APHC010419142025 IN THE HIGH COURT OF ANDHR^ f^RADES AT AMARAVATI t (Special Original Jurisdiction) (i THURSDAY, THE TWENTY FIRST DAY OF AUGUST TWO THOUSAND AND TWENTY FIVE PRESENT HON’BLE SRI JUSTICE DHIRAJ SINGH THAKUR, rtTK CHIEF JUSTICE AND HON’BLE SRI JUSTICE R RAGHUNANDAN WRIT PETITION Nos. 2149fi AMn WRIT petition NO: 21495 OF 9no<; Between: M/s. Sri Rajyalakshmi Traders Resident of 4/35, Main Road, RAO / 11614 OF 209.4 Rep. by its Proprietor Badri Nallagatia, Kurnool District, A.P. - 518543 Ramalingaiah, ...PETITIONER AND rep. by its Under Secretary, Ministry of Finance, 1. The Union of India New Delhi; I 2. The Reserve Bank of India, Saifabad, Khairtabad, Hyderabad, General Manager, e Indusind Bank, Regd. Office (Cantonment), Pune-411 001, 4. The Indusind Bank, Chambers,, by its Zonal Manager, CF38 + JX5, 6-1-56 AG Office Rd, Telangana 500004, Rep by its Chief 3. fh at 2401, Gen. Thimmayya Road, India rep. by its Regional Manager. D.No. #1-10-72, 4th Floor, Ashok. Nalii Silks Building,. Begumpet,. Janardhan Hyderabad - 500016 rep 5. Indusind Bank Limited, H.No.25, Jayalakshmi Plaza, Shot No. 11 to 15, * 505/A, Srinivasa Nagar, Nandyala, Andhra Pradesh, Rep. by its Chief Manager,. 6. The New India Assuranee Co Ltd, , Registered office at New India Assurance Bldg., 87, MG Road, Fort, Mumbai - 400 001 rep. by its General Manager. 7. The New India Assurance Co Ltd, D.No. 40-439, Shop Nos. 14 to 17, TJ Shopping Mall, 2nd Floor, RS Road, Kumool Regional Manager. 8. The New India Assurance Co Ltd, Branch at D.No. 25/692B, C Floor Sri Rama Sai Enclave, Plot No. 104, TTD Road, Nandyal District (Erstwhile Kumool District), A.P. rep. by its Manager. (R1 is deleted from the array of respondents as per Court order dt.14/08/2025 in Petition & Affidavit) A.P. rep by its Srinivasa Nagar, ...RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the Fligh Court may be pleased to issue a Writ, Order or direction more particularly one in the nature of Writ of Mandamus declaring (i) the action of the Respondent Nos.3 to 5 in issuing the notice dated 18.6.2025 issued under Section 13 (2) of the proposing to take physical possession of the petitioner firm s schedule property even registered as MSME as per Udyam Certificate as illegal, arbitrary, violative of principles of natural justice and violative of Article 14 and 300-A of the Constitution of India and against the judgement of the Hon ble Supreme Court in M/s Pro Knits Vs. The Board of Directors of Canara Bank, dated 01-08-2024 and the Directions issued by the Central Government under section 9 of MSMED Act and the RBI guidelines issued under section 21 and Section 35A of MSMED Act and set-aside the Notice dated 18-06-2025 issued under Section 13 (2) of the SARFAESI Act by the respondents Nos.3 to 5 in respect of the petitioner s property, (ii) the action SARFAESI Act and o^^he Respondent Nos. 3 to 5 in declaring the Commodity Funding Loan A/C Ni). 8140 1405 5781 with Customer ID No. A^set (NPA) on 01-05-2025 without oh 72910344 as Non Performing prior notice during pendency of Insurance CIgim before Respondent Nos. 6 to 2024 as illegal, unreasonable, 8 vide Claim Application dated 18-12- vindictive. Whimsical, manifestly arbitrary and opposed to the doctrine of lis-pendens besides being contrary to the mandate Of IRDA Regulations and RBI Guidelines and violative of Articles 14, 19(l)(g) anb 21 of The Constitution of India and; (iii) consequently direct the Respondent Nos.3 to 5 not to proceed further pursuant to the Notice dated 18-06-2025 issued under Section 13 (2) of the SARFAESI Act by extending the Ware House Receipt (WHR) No. 8140 1405 5781 with Customer per the Commodity Funding Loan A/C ID No. 72910344 till disposal of against Policy No. Fire Policy No. 6115 0211 2443 as Insurance Claim invoked 0000 0001. lA NO: 1 OF 9071^ Petition under Section 151 CPC in thd affidavit filed in praying that in the circumstances stated support of the petition, the High Court may be pleased to grant stay all further proceedings pursuant to the notice dated 18-06-2025 3 to 5 under Section 13 (2) of the writ petition. issued by the respondent Bank Nos. SARFAESI Act, pending disposal of the Counsel for the Petitioner: SRI P. DURGA PRASAD Counsel for the Respondents: Ms. SRISHTI BANSAL Counsel for the Respondents: SRI VENKATESWARLU GUNDUBOINA (CENTRAL GOVT. COUNSEL) Counsel for the Respondents: SRI M. SRINIVAS APHC010233752025 WRIT PETITION NO: 11614 OF 2025 Between: M/s Sri Rajyalakshmi Traders, Rep. by its Proprietor Badri Ramalingaiah Resident of 4/35, Main Road, Nallagatia, Kurnool District, A.P.