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2026 DAILYLAW 680 (KER)

Soubhagye Road Builders v. Reserve Bank of India

2026-06-09

P V Balakrishnan

body2026
JUDGMENT : P.V. BALAKRISHNAN, J. This writ petition is filed by the petitioners seeking protection of Ext.P1 MSME Notification No.S.O.1432(E) dated 29.05.2015 and Ext.P2 Circular issued by the Reserve Bank of India dated 17.03.2016, apart from challenging the entire proceedings initiated by the bank under Sections 13(2), 13(4) and 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter referred to as the ‘SARFAESI Act', for short), 2002, being violative of the afore notification. 2. Heard the learned counsel for the petitioners and the learned counsel appearing for respondents 2 to 4. 3. The learned counsel for the petitioners contended that the action of the respondents in not granting the benefits of Exts.P1 and P2 to the petitioners is illegal and unconstitutional. He argued that respondents 2 to 4, who were fully aware of the fact that the loan availed by the petitioners is an MSME loan and the fact that they are entitled to the benefits under Exts.P1 and P2, have illegally denied the benefit of Exts.P1 and P2. He further submitted that it is the bounden duty of respondents 2 to 4, even without an application from the side of the petitioners, to grant protection to the petitioners as per Exts.P1 and P2 and the bank is duty bound to make a reference to the committee for stressed micro, small, and medium enterprises. 4. Per contra, the learned counsel for respondents 2 to 4 vehemently opposed the submissions made by the learned counsel for the petitioners and contended that there is no bona fide in the contentions raised by the petitioners. He argued that even though the petitioners were asked to produce the documents for renewal of the loan accounts, they have kept quiet and have raised the contentions based on Exts.P1 and P2 notifications, for the first time in this writ petition. He further submitted that the 1 st petitioner has earlier approached this Court by filing W.P.(C)No.31231 of 2025 and in that writ petition, there is not even a whisper regarding the contentions now taken by them. He also relied on the decision of the Hon'ble Apex Court in Pro Knits (M/s.) v. Board of Directors of Canara Bank [2024 KHC OnLine 6408] and Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-op. He also relied on the decision of the Hon'ble Apex Court in Pro Knits (M/s.) v. Board of Directors of Canara Bank [2024 KHC OnLine 6408] and Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-op. Bank Ltd. [ 2025 KHC OnLine 6647 ] to contend that once the borrower has permitted the loan account of the MSME to attain non-performing asset status, they cannot turn around and claim the benefits of Exts.P1 and P2. 5. On an anxious consideration of the rival submissions and the materials on record, I find considerable force in the submissions made by the learned counsel for respondents 2 to 4. The Hon'ble Apex Court in the case of Pro Knits (M/s.) (supra) had examined the scheme of the MSMED Act along with the provisions of the SARFAESI Act in detail and has observed as follows:- ''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. 17. 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. 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.'' 6. Again the provisions of MSME and SARFAESI Act came up for consideration before the Hon'ble Apex Court in the decision in Shri Shri Swami Samarth Construction & Finance Solution (supra), and the Hon'ble Apex Court held thus:- ''6. The way Mr. Again the provisions of MSME and SARFAESI Act came up for consideration before the Hon'ble Apex Court in the decision in Shri Shri Swami Samarth Construction & Finance Solution (supra), and the Hon'ble Apex Court held thus:- ''6. The way Mr. Nedumpara urges us to read the Notification and the terms of the Framework, if accepted, would lead to the conclusion that every lending bank / secured creditor under the SARFAESI Act would be obliged to find out in every event of continuing default, likely to give rise to classification of the relevant account as NPA, whether the borrower is an MSME to which the Framework applies, whether its business has failed or whether it is suffering from any disability to pay its debts; and upon receiving a response, to apply the terms thereof by, inter alia, including the account in the Special Mention Account for the claim for a corrective action plan to be considered by the Committee for stressed MSMEs. This could not have been the intention behind introduction of the Framework to aid the MSMEs which, for reasons personal to them, is unable to clear its debt and require revival and rehabilitation that the Framework envisages. If indeed it is only the obligation of the lending bank / secured creditor to identify incipient stress in the account, sub paragraphs 2 and 3 of paragraph 1 would be rendered redundant. An MSME, despite finding that its business is failing or that it is unable to pay its debts or accumulation of losses equals to half or more of its entire net worth and classification of its account as NPA is imminent, it would rest on its oars believing that it has no responsibility and that its account will not be classified as NPA because it is the entire obligation of the lending bank / secured creditor to do what the Framework requires. We would read and interpret the seemingly confusing terms of the Framework harmoniously to ensure that a right under the MSME Act is not destroyed by the SARFAESI Act or vice versa. We would read and interpret the seemingly confusing terms of the Framework harmoniously to ensure that a right under the MSME Act is not destroyed by the SARFAESI Act or vice versa. 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 S.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 S.13(3A) 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.'' 7. In the instant case, it is an admitted fact that the petitioners have not claimed the benefit of the terms of the framework after the issuance of the demand notice under Section 13(2) of the SARFAESI Act. The afore benefit has been claimed by the petitioners for the first time in this writ petition when they were visited by the proceedings under Section 14 of the SARFAESI Act. It is to be kept in mind that in the earlier round of litigation before this Court also, the 1 st petitioner has not raised any claim based on Exts.P1 and P2. As held by the Hon'ble Apex Court in the decisions referred to above, the petitioners cannot at this belated stage turn around and claim the benefit of Exts.P1 and P2 and thwart the proceedings taken under the SARFAESI Act. In the light of the afore discussions, I find no merit in this writ petition and the same is accordingly dismissed. All pending IAs will also remain closed.