Kerala High Court
Lekshmi Cashew Company vs The Union Of India on 17 February, 2025
W.P.(C.) No. 37628 of 2024
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IN THE HIGH COURT OF KERALA AT ERNAKULAM
PRESENT
THE HONOURABLE MR. JUSTICE GOPINATH P.
TH
MONDAY, THE 17 DAY OF FEBRUARY 2025 / 28TH MAGHA,
1946
WP(C) NO. 37628 OF 2024
PETITIONER:
LEKSHMI CASHEW COMPANY,
MADANKAVU, RAILWAY WARD JUNCTION,
CHEMMAKAD, KOLLAM REPRESENTED BY ITS
PROPRIETOR RAGHU KUMAR, AGED 50 YEARS,
S/O. THANKAPPAN PILLAI, 19-3-1-2, B. NO. XI/645,
LAKSHMI PEROOR, TKM ENGINEERING COLLEGE
P.O, KOTTANKARA, KOLLAM, PIN -691005, PIN -
691601
BY ADVS.
T.R.RAJAN
SAJU J PANICKER
RESPONDENTS:
1 THE UNION OF INDIA,
REPRESENTED BY THE SECRETARY, THE
MINISTRY OF MICRO, SMALL & MEDIUM
ENTERPRISES (MSME) IN NEW DELHI IS UDYOG
BHAWAN, RAFI MARG, NEW DELHI, PIN - 110011
2 THE REGIONAL MANAGER
(CHAIRMAN, THE COMMITTEE FOR A CORRECTIVE
ACTION PLAN UNDER REVIVAL &
REHABILITATION OF MSME)
INDUSIND BANK LIMITED, VELLAYAMBALAM,
SASTHAMANGALAM ROAD, SASTHAMANGALAM P.
O., THIRUVANANTHAPURAM, PIN - 695010
W.P.(C.) No. 37628 of 2024
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3 INDUSIND BANK LTD.,
VARINJAM TOWERS, RESIDENCY ROAD, KOLLAM
REPRESENTED BY ITS BRANCH MANAGER, PIN -
691001
4 THE AUTHORISED OFFICER & ASSISTANT VICE
PRESIDENT
M/S INDUSIND BANK LTD, NO: 25, STEEPLE
REACH, A BLOCK, THIRD FLOOR, CATHEDRAL
ROAD, GOPALAPURAM CHENNAI, PIN - 600096
BY ADV RENJITH.R NAIR
THIS WRIT PETITION (CIVIL) HAVING COME UP FOR
ADMISSION ON 17.02.2025, THE COURT ON THE SAME DAY
DELIVERED THE FOLLOWING:
W.P.(C.) No. 37628 of 2024
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P. GOPINATH, J.
---------------------------------
W.P.(C.) No. 37628 of 2024
-------------------------------------
Dated this the 17th day of February, 2025
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. The 1st petitioner claims that it 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
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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 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
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
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RBI. It is submitted that the judgment of the Supreme Court in
Pro Knits v. Canara Bank, (2024) 10 SCC 292 deals with a
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 show 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
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once the account has been classified as a Non-Performing
Asset (NPA) in terms of the prudential norms issued by the
RBI, the 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 indicates that
while the bank may also refer the issue for consideration of the
committee, there is nothing in the guidelines 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
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taking symbolic possession of the secured assets.
5. The learned counsel for the petitioner submits, in
reply, that the petitioner had not challenged the proceedings
under the SARFAESI Act before any forum and therefore the
law laid down in P.K. Krishnakumar (supra) may not
apply. The learned counsel appearing for the respondent
bank submits that the petitioner had initially filed W.P.(C)
No. 12470/2024 seeking One Time Settlement. It is
submitted that the condition imposed by this Court in the
interim order in that writ petition was not complied with and,
therefore, the said Writ Petition was dismissed. It is
submitted that thereafter the petitioner filed W.P.(C) No.
28175/2024 seeking permission to take out the personal
belongings from the residential house, which was taken
possession of in proceedings under the SARFAESI Act. It is
submitted that the claim for reference to the Committee for
Stressed Micro Small and Medium Enterprises was never
raised in the aforesaid Writ Petitions.
6. 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 in the writ
petition. Though the learned counsel appearing for the
petitioner vehemently contends that the primary responsibility
to refer a case to the committee for 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 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 effect,
notwithstanding anything inconsistent therewith contained
in any other law for the time being in force or any
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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."
( emphasis is supplied)
7. In the facts of the present case, it is not disputed that
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the account of the petitioner was classified as NPA on
27.09.2024. The claim that the borrower was entitled to
consideration of a corrective action plan in terms of the
framework was made for the first time after the bank issued a
notice under section 13(4) of the SARFAESI Act for taking
symbolic possession of the secured assets.
8. A 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:
9. After quoting paragraphs 16 & 17 of the
judgment of the Supreme Court in Pro Knits (supra)
the Division Bench concludes thus:-
"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 belated stage. This dicta is very clear and is binding.
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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 focused entirely on the principle of
estoppel. Even otherwise, the clear dicta of the Hon'ble
Supreme Court in the case of M/s. Pro Knits leaves no
room to accept the contention raised by the Appellants.
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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,
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
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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.''
10. 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, and no such claim had been
raised in the earlier litigations between the same parties, the
claim for reference to the committee in terms of the
framework, cannot be made.
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11. 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).
Thus the writ petition fails and will stand dismissed.
Sd/-
P. GOPINATH,
JUDGE
sjb/17.02.25
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APPENDIX OF WP(C) 37628/2024
PETITIONER EXHIBITS
Exhibit P1 TRUE COPY OF THE MSME CERTIFICATE
DATED 17/12/2020 ISSUED BY THE
MINISTRY OF MICRO, SMALL & MEDIUM
ENTERPRISES (MSME), UNION OF INDIA
Exhibit P2 TRUE COPY OF THE ORDER DATED
28/11/2023 OF THE HONOURABLE CHIEF
JUDICIAL MAGISTRATE COURT, KOLLAM
Exhibit P3 TRUE COPY OF THE JUDGEMENT DATED
7/8/2024 OF THIS HONOURABLE COURT
IN WRIT PETITION(C)NO. 28175/2024
Exhibit P4 TRUE COPY OF THE APPLICATION FOR
CORRECTIVE ACTION PLAN FOR
REVIVAL & REHABILITATION OF THE
PETITIONER UNIT DATED 12/9/2024
SUBMITTED BY THE PETITIONER
BEFORE THE 2ND RESPONDENT
Exhibit P5 TRUE COPY OF THE JUDGEMENT OF THE
HONOURABLE SUPREME COURT OF
INDIA REPORTED IN 2024 (4) KLT 761
(PRO KNITS(M/S) VS BOARD OF
DIRECTORS OF CANARA BANK
Exhibit P6 TRUE COPY OF THE PETITION DATED
23/9/2024 SUBMITTED BY THE
PETITIONER BEFORE THE 2ND
RESPONDENT
Exhibit P7 TRUE COPY OF CODE OF BANK'S
COMMITMENT TO MICRO AND SMALL
ENTERPRISES FORMULATED BY THE
3RD RESPONDENT
Exhibit P8 TRUE COPY OF THE NOTICE INFORMING
ABOUT SALE BEARING NO
KER/FRR/LAKCAS/FY24- 25/001 DATED
21/11/2024 ISSUED BY THE 4"
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RESPONDENT
Exhibit P9 TRUE COPY OF THE SALE NOTICE DATED
28/01/2025 ISSUED BY THE 4TH
RESPONDENT
