Kerala High Court
P.K.Krishnakumar vs Induslnd Bank on 24 October, 2024
Author: D. K. Singh
Bench: D. K. Singh
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WP(C) NO. 41576 OF 2023
1
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE D. K. SINGH
THURSDAY, THE 24TH DAY OF OCTOBER 2024 / 2ND KARTHIKA, 1946
WP(C) NO. 41576 OF 2023
PETITIONER/S:
1 P.K.KRISHNAKUMAR,
AGED 57 YEARS
MANAGING PARTNER, M/S POWERPLUS POWER UNIT 22/1486,
PUTHALATH KRISHNAKRIPA, PALLURUTHY, EDA KOCHI, PIN - 682010
2 KALADEVI KRISHNAKUMAR,
AGED 56 YEARS
PARTNER, M/S POWERPLUS POWER UNIT 22/1486, PUTHALATH
KRISHNAKRIPA,PALLURUTHY, EDA KOCHI, PIN - 682010
BY ADV MARIA NEDUMPARA
RESPONDENT/S:
1 INDUSLND BANK,
REPRESENTED BY ITS BRANCH MANAGER,GOWRINARAYAN, 1ST FLOOR,
OPP. JAYALAKSHMI SILKS, M G ROAD, COCHIN, PIN - 682035
2 THE BOARD OF DIRECTORS OF THE INDUSLND BANK,
REPRESENTED BY ITS MANAGING DIRECTOR,INDUSIND BANK LIMITED,
2401 GEN. THIMMAYYA ROAD (CANTONMENT), PUNE, PIN - 411001
3 AUTHORISED OFFICER & CHIEF MANAGER,
INDUSLND BANK, GOWRINARAYAN, 1ST FLOOR, OPP. JAYALAKSHMI
SILKS,M G ROAD, COCHIN, PIN - 682035
4 UNION OF INDIA,
REPRESENTED BY SECRETARY, MINISTRY OF MICRO SMALL & MEDIUM
ENTERPRISES,UDYOG BHAWAN, RAFI MARG,NEW DELHI, PIN - 110011
5 SECRETARY,
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2
DEPARTMENT OF BANKING,MINISTRY OF FINANCIAL SERVICES
,GOVERNMENT OF INDIA , 3RD FLOOR, JEEVAN DEEP BUILDING ,
SANSAD MARG, NEW DELHI, PIN - 110001
6 RESERVE BANK OF INDIA,
REPRESENTED BY ITS GOVERNOR,CENTRAL OFFICE BUILDING,SHAHED
BHAGAT SINGH ROAD,MUMBAI, PIN - 400001
7 STATE OF KERALA,
REPRESENTED BY ITS CHIEF SECRETARY, GOVERNMENT
SECRETARIAT,THIRUVANANTHAPURAM, PIN - 695001
8 ADV. BONIFUS P.A,
ADVOCATE COMMISSIONER APPOINTED IN MC NO.1113/2022,SAID
MOHAMMAD COMPLEX, C.P. UMMER ROAD,ERNAKULAM, PIN - 682035
9 STATION HOUSE OFFICER,
PALLURUTHY POLICE STATION,PS, PALLURUTHY PO, KOCHI, PIN -
682006
BY ADVS.
RENJITH.R
ANJU MOHAN
THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 15.10.2024,
THE COURT ON 24.10.2024 DELIVERED THE FOLLOWING:
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3
JUDGMENT
The petitioners are the partners of M/s Power Plus Power
Unit, situated at 22/1486, Puthalath Krishnakripa, Palluruthy,
Eda Kochi, Pin-682010. The said partnership enterprise is stated
to be covered by Micro, Small and Medium Enterprises
Development Act, 2006 ('the MSMED Act'). The enterprise was
registered under the Act on 16.08.2019. It is further stated that
in terms of the notification dated 26.06.2020 issued by the
Ministry of MSME, the petitioners registered the unit afresh.
2. The present writ petition has been filed against the
SARFAESI proceedings undertaken by the respondent Bank to
recover its dues in respect of the loan advanced to M/s Power
Plus Power Unit.
3. The learned counsel for the petitioners has submitted that
the Bank did not constitute the committee as provided under the
notification dated 29.02.2015, issued by the Ministry of MSME
which inter alia provided for;
(a) framework for the resolution of the stressed
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assets; (b)Formation of Committee(s) for Stressed
MSMEs for implementation of the said Framework
(c) Provision of a Corrective Action Plan for eligible
MSMEs, and (d) Provision for
Revival/Restructuring of the eligible MSME loan
account;
(e) and recovery measures if revival/restructuring
is not feasible
4. It is further submitted that pursuant to the notification
dated 29.05.2015, the Reserve Bank of India, in consultation with
the Government of India has issued a circular dated 17.03.2016,
under the provisions of Sections 21 and 35A of the Banking
Regulation Act, 1949, whereby a revised framework along with
operating instructions has been issued for all scheduled
commercial bank to adhere to, for revival and rehabilitation of
MSME borrowers. As per the said Framework, before a loan
account of an MSME changes into a Non-Performing Asset (NPA),
the branch should recognize incipient stress in the account, based
on the extent of default. To enable faster resolution of stress in an
MSME account, every bank shall form Committees for Stressed
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MSME Enterprises at each District where they are present or at
the Division level or Regional Office level, depending upon the
number of MSME units financed in the region. These Committees
will be Standing Committees and will resolve the reported stress
of MSME accounts of the branches falling under their jurisdiction.