-518543. ...PETITIONER AND 1. The Union of India, rep. by its Under Secretary, Ministry of Finance, New Delhi, Jeevan Deep Building, Sonsad Marg. 2. The Reserve Bank of India, CF38 + JX5, 6-1-56, AG Office Rd, Saifabad, Khairtabad, Flyderabad, Telangana 500004, Rep by its Chief General Manager, 3. The Indusind Bank, Regd. Office at 2401, Gen. Thimmayya (Cantonment), Pune - 411 001, India rep. by its Regional Manager.^ 4. The Indusind Bank, D.No.#1-10-72, 4th Floor, Ashok. Road, Janardhan Chambers, Nails Silks Building, Begumpet, Hyderabad - 500016 rep by its Zonal Manager, 5. Indusind Bank Limited, H.No.25, Jayalakshmi Plaza, Shot No. 11 to 15, 505/A, Srinivasa Nagar, Nandyala, Andhra Pradesh, Rep. by its Chief Manager,. 6. The New India Assurance Co Ltd, Registered office at New India Assurance Bldg., 87, MG Road, Fort, Mumbai - 400 001 rep. by its General Manager. 7. The New India Assurance Co Ltd, D.No. 40-439, Shop Nos. 14 to 17 TJ Shopping Mall, 2nd Floor, RS Road, Kurnool, Regional Manager. A.P. rep by its 8. The New India Assurance Co Ltd, Branch at D. No. 25/692B, Floor, Sri Rama Sai Enclave, Plot No. 104, TTD Road, Srinivasa Nagar, Nandyal District (Erstwhile Kumool District), A.P. rep. by its Manager. ...RESPONDENTS Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court may be pleased to issue a Writ, Order or direction more particularly of Writ of Mandamus declaring (i) the action of the Respondent proposing to declare Commodity Funding Loan PJC No. 8140 1405 5781 Customer ID No. 72910344 one in the nature Nos. 3 to 5 in with Non Performing Asset (NPA) during the pendency of Insurance Claim before Respondent Nos. Application dated 18-12-2024 as 6 to 8 vide Claim as illegal, unreasonable, vindictive. Whimsical, manifestly arbitrary and opposed to the doctrine of lls-pendens besides being contrary to the mandate I violative of Articles 14, of IRDA Regulations and RBI Guidelines and '19(0(g) and 21 of The Constitution of India consequently direct the Respondent Nos.3 to 5 to Receipt (WHR) and (ii) extend the Ware House per the Commodity Funding Loan A/C No. 8140 1405 5781 with Customer ID No. 72910344 till disposal of Insurance Claim Invoked against Policy No. Fire Policy No. 6115 0211 2443 0000 0001. as lA NO: 1 OF 209!^ Petition under Section 151 CPC praying that in the circumstances stated , the High Court may be pleased to in the affidavit filed in support of the petition. direct the Respondents Nos.3 to 5 not to declare the Commodity Funding with Customer ID No. 72910344 Loan A/C No. 8140 1405 5781 Perforining Asset (NPA) by extending the Ware House Receipt (WHR) facility of the remaining amount of a further period of g^months or till the release of insurance claim pending disposal of the above Writ petition. as Non Counsel for the Petitioner: SRI P. DURGA PRASAD Counsel for the Respondents: Ms. SRISHTI BANSAL Counsel for the Respondents: SRI VENKATESWARLU GUNDUBOINA (CENTRAL GOVT. COUNSEL) Counsel for the Respondents: SRI M. SRINIVAS The Court made the following: COMMON ORDER IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI Bench Sr.Nos:- 60&61 [3446] APK|C010419142025 r-sK 0^ WRIT PETITION NO: 21495 of 2025 along with W.P.No.11614of 2025 W.P.No.21495 of 2025: M/s. Sri Rajyalakshmi Traders ...Petitioner Vs. The Reserve Bank of India and others ...Respondents ********** Advocate for Petitioner I Advdcate for Respondents Mr. P. Durga Prasad Ms. Srishti Bansal CORAM :THE CHIEF JUSTICE DHIRAJ SINGH THAKUR SRI JUSTICE R RAGHUNANDAN RAO : 21th August 2025 DATE Per DHIRAJ SINGH THAKUR. C.l- W.P.No.11614 of 2025 was filed in the first instance seeking a direction to the respondents not to declare the petitioner’s account as an NPA. 2. Subsequently, the petitioner filed W.P.No.21495 of challenging the notice, dated 18.06.2025, issued under Section 13(2) of the SARFKESI Act, 2002, (in short, ‘the Act, 2002’) as also declaration of the petitioner’s account as an NPA on 01.05.2025. 