1 IN THE HIGH COURT OF ANDHRA PRADESH :: AMARAVATI (Special Original Jurisdiction) TUESDAY, THE ELEVENTH DAY OF MARCH f TWO THOUSAND AND TWENTY FIVE 1 PRESENT THE HON’BLE SRI DHIRAJ SINGH THAKUR, THE CHIEF JUSTICE AND THE HON’BLE SRI JUSTICE RAVI CHEEMALAPATI fr 1 M ' « Writ Petition No: 4893 of 2025 along with W.P.Nos.2942.3782. 4894 of 2025 WRIT PETITION NO: 4893 OF 2025 Between: M/s. Sri Gokul Motors, A Partnership Firm, Represented bv Po*huraju Srinivas Rao S/0 Pothuraju Ramarao H.No.17-1^5-1, Lakshmivarapu Peta, Sri Gokul TVS Showroom 2"'* Division, Eluru, West Godavari, Andhra Pradesh - 534005 its ...Petitioner AND 1. State Bank of India, Represented by its Managing Director Havinq registered head office at Mumbai. ^ 2. The Authorized Officer under SARFAESI Act, SME Branch Rajahmundry. ^ Manager^ India, SME Branch Represented by its Branch its ...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 an appropriate writ order or direction more particularly one in the writ of mandamus declaring the action of the respondents in against our Loan, initiating the proceedings under the SARFAESI Act which is MSME Enterprises, to which the notification by the Ministry of MSME is appiicabie, providing for a framework for revival dt.29-05-2015 issued 2 ^ and rehabilitation before resorting to SARFAESI Act provisions as illegal, ^bitrary, malafide, ultra vires, without jurisdiction and without competence, unjust and against the constitutional guarantees and consequently direct the respondents to drop all further proceedings against the petitioner under the provisions of SARFAESI Act. any to lA NO: 1 OF 2025 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 stay all further proceedings of the respondents in pursuance of their notice dt.14-02-2025 under Section 13(4) of SARFAESI Act against our Loan, during the pendency of this Writ Petition. Counsel for the Petitioner: SRI K SARVA BHOUMA RAO Counsel for the Respondents: SRI S. SATYANARAYANA MOORTHY WRIT PETITION NO: 2942 OF 2025 Between: M/s. Sri Gokul IV^otors, A Partnership Firm, Represented by iio Partner Pothuraju Radhika D/o Pothuraju Srinivasa Rao, R/o 14-193/1, Sri Krishna Nllayam, Near Rama Krishna Theatre Rajamahendravaram, East Godavari District - 533501. its ...Petitioner AND Kotak Mahindra Bank Limited, Represented by its Managing Director R ^ Block, Bandra Kurla ’ Complex, Bandra (east), Mumbai. The Authorized Officer, Under M/s Kotak Mahindra Bank Limited Leoal Act- 6-3-11091/, 2ND floor Navabharath Chambers, Raj Bhavan Road Somajiguda, Hyderabad Mahindra Bank, Represented by its Branch Manager,36-8- 20, Stadium Rd, Innespeta, Rajahmundry, Andhra Pradesh- 533101 ...Respondents 1. 2. 3. 3 ( Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court be pleased to issue an appropriate writ order or direction more particularly in the writ of mandamus declaring the action of the respondents in initiating the proceedings under the SARFAESI Act against our Loan, which is MSME Enterprises, to which the notification dt.29-05-2015 issued by the Ministry of MSME is applicable, providing for a framework for revival and rehabilitation before resorting to SARFAESI Act provisions as illegal, arbitrary, mala fide, ultra vires, without jurisdiction and without may one any competence, unjust and against the constitutional guarantees and to s/equently direct the respondents to drop all further proceedings against th^ petitioner under the provisions of SARFAESI Act. con lA NO: 1 OF 2025 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 stay all further proceedings of the respondents in pursuance of their notice dt. 12-12-2024 under Section 13(4) of SARFAESI Act against our Loan, during the pendency of this Writ Petition. Counsel for the Petitioner: SRI K SARVA BHOUMA RAO Counsel for the Respondents: SRI M BALANAGA SRINIVAS WRIT PETITION NO: 3782 OF 2025 Between: M/s. Sri Gokul Finance, A Partnership Firm, Represented by its ■ Partner Pothuraju Radhika D/o Pothuraju Srinivasa Rao R/o 14-193/1, Sri Krishna Nilayam, Near Rama Krishna Theatre Rajamahendravaram, East Godavari District - 533501. ...Petitioner AND r 1. M/s Kotak Mahindra Bank Limited, Represented by its managing director, having its registered office at 27, BKC, C-27, G Block, Bandra Kurla Complex, Bandra (east), Mumbai. 