Kerala High Court
M/S Meridian Contractors And Engineers vs Canara Bank on 17 February, 2025
WP(C) NO. 45285 OF 2024 1
2025:KER:14920
IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE GOPINATH P.
MONDAY, THE 17TH DAY OF FEBRUARY 2025 / 28TH MAGHA, 1946
WP(C) NO. 45285 OF 2024
PETITIONER/S:
1 M/S MERIDIAN CONTRACTORS AND ENGINEERS
REPRESENTED BY ITS PROPRIETOR AJITH KUMAR.M.J, T.C
10 87, ANJANASREE, PIPPINMOODU, PEROORKADA,
THIRUVANANTHAPURAM, PIN - 695005
2 AJITH KUMAR.M.J
AGED 48 YEARS
S/O. MANOHARAN NAIR, JALAJA BHAVAN, NEDUMPARA,
KARAKULAM THIRUVANANTHAPURAM, PIN - 695564
BY ADVS.
G.P.SHINOD
GOVIND PADMANAABHAN
AJIT G ANJARLEKAR
ATUL MATHEWS
GAYATHRI S.B.
RESPONDENT/S:
1 CANARA BANK
SASTHAMANGALAM BRANCH, SASTHAMANGALAM P.O,
THIRUVANANTHAPURAM, REPRESENTED BY ITS AUTHORISED
OFFICER, PIN - 695010
2 THE AUTHORISED OFFICER
CANARA BANK, SASTHAMANGALAM BRANCH, SASTHAMANGALAM
P.O, THIRUVANANTHAPURAM, PIN - 695010
BY ADVS.
WP(C) NO. 45285 OF 2024 2
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GOPIKRISHNAN NAMBIAR M.
K.JOHN MATHAI(K/413/1984)
JOSON MANAVALAN(J-526)
KURYAN THOMAS(K/131/2003)
PAULOSE C. ABRAHAM(MAH/58/2006)
RAJA KANNAN(K/356/2008)
OTHER PRESENT:
M.GOPIKRISHNAN NAMBIAR(SC)
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR ADMISSION
ON 17.02.2025, THE COURT ON THE SAME DAY DELIVERED THE
FOLLOWING:
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JUDGMENT
The petitioners have approached this Court challenging
the proceedings initiated against the petitioners under the
provisions of the Securitisation and Reconstruction of
Financial Assets and Enforcement of Security Interest Act,
2002 (hereinafter referred to as the SARFAESI Act) to recover
amounts due under a loan availed by the petitioners from the
respondent bank.
2. According to the petitioners, the 1st petitioner is a
Micro, Small or Medium Enterprise (hereinafter referred to as
'the MSME') entitled to the benefits of the framework for
revival and rehabilitation of the MSME's which has been
framed in respect of MSME's registered as such under the
Micro, Small and Medium Enterprises Development Act, 2006
(hereinafter referred to as 'the MSMED Act'). It is submitted
that the Reserve Bank of India (hereinafter referred to as 'the
RBI') has issued guidelines directing that the framework for
the revival and rehabilitation of the MSME's issued by the
Ministry of Micro Small and Medium Enterprises, shall be
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implemented by all Banks and Financial institutions falling
under the umbrella of the RBI.
3. The learned counsel for the petitioners would
submit that the framework is a statutory framework issued in
terms of the powers conferred on the Central Government,
under the provisions of Section 9 of the MSMED Act. It is
submitted that, when a unit is registered as an MSME, the
framework which is on record as Exhibit P3 mandates that the
loan account shall be referred to a committee [known as the
Committee for Stressed Micro Small and Medium Enterprises]
for implementation of a corrective action plan, which may
include rectification and re-structuring; and only if either
rectification or restructuring is not possible, can the bank
proceed for recovery. It is submitted that the framework
contains detailed guidelines for re-structuring/rectification and
any action for recovery without considering the scope of
rectification or re-structuring, would be contrary to the
statutory framework and the guidelines issued by the RBI. It is
submitted that the judgment of the Supreme Court in Pro
Knits v. Canara Bank, (2024) 10 SCC 292 deals with a
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situation where no claim was made by the unit in question that
it was an MSME. It is submitted that where the loan itself was
granted as an MSME loan, the question of identification or a
claim being raised by the borrower that the matter is to be
referred to the committee for corrective action plan as noticed
above, does not arise. It is submitted that it is clear from the
judgment of Pro Knits (supra) especially paragraph No. 16
thereon, that where there are verifiable materials already
before the bank which shows that the borrower is to be
classified as an MSME, the failure of the bank to refer the
issue for the consideration of the committee is clearly illegal
and contrary to the circular issued by the RBI.