Any lender identifying an MSME account as stressed/overdue or
on receipt of an application from the stressed enterprise shall
forward the cases to the Committee for immediate convening of
meeting and deciding on a Corrective Action Plan.
5.If the corrective action plan decided by the Committee,
after considering the response of the lender and the enterprise,
envisages restructuring the enterprise's debt, the Committee shall
conduct a detailed Techno-Economic Viability study and finalise
the terms of such a restructuring in accordance with the extant
prudential norms for restructuring.
6. The submission is that the petitioners' enterprise is an
MSME; no recovery proceedings should have been initiated or
continued without the Bank constituting committee in terms of the
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notification dated 29.05.2015 and without the permission of the
committee.
7.It is submitted that the Bank, in violation of the mandate of
the said notification issued by the Government of India and
circular issued by the Reserve Bank of India, illegally classified the
loan account as NPA on 06.01.2022 and initiated the recovery
proceedings against the petitioner by issuing a demand notice
under Section 13(2) of the SARFAESI Act on 04.04.2022.
Thereafter issued a notice under Section 13(4) of the SARFAESI
Act on 13.07.2022, for taking possession of the secured asset. The
Bank thereafter moved an application under Section 14 of the
SARFAESI Act before the learned Additional Chief Judicial
Magistrate, Ernakulam, to secure by force the possession of the
petitioners' property, namely, their residential home, which is the
secured asset in the hands of the Bank. The learned Additional
Chief Judicial Magistrate has passed the order dated 03.03.2023
in M.C No. 1113/2023 for taking possession of the secured assets.
8. The learned counsel for the petitioners also submitted that
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the Supreme Court in M/s PRO KNITS v. The Board of Directors of
Canara Bank & Ors, has held that the Banks are obliged to adopt
the re-structuring process on its own as the frame contained in
the notification dated 29.05.2015 as revised from time to time is
mandatory in nature. The instructions/directions issued by the
Central Government under Section 9 of the MSME Act and the RBI
circular issued under Sections 21 and 35A of the Banking
Regulation Act have statutory force and are binding on all banking
companies. The submission is that without following the
framework contained in the notification dated 29.05.2015 and
circular issued by the RBI, the Bank has proceeded to recover the
amount due under the provisions of the SARFAESI Act and rules
made thereunder, the whole proceedings from the stage of
classifying the loan account as NPA are vitiated and liable to be
set aside.
9. On the other hand, the learned counsel for the respondent
Bank has submitted that the petitioners and other parties had
neglected to repay the dues and outstanding liabilities, despite the
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respondent Bank's repeated requests. As a result, the loan account
became NPA as per the provisions and rules of the SARFAESI Act
on 06.01.2022.
10. The learned counsel for the respondent Bank also
submits that the petitioners have already transferred the secured
asset in favour of another partner, so they don't have any interest
in it. This writ petition has been filed only to delay the recovery of
the bank's dues.
11.The learned counsel for the respondent Bank has further
submitted that this is the third writ petition filed by the petitioner.
The two writ petitions earlier filed by the petitioners, W.P(C) Nos.
31724/2023 and 15055 of 2023 were disposed of, and the
petitioners did not raise any contention regarding the applicability
of notification and the circular dated 29.05.2015 and 17.03.2016,
respectively. Therefore, it is submitted that the writ petition is
barred by the principle of res judicata.
12.I have considered the submission advanced on behalf of
the petitioners and the respondent Bank.
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13.The learned counsel for the petitioner has relied on the
Supreme Court's judgment in M/s PRO KNITS (supra). A financial
institution or secured creditor can initiate the process of enforcing
the security interest as contained in Chapter III of the SARFAESI
Act upon the borrower's default in repayment of secured debt . As
a result, the loan account becomes a non-performing asset.