2. The Authorized Officer, Under M/s Kotak Mahindra Bank Limited Legal Department, SARFAESI Act, 6-3-11091/, 2nd floor Navabharath Chambers, Raj Bhavan Road Somajiguda, Hyderabad 3. M/s Kotak Mahindra Bank, Represented by its Branch Manager,36-8- 20, Stadium Rd, Innespeta, Rajahmundry, Andhra Pradesh- 533101 ...Respondents Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court be pleased to issue an appropriate writ order or direction more particularly one in the writ of mandamus declaring the action of the respondents in initiating the proceedings under the SARFAESI Act against our Loan Term Loan Limit under DLOD-1 (Account No. 3812702346) with a sanctioned loan amount of f300 lakhs, b) Working Capital Limit under ECLGS TL-1 (Account No. 7875CL01000005) with a sanctioned loan amount of f89 lakhs, which is MSME Enterprises, to which the notification dt.29-05-2015 issued by the ministry of MSME is applicable, providing for a framework for revival and rehabilitation before resorting to SARFAESI Act provisions as illegal, arbitrary, mala fide, ultra vires, without jurisdiction and without any competence, unjust and against the constitutional may guarantees and to consequently direct the respondents to drop all further proceedings against the petitioner under the provisions of SARFAESI Act and to pass lA NO: 1 OF 2Q2fi Petition under Section 151 CPC praying that in the circumstances stated in the affidavit filed in support of the petition, the High Court pleased to stay all further proceedings of the respondents in pursuance of their notice dt. 12-12-2024 under Section 13(4) of SARFAESI Act our Loan Term Loan Limit under DLOD-1 (Account No.; 3812702346) a sanctioned loan amount of f300 lakhs, b) Working Capital Limit may be against with under 5 ( ; • ECLGS TL-1 (Account No.; 7875CL01000005) with a sanctioned loan amount of f89 lakhs, during the pendency of this Writ Petition. Counsel for the Petitioner: SRI K SARVA BHOUMA RAO Counsel for the Respondents: SRI M BALANAGA SRINIVAS WRIT PETITION NO: 4894 OF 2025 Between: M/s Rajamahendravaram Sri Gokul Motors LLP, A Partnership Firm, Represented by its Managing Partner Pothuraju Radhika, D/o Pothuraju Srinivas Rao, R/o 14-193/1 Sri Krishna Nilayam, Near Rama Krishna Theatre, Rajamahendravaram, East Godavari District - 533501. ...Petitioner AND M/s State Bank of India, Represented by its Managing Director Having its registered head office at Mumbai. The Authorized Officer under SARFAESI Act, SME Branch Rajahmundry. The State Bank of India, SME Branch Represented by its Branch Manger 1. 2. 3. ...Respondents Petition under Article 226 of the Constitution of India praying that in the circumstances stated in the affidavit filed therewith, the High Court be pleased to issue an appropriate writ order or direction more particularly one in the nature of writ of mandamus declaring the action of the respondents in initiating the proceedings under the SARFAESI Act against Loan Account No.42235260448 42235322509, which is MSME Enterprises, to which the notification dt.29- 05-2015 issued by the Ministry of MSME is applicable, providing for a framework for revival and rehabilitation before resorting to SARFAESI Act provisions as illegal, arbitrary, mala fide, ultra vires, without jurisdiction and without any competence, unjust and against the constitutional guarantees may our Loan in CC-E-EFDS and 6 c and to consequently direct the respondents to drop all further proceedings against the petitioner under the provisions of SARFAESI Act. lA NO: 1 OF 2025 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 stay all further proceedings of the respondents in pursuance of their notice dt. 20-02-2025 under Section 13(4) of SARFAESI Act against our Loan in CC-E- EFDS Loan Account No.42235260448 and 42235322509, during the pendency of this Writ Petition. Counsel for the Petitioner: SRI K SARVA BHOUMA RAO Counsel for the Respondents: SRI S. SATYANARAYANA MOORTHY The Court made the following common order: ( Bench Sr.No:-38 [3483] IN THE HIGH COURT OF ANDHRA PRADESH AT AMARAVATI APHC010092442025 Writ Petition No: 4893 of 2025 along with W.P. Nos.2942, 3782, 4894 of 2025 W.P. No. 4893 of 2025 ...Petitioner Sri Gokul Motors Vs. M/s State Bank Of India and Others ...Respondent(s) ickic'k’k-k-k-k-k’k Advocate for Petitioner: Mr. K Sarva Bhouma Rao Advocate(s) for Respondent(s); Mr. S Satyanarayana Moorthy, Mr. M. Balanaga Srinivas CORAM :THE CHIEF JUSTICE DHIRAJ SINGH THAKUR SRI JUSTICE RAVI CHEEMALAPATI DATE : 11.03.2025 per DHIRAJ SINGH THAKUR. CJ: Considering the fact that common question of facts and law arise in these four petitions, the same are being dealt with by a common judgment. The facts in W.P. No.4893 of 2025 are being referred to for the sake of convenience. In all the four petitions, the petitioners claim that they had obtained loans from various Banks in their capacity as a Micro, Small and Medium Enterprise (MSME). Loans were stated to have been released through the HCJ a RC. J W.P. No: 4893 of 2025 a Batch branches of the Banks which exclusively dealt with MSMEs as defined under the Micro, Development Act, 2006 (hereinafter, referred to advancing loans to the Small, and Medium Enterprises as “the MSMED Act”). 