2025 3. The petitioner who claims to be an MSME was served a notice on account of it being as an NPA. Objections to the said notice were filed by the petitioner under Section 13(2) of the SARFAESI Act, 2002 declared 2 HCJ & RRRJ W.P.Nos.21495of2025 . & 11614of 2025 bringing to its notice that, being an MSME, the matter be referred to the authorized committee for debt restructuring. 4. The case of the petitioner is that instead of passing a speaking order and adopting the procedure as is otherwise prescribed under the provisions of the Reserve Bank of India Act, 1934, as also the circulars and the notifications issued thereunder and, in particular, notification No. 1432 dated 29.05.2015, an effort be made to identify the incipient stress. It is stated that without following the procedure envisaged by the RBI, the Bank had rejected the request of the petitioner by holding as under; It is submitted that you have requested that the loan be and 'i/ve darify that the restructuring of MSME accounts is not automatic and is subject to eligibility, viability, and the Bank’s internal policies. ” '4. restructured in accordance with MSME guide'ine Learned counsel for the petitioner states that the amount which 5. was payable to the Bank was to the tune of Rs.8.77 Crores approximately as on 31.05.2025, which the petitioner is unable to pay on account of an unfortunate fire accident in which the petitioner suffered a huge loss. It is stated that the loss was, however, secured by an insurance policy with the New India Assurance Company Limited and that the claim had not yet been settled. It is stated that the insurance claim to which the petitioner is otherwise entitled to is to an extent of Rs.6,85,20,879/-. On a perusal of order impugned, dated 14.07.2025, it can be seen that the order of rejection of objections filed by the petitioner in response 6. 3 HCJ & RRRJ W.P.Nos.21495of2025 & 11614 of 2025 to th^ notice under Section 13(2) of the Act, 2002, does not specifically deal with ^he issue as to whether the claim of the petitioner to be considered for debt restructuring had at all been referred to the enterprise debt restructuring committee of the Bank in terms of the RBI Circular. 7. According to the said circular, the banks are required to constitute one or more committees for stressed Micro, Small and Medium Enterprises for deciding on a corrective action plan and determining the terms thereof in accor^dance with the regulations prescribed in the framework provided in it. 8. The order of rejection, dated 14.07.2025, does not in the least suggest as to whether there was any such committee framed by the Bank and whether the case of the petitioner was at all considered in the facts and circurnstances which had been narrated by the petitioner. The order impugned, dated 14.07.2025, is on the face of it a non-speaking order. The sustainability of an order has to be judged on the basis of the reasoning given in the order itself, which is conspicuously missing in the present case. In Union of India Vs. Mohan Lai Capoor\ it was held that 9. reasons were a link between the material, which is considered, and the conciqsions, which have been arrived at, and that reasons must establish and reveal a rational nexus between the two. The same was the view followed in Gurdial Singh Fijji Vs. State of Punjab^ ' (1973) k see 836 ^ (1979) p see 368 4 HCJ & RRRJ W.P.Nos.21495 of 2025 & 11614 of 2025 10. In Maharashtra State Board of Secondary and Higher Secondary Education Vs. K.S. Gandhi^, it was held that where facts disputed, the Inquiry Officer should record reasons in support of the conclusions arrived at. Finally, the Supreme Court in Kranti Associates (P) Ltd. Vs. Masood Ahmed Khan'* on a conspectus of various judgments on the point, crystallized the principles as under: are ‘Summarising the above discussion, this Court holds: (a) In India the judicial trend has always been to record reasons, even In