IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI (Special Original Jurisdiction) FRIDAY, THE TWENTY FOURTH DAY OF JANUARY TWO THOUSAND AND TWENTY FIVE PRESENT HON’BLE SRI JUSTICE DHIRAJ SINGH THAKUR, THE CHIEF JUSTICE AND HONOURABLE SRI JUSTICE RAVI CHEEMALAPATI WRIT PETITION NO: 17213 OF 2024 Between: 1. M/s Vardhan Marketing Company, Represented by its proprietor, Mr. Marisetty Nagamalleswara Swamy, H.No. 54/9/48, Beside Sweet Magic, Block E-15, plot no. 5,100 feet Road, Vijayawada, NTR district, Andhra Pradesh. 2. Marisetty Nagamalleswara Swamy, S/o Bangarayya, Aged about 50 years, 0/c Private Employee R/o D.No. 41-1/19-2 flat no. TF-3, A.B Towers, Balaji Nagar Krishna Lanka, Vijayawada, NTR District, Andhra Pradesh. ...Petitioners AND 1. Union of India, Rep., by its Secretary, Ministry of Micro, Small and Medium Enterprises, Udyog Bhawan, Rafi Marg, New Delhi-110011 2. State of A.P, Rep by its Principle Secretary, Department industries. Secretariat Velagapudi, Amaravati, Guntur District, A.P. of Buildings 3. Authorized Officer, Asset Recovery Branch (79170),Vijayawada, 4th floor, Andhra Bank Buildings, RR Apparao Street,Vijayawada, A.P.- 520001. > Authorized officer, Asset Recovery Branch ( 79170) 4. Chief Manager, >Vijayawada,4th floor, Andhra Bank Buildings, RR Apparao Street Vijayawada, A.P.-520001. 5. The Branch Manager, Union Bank of India (Erstwhile Corporation Bank), Opposite Time Hospital, Kanuru,Vijayawada-7. ...Respondents under Article 226 of the Constitution of India praying that in Petition the circumstances stated in the affidavit fiied therewith, the High Court may direction more particularly one in the nature Ref-ABR- be pleased to issue writ order or declare VJA SALE.BD.04.2023-24 issued by the 3rd Respondent is illegal .arbitrary and unconstitutional and it amounts to violation of article 14,16,21, and of India and contrary to Act 27 of 2006 i.e., MSME order impugned vide Mandamus of 300A of the Constitution Act Section 18 Speciai Leave Petition(c) No.7898 of 2024 in M/s Pro Knits Vs The Board of of Canara Bank and Ors dated 1.08.2024 and set aside the same and also contrary to Hon'ble Supreme Court Judgment vide Directors and direct the Respondents 3 to 5 to hand over the keys. lA NO: 1 OF 2024 Section 151 CPC praying that in the circumstances Petition under stated in the affidavit filed in support of the petition, the High Court may be pleased to stay all further proceedings including the auction in Ref-ABR- VJA SALE;BD;04;2023-24 issued by the 3rd Respondent lA NO: 2 OF 2024 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be allow the petition for marking the same as electronic evidence of Translation from Telugu(Audi conversation ) to SM-A226B/DS serial pleased to submitted in the form English /pendrive Samsung Gala'" A22 5G Model name IMEI (Slot 1) 9666605999 358136643015399 IMEI 359648713015397 to be taking in to consideration in NO.R9ZRB051BQM (Slot2) 9440161111 the interest of justice. iA NO: 4 OF 2024 Petition under Section 151 CPC praying that in the circumstances stated in the affidavit fiied in support of the petition, the High Court may be pleased to set aside the impugned seizure of the Flat, and consequently Bank Authorities to handover the Flat keys to the Petitioner direct the forthwith and pass any or such order or orders as the Hon’ble Court deems fit and proper as in the circumstances of the case and in the interest of justice and equity, pending disposal of the writ petition. IA NO: 5 OF 2024 . Authorized Officer, Asset Recovery Branch (79170),Vijayawada,4 th Andhra Bank Buildings, RR Apparao Street,Vijayawada, A.P.- 1 floor, 520001. 2. Chief Manager, Authorized officer. Asset Recovery Branch ( 79170) Vijayawada,4th floor, Andhra Bank Buildings, RR Apparao Street, Vijayawada, A.P.-520001. 3. The Branch Manager, Union Bank of India (Erstwhile Corporation Bank), Opposite Time Flospital, Kanuru,Vijayawada-7. ...Vacate Petitioners/Respondents 3 to 5 AND Vardhan Marketing Company, Represented by its proprietor, Mr. H.No. 54/9/48, Beside Sweet 1. M/s Marisetty Nagamalleswara Swamy Magic, Block E-15, plot no. 5,100 feet Road, Vijayawada, NTR district, Andhra Pradesh. 