2. The petitioners having defaulted in the payment of the loans advanced to them, their accounts were declared proceedings initiated under the as Non-Performing Assets (NPA) and provisions of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter, referred to as “the SARFAESI Act”). Initially Section 13(2) of the SARFAESI Act were issued and subsequently notices under Section 13(4) of the SARFAESI Act have been issued with notices under a view to take symbolic possession of the properties in question. The main contention of the learned counsel appearing for the petitioners is that the declaration of the accounts of the petitioners as NPA on account of the default in payment towards the loan amount 3. was contrary to the mandate of notification bearing SO-1432(E), dated 29.05.2015, issued by the Central Government, in exercise of the powers conferred on it in terms of Section 9 of the MSMED Act as also the notification issued by the Reserve Bank of India, dated 21.07.2016, which according to the petitioners was made applicable to every Scheduled Commercial Bank including the regional Reliance is also placed upon the judgment of the Apex Court in the case of rural Banks. 3 HCJ a RC, J W.P. No: 4893 of 2025 a Batch Pro Knits v. Board of Directors of Canara Bank which held that the instructions issued by the Central Government, dated 29.05.2015, in exercise of the powers conferred under Section 9 of the MSMED Act, have statutory force and have a binding effect on scheduled commercial Banks. 4. Direction 4.8 of the directions of 2016, it is stated, envisaged the revival and rehabilitation of MSMEs with a view to provide a simpler and faster mechanism to address the stress for the accounts of MSMEs and to facilitate and ensure their promotion and development. The salient features of the framework, it is stated, are as under; “i) Before a loan account of an MSME turns into a Non-Performing Asset (NPA), banks or creditors should identify incipient stress in the account by creating three sub-categories under the Special Mention Account (SMA) category as given in the Framework ii) Any MSME borrower may also voluntarily initiate proceedings under this Framework iii) Committee approach to be adopted for deciding corrective action plan iv) Time lines have been fixed for taking various decisions under the Framework' At this stage, it would be worthwhile to refer to the judgment of the Apex 5. Court rendered in the case of Pro Knits (supra), wherein it was held; “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 concerned MSME to show that (2024) 10 see 292 4 HCJ a RC, J W.p. No: 4893 of 2025 a Batch. ^ Medium Enterprise registered as such under the MSMED Act. classified and 19. The said Framework also enables the Enterprise to voluntarily initiate the proceedings filing an application along with the affidavit of Micro, Small or Medium under the said Framework, by an authorized person. 20. Therefore, the stage of identification of incipient stress in the inan account of MSMEs and categorization under the SpaSi Son Account category, before the loan account of MSME turns into NPA is a very a^cial asr'tT'^nrndn®'® " 'ncumbent on the part of the concerned MSME °, *°. P'^oduce authenticated and verifiable doucments/material ^Mhaf il' 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 SARF?ES^Act°^^r^'''^''® the SARFAESI Act for the enforcement of the security interest. for 6. Learned counsel for the petitioners would submit that the Banks, in the instant case, had failed to identify the incipient stress in the accounts of the petitioners, which was a crucial task for the Banks to undertake before the loan account turned into an NPA. It was urged that although an MSME, like the petitioners, also could voluntarily initiate proceedings under the framework of the Circular 29.05.2015, by filing an application before the Committee for stressed micro. dated small and medium enterprises, yet the primary responsibility lay on the Banks to undertake that exercise and since no such exercise was undertaken by the Banks, who knew fully well that the petitioners were MSMEs, whose incipient stress ought to have been recognized, followed by corrective action to help or restructure its debt, and having failed to do so, it was urged that the action taken by the the MSMEs survive and