4. The learned counsel appearing for the respondent
bank submits that the issue raised in the writ petition is
covered against the petitioner by the judgment of the Supreme
Court in Pro Knits (supra) and also by the Division Bench
judgment of this Court in P.K. Krishnakumar v. Induslnd
Bank, 2024 SCC OnLine Ker 6888. It is submitted that once
the account has been classified as a Non-Performing Asset
(NPA) in terms of the prudential norms issued by the RBI, the
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question of referring the matter to the committee constituted
under the framework does not arise for consideration. It is
submitted that in the facts of the present case, the account was
classified as an NPA on 27.09.2024 and before the
classification of the account as an NPA, no request for
reference to the committee constituted under the framework
was ever submitted to the bank. It is submitted that a reading
of the provisions of the framework indicate that while the bank
may also refer the issue for consideration of the committee,
there is nothing in the framework to indicate that it is
mandatory on behalf of every bank to refer the issue for
consideration of the committee even in the absence of any such
request by the borrower. In other words it is submitted that
the absence of a reference does not result in proceedings
initiated under the SARFAESI Act becoming illegal. It is
further submitted that the only representation submitted by
the borrower in the facts and circumstances of the present
case is the one submitted after the bank issued notice for
taking symbolic possession of the secured assets.
5. Having heard the learned counsel appearing for the
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petitioner and the learned counsel appearing for the
respondent bank, I am of the view that the petitioner has not
made out any case for the grant of reliefs sought for in the writ
petition.
6. Though the learned counsel appearing for the
petitioner vehemently contends that the primary responsibility
to refer a case to the committee for a corrective action was
that of the bank, I cannot accept that contention, especially in
the light of the law laid by the Supreme Court in Pro Knits
(supra) which was followed by a Division Bench of this Court in
in P.K. Krishnakumar (supra). Paragraphs 16 and 17 of the
judgment in Pro Knits (supra) reads thus:
"16. As transpiring from the said
Instructions/Directions, the entire exercise as
contained in the "Framework for Revival and
Rehabilitation of MSMEs" is required to be carried out
by the banking companies before the accounts of
MSMEs turn into Non-Performing Asset. It is true that
the security interest created in favour of any bank or
secured creditor may be enforced by such creditor in
accordance with the provisions contained in Chapter III
of the SARFAESI Act, and that as per Section 35 of the
SARFAESI Act, the provisions of the said Act have the
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effect, notwithstanding anything inconsistent therewith
contained in any other law for the time being in force
or any instrument having effect by virtue of any such
law. However, pertinently the whole process of
enforcement of security interest as contained in
Chapter III of the SARFAESI Act, could be initiated only
when the borrower makes any default in repayment of
secured debt or any instalment thereof, and his account
in respect of such debt is classified by the secured
creditor as non-performing asset, in view of Section
13(2) of the said Act.
17. What is contemplated in the "Framework for
Revival and Rehabilitation of MSMEs" contained in the
Instructions/Directions stated hereinabove, is required
to be followed prior to the classification of the
borrower's account, (in the instant case MSMEs loan
account), as non-performing assets. The said
Instructions contained in the Notification dated 29-5-
2015 as part of measures taken for facilitating the
promotion and development of MSMEs issued by the
Central Government in exercise of powers conferred
under Section 9 of the MSMED Act, followed by the
Directions issued by the RBI in exercise of the powers
conferred under Sections 21 and 35-A of the Banking
Regulation Act, the banking companies though may be
"secured creditors" as per the definition contained in
Section 2(zd) of the SARFAESI Act, are bound to follow
the same, before classifying the loan account of MSME
as NPA."
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(
emphasis is supplied)
7. In the facts of the present case, it is not disputed that
the account of the petitioner was classified as NPA on
27.09.2024. The claim that the borrower was entitled for
consideration of a corrective action plan in terms of the
guidelines was made for the first time after the bank issued a
notice under section 13(4) of the SARFAESI Act taking
symbolic possession of the secured assets. The Division Bench
of this Court in P.K Krishnakumar (supra) held as follows:
"14. The Hon'ble Supreme Court in the case of M/s.
Pro Knits had examined the scheme of MSMED Act
in conjunction with the SARFAESI Act and had
accepted the contention of the MSMEs that they
could have a special status as regards recovery of
loans. However, after concluding so, the Hon'ble
Supreme Court observed thus:
"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
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Micro, Small and Medium Enterprises,
before their accounts turn into
nonperforming 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 authorised person.
Therefore, the stage of identification of
incipient stress in the loan account of
MSMEs and categorisation 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
documents/ material for substantiating
its claim of being MSME, before its
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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
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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."
(emphasis supplied)
The Hon'ble Supreme Court, therefore, has laid
down the position of law that if, at the stage of
classification of the loan account, the borrower
does not bring to the notice of the Bank that it is an
MSME and allow the entire process to go through,
then it will be precluded from raising it at the
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belated stage. This dicta is very clear and is
binding.
15. Furthermore, the Appellants are mixing up
several issues which have different connotations,
such as res judicata, estoppel, waiver and
acquiescence. The waiver and acquiescence will
stand on a completely different footing than an
estoppel. If a party knowingly permits a certain
state of affairs to go through, the concept of waiver
and acquiescence also comes into play.