2 Marisetty Nagamalleswara Swamy, S/o Bangarayya, Aged about 50 years, 0/c Private Employee R/o D.No. 41-1/19-2 flat no. TF-3, A.B r Towers, Balaji Nagar Krishna Lanka, Vijayawada, NTR District, Andhra Pradesh. ...RespondentsA/Vrit Petitioners 3. Union of India, Rep., by its Secretary, Ministry of Micro, Small and Medium Enterprises, Udyog Bhawan, Rafi Marg, New Delhi-110011 4. State of A.P, Rep by its Principle Secretary, Department industries. Secretariat Velagapudi, Amaravati, Guntur District, A.P. of Buildings, ...Respondents Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court may be pleased to vacate the interim orders dt. 23.08.2024 in W.P. No. 17213/ 2024 and dismiss the Writ Petition with exemplary costs. Counsel for the Petitioners: SRI. P LAKSHMANA RAO Counsel for the Respondent No.1: DEPUTY SOLICITOR GENERAL OF INDIA Counsel for the Respondent No.2: GP FOR INDUSTRIES Counsel for the Respondent Nos. 3 to 5: SMT. V DYUMANI, SC FOR BANK The Court made the following order: Bench Sr.No:-SL-1 [3483] APHC010338362024 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI WRIT PETITION NO: 17213 of 2024 ...Petitioners Vardhan Marketing Company and others Vs. ...Respondents Union of India and others ********** Mr. P. Lakshmana Rao Advocate for Petitioner: GP for Industries Commerce, Mrs. V. Dyumani Advocates for Respondents; CORAM :THE CHIEF JUSTICE DHIRAJ SINGH THAKUR SRI JUSTICE RAVI CHEEMALAPATI : 24*'’ January, 2025. PER DHIRAJ SINGH THAKUR. CJ: DATE The petitioner, through the medium of the present petition, challenges the action of respondent No.3 in issuing the impugned notice dated 26.07.2024, issued in terms of Rule 8 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (for short SARFAESI Act”), informing the petitioner that the secured asset, the possession of which was taken by the authorized officer, would be sold by holding a public e-auction on 14.08.2024. 2. Admittedly, the possession is stated to have been taken from the petitioner on 11.07.2024. The petitioner claims that since it was an MSME registered under the MSMED Act, the property belonging to the petitioner 2 HCJ & RCJ WP 17213 2024 could not have been made the subject matter of the auction nor could the possession of the said property be taken over by the Union Bank of India (erstwhile Corporation Bank) inasmuch as it had not followed the mandate of notification bearing No.S.O.(E).1432, dated 29.05.2015, issued by the Central Government in exercise of the powers conferred in terms of Section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (for short. MSMED Act”). 3. Reliance was placed upon the Apex Court judgment rendered in the case of Pro Knits vs. Board of Directors of Canara Bank^ which holds that the instructions issued by the Central Government vide notification, dated 29.05.2015, in exercise of powers under Section 9 of the MSMED Act, had statutory force and were binding on all the Scheduled Commercial Banks licensed to operate by the Reserve Bank of India. Learned counsel for the petitioner would urge that the proceedings under the SARFAESI Act being in violation of the mandate of the notification dated 29.05.2015 and the directions issued by the Reserve Bank of India namely “[Lending to Micro, Small and Medium Enterprises (MSME) Sector] - Directions, 2016” vide Reserve Bank of India notification, dated 21.07.2016, which, according to the petitioner, were made applicable to every Scheduled Commercial Bank excluding Regional Rural Banks licensed to operate by the Reserve Bank of India. 4. 