered by the
Committee for stressed Micro, Small and Medium Enterprises.
This could not have been the intention behind introduction of the
framework to aid the Micro, Small and Medium Enterprises
which, for reasons personal to them, is unable to clear its debt
and require revival and rehabilitation that the framework
envisages. If indeed it is only the obligation of the lending
bank/secured creditor to identify incipient stress in the account,
sub- paragraphs 2 and 3 of paragraph 1 would be rendered
redundant. A Micro, Small and Medium Enterprise, despite
finding that its business is failing or that it is unable to pay its
debts or accumulation of losses equals to half or more of its
entire net worth and classification of its account as NPA is
imminent, it would rest on its oars believing that it has no
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
responsibility and that its account will not be classified as NPA
because it is the entire obligation of the lending bank/secured
creditor to do what the framework requires. We would read and
interpret the seemingly confusing terms of the framework
harmoniously to ensure that a right under the Micro, Small and
Medium Enterprise Act is not destroyed by the Securitisation
and Reconstruction of Financial Assets and Enforcement of
Security Interest Act or vice versa. In our reading, the terms of
the framework do not prohibit the lending bank/secured creditor
(assuming that it has no conscious knowledge that the defaulting
borrower is an Micro, Small and Medium Enterprises) to classify
the account of the defaulting Micro, Small and Medium
Enterprise as non-performing asset and to even issue the
demand notice under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act without such identification of incipient stress in the
account of the defaulting borrower (MSME); however, upon
receipt of the demand notice, if such borrower in its response
under Section 13(3A) of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act
asserts that it is a Micro, Small and Medium Enterprise and
claims the benefit of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act, citing
reasons supported by an affidavit, the lending bank/secured
creditor would then be mandatorily bound to look into such claim
keeping further action under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act in abeyance; and, should the claim be found to be
worthy of acceptance within the framework of the framework, to
act in terms thereof for securing revival and rehabilitation of the
defaulting borrower.
7. As has been noted above, the petitioning enterprise does not
seem to have ever claimed the benefit of the terms of the
framework after the demand notice under Section 13(2) of the
Securitisation and Reconstruction of Financial Assets and
Enforcement of Security Interest Act was issued. It is at the stage
of compliance with an order passed by the relevant Magistrate
under Section 14 of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act that
this writ petition has been presented before this Court claiming
benefits of the framework to restrain the respondent no.2 and its
officers from proceeding further under the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security
Interest Act and other enactments except in the manner
contemplated under the said Notification. We find the bona fides
of the petitioning enterprise to be suspect.
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
8. Pro Knits is a decision of a coordinate Bench of this Court
holding, inter alia, that the Notification is binding on the lending
banks/secured creditors. Finding to the contrary by the High
Court of Bombay in the judgment and order under challenge in
the appeal was, thus, quashed. Though while stressing that the
terms of the framework need to be followed by the lending
banks/secured creditors before the account of an Micro, Small
and Medium Enterprise is classified as non-performing asset,
this decision also lays stress on the obligation of the Micro, Small
and Medium Enterprises by holding that "it would be equally
incumbent on the part of the Micro, Small and Medium
Enterprises concerned to be vigilant enough to follow the process
laid down under the said framework, and bring to the notice of
the Banks concerned, by producing authenticated and verifiable
documents/material to show its eligibility to get the benefit of the
said framework". It was cautioned that "if such an Enterprise
allows the entire process for enforcement of security interest
under the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act to be over, or it having
challenged such action of the bank/creditor concerned in the
court of law/tribunal and having failed, such an Enterprise could
not be permitted to misuse the process of law for thwarting the
actions taken under the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act by
raising the plea of being an Micro, Small and Medium Enterprise
at a belated stage". This decision, however, left unsaid
something which we have explained hereinabove while
construing the terms consistently to prevent undermining of
rights that one central enactment confers by another."
45. The law is well settled and there is no doubt that both these
guidelines/frameworks of 2015 and 2016 having a statutory force
operate as binding guidelines upon the banks. When a statutory
guideline is issued for the benefit of a party, it is for such party to
decide whether it will avail of the same or not. If the beneficiary avails
of such beneficial guideline, if it is otherwise eligible, then the terms
and provisions of the said guideline is required mandatorily to be
followed strictly. If such a beneficiary does not want to avail of the
said beneficial guideline, the mandatory provisions thereunder
subsequently are not required to be followed. The golden rule of law is
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
if a particular provision is laid down in a statutory scheme, such
provision is required to be mandatorily followed in the manner and
fashion it is laid down or not at all. All other modes are expressly
forbidden.