continue its business. respondents was unsustainable in law. 5 HCJ a RC, J W.P. No; 4893 of 2025 a Batch r 7. We have heard learned counsel for the parties. There is no denial of the fact that according to the directions and 8. circulars discussed in the preceding paragraphs, the Banks are supposed to identify the incipient stress in the loan accounts by categorizing them under SMA-0, SMA-1, SMA-2 categories depending upon the period for which the payment of principal or interest is due and further that the procedure prescribed in the framework has to be followed, yet we cannot lose sight of the fact that the petitioners did not take any steps with a view to enforce their right, which was available to the petitioners in terms of the framework, much less was any application filed by them with the concerned Committee in terms of the framework for ensuring that their incipient stress is recognized so that corrective action could be taken thereafter. In fact, the petitioners permitted the Banks to declare their accounts as NPA pursuant to which notices under Section 13(2) of the SARFAESI Act have been issued and further notices under Section 13(4) of the SARFAESI Act served upon the petitioners. On a reading of the judgment rendered by the Apex Court in Pro Knits case, it can be seen that the judgment clearly required the MSMEs concerned 9. to be vigilant and to bring to the notice of the Banks concerned by producing authenticated and verifiable documents and material to show its eligibility to get the benefit of the said frameworj^. 6 HCJ a RC, J W.P. No: 4893 of 2025 a Batcl In fact, in para No.20 of the judgment supra, if the needful was not done by the MSMEs and the account is classified as NPA, the Banks have been held entitled as secured creditors to take recourse to the provisions of the SARFAESI Act for the enforcement of the security interest. While the petitioners may have had a legitimate right to seek the benefit of the framework for revival and rehabilitation of MSMEs made by them in that regard and rather permitted the Banks accounts as NPAs. Classification and categorization of MSMEs determination of incipient stress is envisaged at the very initial stages of the default in the payment of loan or likelihood of a default in repayment of loan. yet no effort at all was to declare their and the 10. In the instant case, the loans were advanced to the 2022 and the amount which was due and payable reflected from under Section 13(2) of the SARFAESI petitioner in the year the notice Act, was approximately Rs.7,09,28,669/-. The petitioners in the present petitions have not clearly stated as to when the loan accounts came under stress which could be worked out in terms of the framework of revival and rehabilitation of MSMEs. 11. Be that as it may, the petitioners permitted the Banks to proceed to the stage where the accounts of the petitioners were declared as NPAs. Having permitted the Banks to reach that stage, in terms of the Judgment of the Apex Court, the petitioners now cannot fall back upon the argument that the proceedings under the SARFAESI Act cannot be resorted to on account of the 7 HCJ a RC. J W.P. No: 4893 of 2025 a Batch failure on the part of the Banks to comply with the directions and the framework for revival and rehabilitation of MSMEs. Be that as it may, we do not find any merit in the present petitions which are, accordingly dismissed. No costs. Pending miscellaneous applications, if any, shall stand closed. Sd/- K TATA RAO DEPUTY REGISTRAR //TRUE COPY// SEC OFFICER To, 1. The Managing Director, M/s State Bank of India, Having its registered head office at Mumbai. 2. The Authorized Officer under SARFAESI Act, SME Branch, Rajahmundry. 3. The Branch Manager, State Bank of India, SME Branch. 4. The Managing Director, M/s Kotak Mahindra Bank Limited, having its registered office at 27, BKC, C-27, G Block, Bandra Kurla Complex, Bandra (east), Mumbai. 5. The Authorized Officer, Under M/s Kotak Mahindra Bank Limited, Legal Department,SARFAESIAct, 6-3-11091/,2nd floor Navabharath Chambers, Raj Bhavan Road Somajiguda, Hyderabad 6. The Branch Manager, M/s Kotak Mahindra Bank, 36-8-20, Stadium Rd, Innespeta, Rajahmundry, Andhra Pradesh- 533101 7. One.CC to^§ri K Sarva Bhouma Rao, Advocate [OPUC] 8. Ope CC to Sri M Bafanaga Srinivas, Advocate [OPUC] ’■V r 9. One CC to Sri S. Satyanarayana Moorthy, Advocate [OPUC] 10. Two CD Copies RAM 8 HIGH COURT DATED: 11/03/2025 COMMON ORDER Writ Petition No: 4893 of 2025 along with W.P.Nos.2942, 3782, 4894 of 2025 2 ^ MAR 2025 | . Current Section . ^ C> I* DISMISSING ALL THE WP’s WITHOUT COSTS