14. The Supreme Court has held in M/s PRO KNITS (supra)
that an MSMEs' loan account, under the instructions contained in
the notification dated 29.052015 r/w the directions issued by the
RBI vide the notification dated 17.03.2016 referred to above, the
Bank or the creditors are required to identify the incipient stress
in the account of the MSMEs, before the loan account turned into
NPA. The framework under the aforesaid two notifications enables
such an MSME to voluntarily initiate the proceedings under the
said framework by filing an application along with the affidavit of
an authorised person. Therefore, at the stage of identification of
incipient stress in the loan account of MSME, it would be
incumbent on the part of the concerned MSME to produce
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authenticated and verifiable documents/material for
substantiating its claim of being MSME, before its account is
classified as NPA. If the MSME does not bring it to the notice of
the concerned Bank/creditor that it is a Micro, Small or Medium
Enterprise under the MSMED Act, and if such an enterprise allows
the entire process of enforcement of security interest under the
SARFAESI Act to be over, the challenge to such action of the
concerned Bank/creditor in the court of law/tribunal having failed,
such enterprises cannot be permitted to misuse the process of law
for thwarting the actions taken under the SARFAESI Act by raising
the plea of being an MSME at a belated stage.
Paragraphs 16 and 17 of the said judgment are extracted
hereunder:-
16. We may hasten to add that under the "Framework for Revival
and Rehabilitation of MSMEs", 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 MSME
to show that loan account is of a Micro, Small and Medium
Enterprise, classified and registered as such under the MSMED
Act. 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 MSMEs and categorization
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under the Special Mention Account category, before the loan
account of MSME turns into NPA is a very crucial stage, and
therefore it would be incumbent on the part of the concerned
MSME also to produce authenticated and verifiable
doucments/material for substantiating its claim of being MSME,
before its account is classified as NPA. If that is not done, and once
the account is classified as NPA, the banks i.e. secured creditors
would be entitled to take the recourse to Chapter III of the
SARFAESI Act 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 NPA, the borrower does not
bring to the notice of the concerned bank/creditor that it is a Micro,
Small or Medium Enterprise under the MSMED Act and if such an
Enterprise allows the entire process for enforcement of security
interest under the SARFAESI Act 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 SARFAESI Act by raising the plea of being an
MSME 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 MSMEs, it would be equally incumbent on the
part of the concerned MSMEs 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."
15. From the material on record, there is nothing to
suggest that the petitioner ever brought to the notice of the Bank
that the petitioners' concern was MSME. As mentioned above,
the petitioners have earlier approached twice or thrice this court
and never taken this plea that the petitioner was an MSME. This
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court granted an indulgence to the petitioners, but they did not
comply with the directions. At this stage the petitioner cannot be
allowed to come with a new plea of MSME. The petitioners
cannot be allowed to misuse the process of the court at this
belated stage. The attempt on the part of the petitioners is
nothing but to prolong the realisation of money due to the
respondent Bank.
In view thereof, I find no substance in this writ petition
which is hereby dismissed.
Sd/-
D. K. SINGH
JUDGE
SJ
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APPENDIX OF WP(C) 41576/2023
PETITIONER EXHIBITS
Exhibit P1 A TRUE COPY OF THE UDYOG AADHAR REGISTRATION
CERTIFICATE NO. UANKL02D0019128
Exhibit P2 A TRUE COPY OF THE MSME REGISTRATION CERTIFICATE
NUMBER UDYAM-KL-02-0010491 DATED 22.01.2021,
ISSUED BY THE MSME MINISTRY, GOVERNMENT OF INDIA,
TO M/S. POWERPLUS POWER UNIT
Exhibit P3 A TRUE COPY OF THE NOTIFICATION S.O. 1432(E) DATED
29-05-2015 FOR REVIVAL AND REHABILITATION OF MSME
ISSUED BY THE MINISTRY OF MICRO SMALL & MEDIUM
ENTERPRISES
Exhibit P4 A TRUE COPY OF THE CIRCULAR FIDD.MSME &
NFS.BC.NO.21/06.02.31/2015-16 DATED 17-03-2016,
ISSUED BY THE RESERVE BANK OF INDIA (RBI)
Exhibit P5 A COPY OF THE SANCTION LETTER DATED 30.10.2018
ISSUED BY INDUSLND BANK
Exhibit P6 A TRUE COPY OF THE DEMAND NOTICE DATED 4.4.2022,
ISSUED BY THE 2ND RESPONDENT TO THE PETITIONER
Exhibit P7 A TRUE COPY OF THE POSSESSION NOTICE DATED
13.07.2022
Exhibit P8 A TRUE COPY OF THE NOTICE DATED 20.4.2023, ISSUED
BY THE ADVOCATE COMMISSIONER
Exhibit P9 A COPY OF THE JUDGMENT IN WRIT PETITION NO.
15055/2023 DATED 4.9.2023
Exhibit P10 A TRUE COPY OF THE JUDGMENT IN W.P (C) NO.
31724/2023 DATED 16.10.2023
Exhibit P11 A TRUE COPY OF THE APPLICATION WITHOUT EXHIBITS,
DATED 10.12,2023 BEING SUBMITTED BY THE PETITIONER
THE CHAIRPERSON, COMMITTEE FOR STRESSED MICRO
SMALL AND MEDIUM ENTERPRISES INDUSIND BANK LIMITED