2024 see Online Se 1864 3 HCJ & RCJ WP_17213_2024 be worthwhile to refer to the Apex Court judgment At this stage, it would of Pro Knits{supra) which holds as under; 5. in the case What is contemplated in the "Framework for Revival and 15. Rehabilitation of MSMEs" contained in the Instructions/Direction s required to be followed prior to the classification MSMEs loan account), stated hereinabove, is of the borrower's account, (in the instant case said Instructions contained in the Non-PerformingAssets. The Notification dated 29.05.2015 as part of measures taken for facilitating development of MSMEs issued by the Central conferred under Section 9 of the as the promotion and Government in exercise of powers followed by the Directions issued by the RBI in exercise conferred under Section 21 and 35A of the Banking be ‘secured MSMED Act, of the powers Regulation Act, the Banking companies though may the definition contained in Section 2(zd) of the creditors’ as per SARFAESI Act, are bound to follow the same, before classifying the loan account of MSME as NPA. We may hasten to add that under the “Framework for Revival 16. creditors are required to and Rehabilitation of MSMEs”, the banks or 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 authenticated and verifiable material with them concerned MSME to show that loan account is of a Banks must have some as produced by the Micro, Small and Medium Enterprise, classified and registered as such under the MSMED Act. The said Framework also enables the Micro, to voluntarily initiate the proceedings Small or Medium Enterprise 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 the part of the concerned MSME also to produce verifiable documents/material for substantiating its be incumbent on authenticated and claim of being MSME, before its account is classified as NPA. If that is 4 HCJ & RCJ WP 17213 2024 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. ” On a perusal of the judgment rendered in the case of Pro Knits, it 6. would be clear that while the directions issued by the Reserve Bank of India in terms of Section 21 and 35(A) of the Banking Regulation Act, have been held to be binding, yet the judgment emphasized that the petitioner is required to establish by placing authenticated and verifiable material/docum ents on record to substantiate its claim of being an MSME and secondly, that if the borrower did not bring to the notice of the concerned bank/creditor that it was a Micro, Small or Medium Enterprise and if such an Enterprise allowed the entire process for enforcement of security interest under the SARFAESI Act to be over, or having challenged such an action 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. It would be pertinent to reproduce paragraph 17 in the case of Pro Knits hereunder: "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. 5 HCJ & RCJ WP_17213_2024 Enterprise could not be permitted to misuse the process of such an 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. 7. While the petitioner claims that it is an MSME, it had not been the case of the petitioner at all in a series of legal actions that the petitioner had initiated by way of three Securitization Applications bearing Nos.438 of 2019, 437 of 2021 and 270 of 2020 as also five writ petitions bearing Nos.8093, 29531 of 2021, 33512 of 2023, 5323, 13388 of 2024 and that the petitioner entitled to the protection and regulation in terms of the RBI Guidelines. was In fact, the petitioner did challenge the action initiated by the respondent bank by way of SAs and writ petitions, however, having failed and the bank having taken the process forward under the SARFAESI Act, to the point of taking over possession of the property which was a secured asset and selling the same in terms of the Act, it is too late in the day for the petitioner to claim that it was entitled to the benefit of the RBI Circular. 8. ► 6 HCJ & RCJ WP_17213_2024 Court clearly prohibits the misuse of the process of law SARFAESI Act by raising the plea being an 9. In fact, the Apex for thwarting the action under the MSME at a belated stage. do not find any merit in the present petition which Be that as it may, we is, accordingly, dismissed. No order as to costs. 10. shall stand closed. Pending miscellaneous applications, if any Sd/- B PRASADA RAO ASSISTANT REGISTRAR /^CT^^FFICER //TRUE COPY// To Lakshmana Rao Advocate [OPUC] General of India, High Court of Andhra 1. One CC to Sri P 2. Two CCS to Deputy Solicitor Pradesh [OUT] Smt. V Dyumani SC for Banks [OPUC] industries. High Court of Andhra Pradesh 3. OneCCto 4. Two CCS to GP FOR [OUT] 5. Three CD Copies GSC HIGH COURT DATED:24/01/2025 ORDER WP.No.17213 of 2024 ANO/^ A U 10 FEB 2025 . Current Section ^ a m CO DISMISSING OF THE WP WITHOUT COSTS