46. In the light of the above, if it appears in the facts of the instant case
that, the petitioner no.1 being an MSME enterprise has not availed of
the said 2016 guideline/framework then the subsequent obligation on
the part of the bank to initiate the CAP following the prescribed
formula laid down therein are no more mandatory on the bank to
follow. In such case, it is neither a statutory nor a mandatory
requirement for the bank to follow the said guideline/framework.
47. The facts in the instant case shows that the repeated notices issued
by the bank upon the petitioner no.1/petitioners prior to declaring
the account of the petitioner no.1 being irregular/NPA were never
replied by the petitioner no.1. The petitioners never contended with
materials that the petitioner no.1 being an MSME enterprise shall
avail of 2016 guideline/framework for a proper CAP. The petitioner
no.1 or the other petitioners had never raised any objection under
Section 13(3A) of the SARFAESI Act after receiving the notice from the
bank under Section 13(2) of the SARFAESI Act. Thus, the petitioner
no.1 and/or petitioners never objected to the declaration of the
account of the petitioner no.1 to be NPA, as declared by the bank and
never raised the contention that before declaring the loan account of
the petitioner no.1 as irregular and/or NPA, the bank should have
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
taken steps under the said 2016 guideline/framework for proper CAP
to be framed.
48. The scope and effect of the said 2016 guideline and the framework
thereunder and whether the petitioner no.1 and/or petitioners have
availed of the said framework and applied for the same are not to be
gone into at this interim stage by holding a mini trial but such a
detail enquiry should await for the final hearing of the suit. The
admitted facts are that the petitioners had availed of a loan facility
from the bank to the extent of a sum of Rs.12.02 crore and has
defaulted in paying of the same. The further admitted fact is that
despite receipt of a notice under Section 13(2) of the SARFAESI Act
issued by the bank, the petitioner no.1 and/or petitioners did not
raise any objection under Section 13(3A) of the SARFAESI Act, where
the petitioners could have raised all its plea. Only when the
possession notice has been issued in exercise of power under Section
13(4) of the SARFAESI Act, then the instant suit has been filed. On a
plain reading of 2016 guideline, prima facie, it appears to this Court
that the said framework also enables the petitioner no.1 to initiate the
proceeding under the said framework by filing an application along
with affidavit of an authorized person. Thus, when the identification
of incipient stress in the loan account of petitioner no.1 under SMA-2
category was there before the loan account of the petitioner no.1
turned into NPA was the crucial stage when it was incumbent upon
the petitioner no.1 to produce authenticate and verifiable
documents/materials for substantiating its claim of being an MSME
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
enterprise. Since, prima facie, that is not done and once the account
of the petitioner no.1 has been classified as Non-performing Asset,
the bank was/is entitled to take recourse to Section 13 of the
SARFAESI Act for enforcement of the security interests. Petitioner
no.1 has allowed the entire process for enforcement of the security
interests under the SARFAESI Act to be carried out without any
challenge in terms of the statute and at this stage petitioner no.1
cannot be permitted to misuse the process of law for thwarting the
action taken under SARFAESI Act by raising the plea being an MSME
enterprise.
49. When it was mandatory obligation on the part of the bank to follow
the statutory framework for framing a proper CAP for the petitioner
no.1, it was equally incumbent on the part of the petitioner no.1 to be
vigilant enough to follow the said statutory guideline being 2016
guideline to avail of the same, in its strict compliance. Inasmuch as
2016 guideline/framework does not create an absolute bar or
prohibition on the bank to classify the loan account of an MSME
enterprise as NPA or to take steps under SARFAESI Act, if an MSME
enterprise raises objection with all supporting materials to establish
that it is an MSME enterprise citing reasons supported by an
affidavit, the bank only then would be mandatorily bound to look into
such claim keeping further action under the SARFAESI Act in
abeyance.
