APHC010068812025 IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI WRIT PETITION NO: 3764 of 2025 Bench Sr.No:-7 [3522] M/s. Swetha PVC Industries ...Petitioner Vs. The State Bank of India and others ...Respondents ********** Advocate for petitioner : Sri D. Krishna Murthy Advocate for respondents : Sri Venkata Rama Rao Kota, learned Standing Counsel for State Bank of India appearing for respondent No.1. CORAM : THE CHIEF JUSTICE DHIRAJ SINGH THAKUR DR. JUSTICE Y. LAKSHMANA RAO DATE : 13th February 2025 P C : The petitioner seeks to challenge the action of the respondent Bank in resorting to the procedure prescribed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act) and in trying to auction the property of the petitioner, which is a secured asset with the respondent bank, on the principal ground that being a Micro, Small and Medium Enterprise (MSME), the bank is required to take steps for ensuring rehabilitation of the petitioner by identifying incipient stress in terms of the mandate of Notification bearing S.O. 1432(E) 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 2 Development Act, 2006 as also the Notification issued by the Reserve Bank of India dated 21.07.2016, which according to the petitioner was made applicable to every Scheduled Commercial Bank excluding Regional Rural Banks (RRBs). 2. Reliance is also placed upon the judgment of the Apex Court in the case of Pro Knits v. Board of Directors of Canara Bank and others1, which held that the instructions issued by the Central Government dated 29.05.2015 in exercise of the powers under Section 9 of the MSME have statutory force and has binding effect on Non Scheduled Commercial Banks. 3. On a perusal of the judgment rendered by the Apex Court in the case of Pro Knits (supra), it can be seen that while the directions issued by the Reserve Bank of India in terms of Sections 21 and 35-A of the Banking Regulation Act, 1949 has been held to be binding, yet, the judgment emphasized the need that the petitioner has to establish by placing authenticated and verifiable documents/material to substantiate its claim of being MSME before its account is classified as N.P.A. and secondly, that if the borrower did not bring to the notice of the bank/creditor concerned that it was 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 having challenged such an action in a Court of law/Tribunal and having failed, such an Enterprise could not be permitted to 1 (2024) 10 SCC 292 3 misuse the process of law for thwarting the actions taken under the SARFAESI Act. 4. It would also be worthwhile to reproduce herein below the relevant paragraphs of the judgment rendered in Pro Knits’s case especially, paragraph Nos.18 to 20, which read as under:- “18. 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 MSME concerned to show that loan account is of a Micro, Small and Medium Enterprise, classified and registered as such under the MSMED Act. 19. 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. 20. 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 MSME concerned 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.” 5. In the instant case, it is not denied that the account of the petitioner was declared as N.P.A. and a notice under Section 13(2) of the SARFAESI Act had been issued as early as on 29.07.2024. The account having been 4 declared as a N.P.A. in terms of the ratio of the judgment rendered by the Apex Court in the case of Pro Knits, the banks would be certainly entitled to take recourse to the provisions of the SARFAESI Act for the enforcement of the security interest. In our opinion, therefore, the main fact that the petitioner is registered as a MSME would not, therefore, entitle the petitioner to question the declaration of the petitioner’s account as a N.P.A. at this belated stage. 6. Be that as it may, we do not find any merit in the present petition, which is, accordingly, dismissed. No order as to costs. Pending miscellaneous applications, if any, shall stand closed. DHIRAJ SINGH THAKUR, CJ DR. Y. LAKSHMANA RAO, J AMD 5 07 HON’BLE MR. JUSTICE DHIRAJ SINGH THAKUR, CHIEF JUSTICE & HON’BLE DR. JUSTICE Y. LAKSHMANA RAO WRIT PETITION NO: 3764 of 2025 Dt:13.02.2025 AMD