Banks are under a statutory obligation to comply with the RBI's Resolution Framework (R.F) 2.0 and consider applications for restructuring of MSME loans in accordance with its provisions.

JUDGMENT

Moushumi Bhattacharya, J. - The petitioners have assailed a Notice dated 27.4.2022 issued by the respondent no. 1 South Indian Bank by which the petitioners' accounts with the respondent Bank was classified as a Non Performing Asset (NPA). The petitioners were asked to discharge their liabilities in full within 60 days from the date of receipt of the impugned Notice beyond which the Bank threatened to take the measures prescribed under the provisions of the SARFAESI Act, 2002. The impugned Notice was issued under section 13(2) of the Act. The petitioners also seek a declaration that the Bank's failure to extend the restructuring of the three loans of the petitioners is arbitrary and contrary to the Resolution Framework (R.F) 2.0 dated 5.5.2021 issued by the Reserve Bank of India.

2. The petitioner no. 1 claims to be a small enterprise within the meaning of The Micro, Small and Medium Enterprises Development Act, 2006 (MSME Act) and the petitioner no. 2 is a shareholder and Managing Director of the petitioner no. 1.

3. The petitioners seek to enforce the RBI Circular R.F 2.0 and claim, through learned counsel appearing for the petitioners, that the said Circular casts a positive statutory duty on the Bank to grant restructuring to already restructured loans of MSMEs. Counsel submits that the relief claimed in respect of the impugned Notice dated 27.4.2022 is only consequential in nature and that the cause of action with regard to the failure of the respondent Bank arose prior to the 13(2) Notice. Counsel submits that the petitioners' loan accounts would have remained a standard asset as on 31.3.2021 if the loans would have been restructured in accordance with the R.F 2.0. Counsel refers to several contemporaneous representations made by the petitioners to the Bank on R.F 2.0 and the Emergency Credit Line Guarantee Scheme (ECLGS) Loan prior to declaration of the petitioner's accounts as NPA. Counsel also relies on representations made after the impugned declaration between 1.12.2021 and 10.2.2022 which were prior to the impugned Notice dated 27.4.2022 none of which were considered by the Bank in terms of R.F. 2.0. Counsel submits that the first petitioner satisfied all the conditions for obtaining effective restructuring through a one-time measure in accordance with the R.F. 2.0. It is submitted that the petitioners have submitted two plans, which if permitted by the Bank, would clear all the existing loans and the petitioners do not intend to continue with adversarial proceedings against the respondent Bank.

4. Learned Counsel appearing for the respondent no. 1 / South Indian Bank urges that the writ petition is not maintainable since the petitioners have challenged a Notice issued under the provisions of the SARFAESI Act and that too against a private Bank. Counsel submits that the writ petition is in any event premature as the Bank has not invoked any measures under section 13(4) of the Act. It is submitted that even otherwise on merits, the first writ petitioner was not eligible to seek restructuring within the provisions of R.F. 1.0 as well as R.F. 2.0. Counsel submits that the petitioner no. 2 had also not perfected his security interest with regard to the immovable property offered by the wife of the petitioner no. 2. Counsel submits that upon the death of the petitioner's wife the responsibility devolved upon the minor son and therefore the petitioner no. 2 was obliged to take steps for perfecting the security which was not done.

The Court's view on the point of maintainability:

5. The issue raised on behalf of the respondent Bank that the petitioners should be before the Debts Recovery Tribunal is answered against the respondent and in favour of the petitioners for the following reasons.

6. First, section 17(1) of the SARFAESI Act, 2002 entitles any person including a borrower to make an application before the DRT having jurisdiction in the matter within a certain timeframe against any of the measures taken by a secur