administrative decisions, if such decisions affect anyone prejudicially. (b) A quasi-judicial authority must record reasons in support of its conclusions. (c) Insistence on recording of reasons is meant to serve the wider principle of justice that justice must not only be done it must also appear to be done as well. (d) Recording of reasons also operates as a valid restraint on any possible arbitrary exercise of judicial and quasi-judicial or even administrative power. (e) Reasons reassure that discretion has been exercised by the decision-maker on relevant grounds and by disregarding extraneous considerations. (f) Reasons have virtually become as indispensable a component of a decision-making process as observing principles of natural justice by judicial, quasi-judicial and even by administrative bodies. (g) Reasons facilitate the process of judicial review by superior courts. ^ (1991) 2 see 716 “(2010) 9 see 496 5 HCJ & RRRJ W.P.Nos.21495 of 2025 & 11614 of 2025 (h) The ongoing judicial trend in all countries committed to rule of law and constitutional governance is in favour of reasoned decisions based on relevant facts. This is virtually the lifeblood of judicial decision-making justifying the principle that reason Is the soul ofjustice. (i) Judicial or even quasi-judicial opinions these days can be as different as the judges and authorities who deliver them. All these decisions serve one common purpose which is to demonstrate by reason that the relevant factors have been objectively considered. This is important for sustaining the litigants' faith in the justice delivery system. (j) Insistence on reason Is a requirement for both judicial accountability and transparency. (k) If a judge or a quasi-judicial authority is not candid enough about his/her decision-making process then it is impossible to know whether the person deciding is faithful to the doctrine of precedent or to principles of incrementalism. (!) Reasons in support of decisions must be cogent, clear and succinct. A pretence of reasons or “rubber-stamp reasons” is not to be equated with a valid decision-making process. (m) It cannot be doubted that transparency is the sine qua non of restraint on abuse of judicial powers. Transparency in decision-making not only makes the judges and decision-makers less prone to errors but also makes them subject to broader scrutiny. (n) Since the requirement to record reasons emanates from the broad doctrine of fairness in decision-making, the said requirement is now Virtually a component of human rights and was considered part of 'Strasbourg Jurisprudence wherein the Court referred to Article 6 of the European Convention of Human Rights which requires,“adequate and intelligent reasons must be given for judicial decisions”. (o) In all common law jurisdictions judgments play a vital role in Setting up precedents for the future. Therefore, for development of law, hquirement of giving reasons for the decision is of the essence and is Virtually a part of “due process”. ” 6 HCJ & RRRJ W.P.Nos.21495 of 2025 & 11614 of 2025 In the present case, there are no reasons to suggest that the case was ever considered by the appropriate committee which was otherwise required to consider the issue of incipient stress of the Micro, Small and Medium Enterprises i.e. the petitioner herein. 11. 12. Although the view already expressed by the Apex Court in the case of M/s. Pro Knits Vs. The Board of Directors of Canara Bank and others^ was that while it was mandatory or obligatory on the part of the banks to follow the instructions and directions issued by the Central Government and the Reserve Bank of India with regard to the Framework for Revival Rehabilitation of MSMEs, yet if the MSME allows the □ be over, or challenges such actior and entire process of enforcement to or naving challenyed such action fails, such an MSME cannot be permitted to thwart the action taken under the SARFAESI Act, 2002, by raising the plea of being an MSME at a belated stage. It also held that once an account is classified as an NPA by the are entitled to take recourse to Chapter of the SARFAESI Act for the enforcement of the security interest. banks, the banks as secured creditors However, recently, the Apex Court in Shri Shri Swami Samarth Construction & Finance Solution & another Vs. The Board of Directors NKGSB Co-operative Bank Ltd.