50. The judgment of the Hon'ble Division Bench of this Court In the
matter of: State Bank of India vs. SRC Steels Pvt. Ltd. reported
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
at 2014 SCC OnLine Cal 20626 deals with the operation of Section
34 of the SARFAESI Act. In any event, the two recent judgments of
the Hon'ble Supreme Court, referred to above, are subsequent in
point of time which have specifically dealt with the 2016
guideline/framework. In the instant case, the petitioners have
challenged the loan recall notice and the follow up actions resulting
into SARFAESI notices issued by the bank. Therefore, the ratio laid
down In the matter of: State Bank of India (Supra) would not
apply in the facts of the instant case.
51. In the matter of: Sri Rajalakshmi Traders (Supra) the MSME
enterprise raised its objection under Section 13(3A) of the SARFAESI
Act particularly taking the point being an MSME enterprise it was
eligible to avail of the framework. Facts are not the same in the
instant case, as the petitioners did not submit any objection under
Section 13(3A) of the SARFAESI Act. Therefore, the ratio laid down in
the said judgment has no application in the facts of the instant case.
52. The judgment cited on behalf of the respondent bank In the matter
of: Best Sellers Retail (India) Private Limited (Supra) would have
no application in the facts of this case, as this is an interim
application and not the final trial of the suit.
53. Inasmuch as, the loan was granted to the petitioner no.1 by the
respondent bank, the financial source was public exchequer. Default
on the part of the petitioner no.1 is admitted in paying of the loan.
Bank has already initiated proceeding for recovery of its claim before
DRT, which is pending before the jurisdictional DRT. By not raising
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
any objection under Section 13(3A) of SARFAESI Act and by not
challenging the steps taken by the bank under Section 13(4) of the
SARFAESI Act, the petitioner no.1/petitioners have allowed the
SARFAESI proceeding to proceed. To grant an interim order is always
in exercise of discretionary and equitable power of Court. Discretion
and equity should be exercised considering the particular facts in a
case. Prima facie case and balance of convenience and inconvenience
would have a great role to play while granting or refusing an interim
order.
54. In view of the foregoing reasons and discussions, this Court is of the
considered and firm prima facie view that the petitioner no.1 and/or
petitioners should not be allowed to enjoy any further an
unconditional interim order which was passed on December 16,
2024, when the defendant was restrained from giving any effect or
further effect to the loan recall notice dated December 06, 2023.
Accordingly, the interim order dated December 16, 2024 stands
modified with further directions as follows:-
(a) The unconditional interim order dated December 16, 2024
shall continue for a further period of four weeks from date;
(b) The petitioner no.1 and/or petitioners shall secure a sum of
Rs.11,38,76,556.83/- being the principal amount claimed
by the bank under the said loan recall notice dated
December 06, 2023 at page 283 to the affidavit-in-
opposition positively within four weeks from date with the
learned Registrar, Original Side;
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
(c) In the event, such deposit is made by the petitioner no.1
and/or petitioners, there shall be an interim order of
injunction restraining the respondent bank and/or its men,
agents, servants, assigns and officials from taking any steps
or further steps or to give effect or further effect to the said
loan recall notice dated December 06, 2023 at page 283 to
the affidavit-in-opposition in any manner whatsoever and
status quo as on date shall be maintained with regard to the
security interests created by the petitioner no.1 and/or
petitioners in favour of the respondent bank until disposal of
the suit;
(d) In the event, such deposit is made by the petitioner no.1
and/or petitioners, the Registrar Original Side shall
forthwith deposit the same in an interest bearing fix deposit
account at the nearest branch of the State Bank of India and
shall prepare a report and keep the same in the original suit
file;
(e) In the event, the petitioner no.1 and/or petitioners default
and/or fail to deposit the said sum with the Registrar,
Original Side, there shall be no interim order and the
interim order dated December 16, 2024 shall automatically
stand vacated without any further reference to the Court
and the respondent bank shall be entitled to proceed and
take all steps and necessary steps pursuant to the said loan
recall notice dated December 06, 2023 and with regard to
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
the steps already taken by the bank in exercise of the power
under SARFAESI Act forthwith in accordance with law
without any fetter. The bank shall also be free to proceed
with the recovery proceeding pending before the
jurisdictional DRT without any fetter.
55. With the above observations and directions the application being IA
No. GA-COM/1/2024 stands disposed of, without any order as to
costs.
(Aniruddha Roy, J.)
IA No.GA-COM/1/2024,
In CS-COM/813/2024
A.R.,J.