16. In this case, the Appellants permitted the state
of affairs to prevail, including that of seeking
repayment by installments, and therefore, clearly
benefited from the delay, which has enured to their
benefit, whereby the Appellants have been able to
retain the amount instead of repaying the same.
17. The observations of the Hon'ble Supreme
Court in paragraph (17) in the case of M/s. Pro
Knits lays down the principle that the borrowers
have to be diligent, and if they knowingly permit
the state of affairs to continue, they will be
precluded from raising the challenge. The case is
not only of estoppel as argued but acquiescence
and waiver as well. The Appellants have
sidestepped this aspect of the matter and have
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focused entirely on the principle of estoppel. Even
otherwise, the clear dicta of the Hon'ble Supreme
Cort in the case of M/s. Pro Knits leaves no room
to accept the contention raised by the Appellants.
18. In the earlier two writ petitions, there is not
even a whisper of the Appellant Enterprise being
MSME. The argument that the Appellants were not
aware of the status of the Enterprise as MSME is
too far-fetched to believe when they had filed two
writ petitions through legal counsels. In this case,
a lame explanation is given that the Appellants
were unaware of their rights, which we find
entirely unacceptable. It is nowhere stated that the
Appellants are illiterate. Therefore, all we see
before us is an attempt to raise repeated
challenges in the Court to stall the repayment. The
learned counsel for the Respondent Bank
submitted that the Appellants paid not a single
paisa, and the entire loan amount has been
defalcated.
19. The Appellants' argument that the High Court
must intervene, no matter how they conducted
themselves, proceeds on a complete
misunderstanding of the nature of writ jurisdiction.
There are two separate issues. One, whether the
Bank lacked the authority to proceed. Second,
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whether the Appellants' conduct disqualifies or
disentitles them from invoking equity jurisdiction.
In cases where a borrower who qualifies as MSME
does not initially raise its status to challenge a
bank's recovery proceedings under the SARFAESI
Act but instead participates fully in the process
without objection, cannot later use their MSME
status to argue that the proceedings were without
jurisdiction. The power of the High Court under
Article 226 of the Constitution of India is
discretionary based on the principles of fairness
and justice, which include examining the conduct of
the parties involved. When the Appellants, by their
actions, accepted the Bank's authority without
objection, the High Court will refuse to exercise its
writ jurisdiction to assist such Appellants, even if
there are questions about the jurisdiction of the
Bank. This is because the Appellants' own conduct
disqualifies them from claiming such relief. When
the High Court declines to interfere in such
circumstances, it does not mean that the
Appellants' waiver vested the Bank with
jurisdiction, assuming it is inherently lacking; it
means that the borrower is not entitled to invoke
writ jurisdiction irrespective of whether the Bank's
actions are without jurisdiction or not. These two
concepts are distinct, and the distinction is
emphasized by the Hon'ble Supreme Court in the
case of M/s. Pro Knit.''
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The Division Bench has thus clearly taken the view that unless
the procedure for reference is sought prior to the account
being declared as NPA, the claim for reference to the
committee in terms of the framework, cannot be made.
8. Therefore, I am of the view that the points raised in
this writ petition are covered against the petitioners by the
judgment of the Supreme Court in Pro Knits (supra) as also
the judgment of the Division Bench in P.K Krishnakumar
(supra).
This writ petition fails and is accordingly dismissed.
sd/
GOPINATH P.
JUDGE
jm/
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APPENDIX OF WP(C) 45285/2024
PETITIONER EXHIBITS
Exhibit P1 A TRUE COPY OF THE REGISTRATION
CERTIFICATE ISSUED UNDER THE UDYAM
REGISTRATION PORTAL MAINTAINED BY THE
MINISTRY OF MICRO, SMALL AND MEDIUM
ENTERPRISES DATED 28-01-2021
Exhibit P2 A TRUE COPY OF THE DEMAND NOTICE DATED
30-09-2024 ISSUED BY THE RESPONDENTS
Exhibit P3 A TRUE COPY OF THE NOTIFICATION S.O.
1432(E) DATED 29-05-2015
Exhibit P4 A TRUE COPY OF THE POSSESSION NOTICE
DATED 03-12-2024
Exhibit P5 A TRUE COPY OF THE REPRESENTATION DATED
13-12-2024 BEFORE THE RESPONDENTS
Exhibit P6 A TRUE COPY OF THE SALE NOTICE DATED 23-
01-2025
Exhibit P7 A TRUE COPY OF THE NOTICE DATED 03-02-
2025 ISSUED BY ADVOCATE COMMISSIONER
Exhibit P8 A TRUE COPY OF THE LOAN SANCTIONING
LETTER DATED 25.1.2024
Exhibit P9 A TRUE COPY OF THE REPRESENTATION
SUBMITTED BY THE ALL KERALA GOVERNMENT
CONTRACTORS ASSOCIATION
