APHC010171862025 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI WRIT PETITION NO: 9600 of 2025 Bench Sr.No:-11 [3446] M/s. Mahdi Steels Pvt Ltd and others ...Petitioners Vs. Indian Bank, represented by its Chief Manager/Authorized Officer ...Respondent ********** Advocate for petitioners : Sri S. Raja Bhogendra Nath Advocate for respondent : Ms. M. Vinodhini Ruth, learned counsel representing Sri Satyanarayana Dhara CORAM : THE CHIEF JUSTICE DHIRAJ SINGH THAKUR SRI JUSTICE R. RAGHUNANDAN RAO DATE : 17th April 2025 Per DHIRAJ SINGH THAKUR, CJ (Oral): The petitioners having defaulted in repayment of the loans advanced by the respondent Indian Bank, the account of petitioner No.1 was declared as a Non-performing Asset (N.P.A.) and proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) initiated. 2. Against the proceedings so initiated, the petitioners approached the Debts Recovery Tribunal, Visakhapatnam (D.R.T.) and also sought interim relief vide I.A.No.1728 of 2024 in S.A.No.295 of 2024, which was rejected by virtue of the order impugned dated 15.07.2024. According to the order impugned, the D.R.T. did not find a prima facie case in favour of the 2 petitioners herein. The remedy against the order rejecting the prayer for interim relief would certainly lie before the appellate Forum i.e., the Debts Recovery Appellate Tribunal (D.R.A.T.). 3. However, learned counsel for the petitioners has sought to raise that petitioner No.1 being a Micro, Small and Medium Enterprise (M.S.M.E.), the Indian bank was required to determine the incipient stress of the petitioners in accordance with the Master Circular of the Reserve Bank of India (R.B.I.). 4. Reference in this regard has been made to the judgment of the Apex Court in Pro Knits v. Board of Directors of Canara Bank and others1 in which the learned counsel for the petitioners emphasized that the Apex Court had laid emphasis on the requirement of the banks to follow the rules and regulations as also the Master Circular of the R.B.I. 5. It was in that context stated by the learned counsel for the petitioners that the Indian Bank, respondent herein, having failed to determine the incipient stress notwithstanding the fact that petitioner No.1 was a M.S.M.E., the declaration of the account of petitioner No.1 as N.P.A. was contrary to the regulations and therefore, any proceedings initiated by the bank on that basis in terms of the SARFAESI Act would be unsustainable. Since reference has been made to the judgment of the Apex Court and in particular, para Nos.15 to 17 thereof, it would be pertinent to reproduce the same hereunder: “15. What is contemplated in the “Framework for Revival and Rehabilitation of MSMEs” contained in the Instructions/ Directions 1 (2024) 10 SCC 292 3 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 29.05.2015 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 Section 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. 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 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 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. 4 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.” On a perusal of the judgment of the Apex Court, it is clear that while there is an obligation on a bank, which has advanced loan to a borrower who is an M.S.M.E., to comply with the Master Circular and the relevant regulations of the R.B.I., an equal responsibility has been cast upon a borrower to remain vigilant in case it is a M.S.M.E. to insist upon the bank as a creditor to follow the relevant regulations as also the Master Circular. 6. On a reading of the judgment of the Apex Court, it has been made clear that in case the requisite action is not initiated by a borrower and the account 5 is classified as a N.P.A., the banks, as secured creditors, would be entitled to take recourse to Chapter III of the SARFAESI Act for enforcement of the security interest. 7. A similar issue has already been dealt with by this Court in M/s. Swetha PVC Industries vs. The State Bank of India and others (W.P.No.3764 of 2025 dated 13.02.2025). 8. Following the view already taken by us and considering the fact that the account of petitioner No.1 has already been declared as a N.P.A., we find no reason to interfere with the action of the respondent bank in resorting to the remedies which are otherwise prescribed and available under the SARFAESI Act. 9. Be that as it may, nothing would prevent the petitioners herein to avail the remedy of appeal, which is otherwise available to them, if so advised. 10. Accordingly, the Writ Petition is dismissed. No order as to costs. Pending miscellaneous applications, if any, shall stand closed. DHIRAJ SINGH THAKUR, CJ R. RAGHUNANDAN RAO, J AMD 6 32 HON’BLE MR. JUSTICE DHIRAJ SINGH THAKUR, CHIEF JUSTICE & HON’BLE MR. JUSTICE R. RAGHUNANDAN RAO WRIT PETITION NO: 9600 of 2025 Dt : 17.04.2025 AMD