^ has taken a view after considering the view expressed by the Apex Court in Pro Knits case and held as under: of ® 2024 INSC 565 ® 2025 INSC 908 7 HCJ & RRRJ W.P.Nos.21495 of 2025 & 11614 of 2025 In our reading, the terms of the FRAMEWORK do not prohibit the lending bank/secured creditor (assuming that it has no conscious knowledge that the defaulting borrower is an MSME) to classify the account of the defaulting MSME as NPA and to even issue the demand notice under Section 13(2) of the SARFAESI Act without such Identification of incipient stress in the account of the defaulting borrower (MSME); however, upon receipt of the demand notice, If such borrower In its response under Section 13(3-A) of the SARFAESI Act asserts that it an MSME and claims the benefit of the FRAMEWORK citing reasons supported by an affidavit, the lending bank/secured creditor would then be ,mandatorily bound to look Into such claim keeping further action under the SARFAESI Act in abeyance; and, should the claim be found to be worthy of acceptance within the framework of the FRAMEWORK, to act in terms thereof for securing revival and rehabilitation of the defaulting borrower.” '6. 13. It needs to be noticed that by a simple order of rejection as is reflected on a reading of the order impugned, the bank cannot be permitted to either escape its statutory obligation in terms of the provisions of the RBI Act, its circulars and notifications thereunder, much less can it be permitted to disobey the law settled by the Apex Court in regard to the duty which has cast upon the banks in that regard. Since the order impugned is a non-speaking order in that regard, the same cannot be permitted to be supported by any contemporaneous record considering the ratio of the judgment laid down by the Apex Court in the case of Mohinder Singh Gill & another Vs. Chief Electidn Commissioner^. 14. Be that as it may, the impugned order, dated 14.07.2025, is set aside. The respondent Bank shall take appropriate steps to consider the ^(1978) 1ISCC405 8 HCJ & RRRJ W.P.Nos.21495 of 2025 & 11614 of 2025 ' objections of the petitioner in the correct perspective by referring the i the concerned committee constituted by the Bank The order of consideration that may be passed should be issues to in terms of the RBI Circular. a speaking order. 15. W.P.No.21495 of 2025 stands allowed and W.P.No.11614 of 2025 stands disposed of accordingly. No costs. Consequently, connected miscellaneous applications if any. shall stand closed. Sd/- V DIWAKAR DEPUTY REGISTRAR //TRUE COPY// SECTION OFFICER To, 1. The Chief General Manager, Reserve Bank of India 56, AG Office Rd. 500004. CF38 + JX5, 6-1- Saifabad, Khairtabad, Hyderabad, Telangana 2. The Regional Manager. Indusind Bank, Regd. Office at 2401 Thimmayya Road, (Cantonment), Pune - 411 001. 3. The Zonal Manager, Indusind Bank, D.No. 1-10-72 Gen. 4th Floor, Ashok. Janardhan Chambers, Nalii Silks Building, Begumpet, Hyderabad - 500016. 4. The Chief Manager, Indusind Bank Limited, Plaza, Shot No. 11 to 15, 505/A, Srinivasa Nagar, Nandyala, Andhra Pradesh. 5. The General Manager, New India Assuranee Co Ltd., Registered office at New India Assurance Bldg., 87, MG Road, Fort, Mumbai 6. The Regional Manager, New India Assurance Co Ltd Shop Nos. 14 to 17, TJ Shopping Mall, 2 A.P. 7. The Manager, New India Assurance Co Ltd, Branch at D.No. 25/692B, C Floor, Sri Rama Sai Enclave, Plot No. Nagar, Nandyal District (Erstwhile Kumool District) H.No.25, Jayalakshmi -400 001. D.No. 40-439, Floor, RS Road, Kumool, nd 104, TTD Road, Srinivasa A.P. 8. One CC to Sri P. Durga Prasad, Advocate [OPUC] 9. One CC to Sri M. Srinivas, Advocate [OPUC] 10. One CC to Sri Venkateswarlu Gunduboina (Central Govt. Counsel) [OPUC] 11. One CC to Ms. Srishti Bansal, Advocate[OPUC] 12. Two CD Copies ssb A " HIGH COURT DATED:21/08/2025 COMMON ORDER WP Nos. 21495 and 11614 OF 2025 ALLOWING THE W.P. No.21495 OF 2025 & DISPOSING OF THE W.P. No.11614 OF 2025 WITHOUT COSTS