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IN THE HIGH COURT OF KERALA AT ERNAKULAM
GOPINATH P., J.
M/s Ojin Bakes, Represented By Its Managing Partner Junaise A.K - Appellant
Versus
Union Of India - Respondents
WP(C) No. 41069 of 2024
Decided on : 27-02-2025
(A) Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 - The Micro, Small and Medium Enterprises Development Act, 2006 - Sections 9 and 13(2) - Writ petitions challenging proceedings under SARFAESI Act for recovery of amounts due - Petitioners, registered as MSMEs, contended that recovery proceedings could not proceed without following RBI guidelines - Court held that the claim for MSME benefits must be raised before classification as NPA; otherwise, it cannot be claimed later - Petitioners' earlier litigations did not mention MSME status, thus disqualifying them from relief - Petitioners permitted to propose One Time Settlement within a week. (Paras 1 - 6 )
(B) Jurisdiction of High Court - The High Court will not exercise its writ jurisdiction in favor of parties who accepted the authority of the bank without objection, even if jurisdictional questions arise. (Paras 19 )
(C) Conduct of Parties - The conduct of the petitioners in previous litigations barred them from invoking equity jurisdiction. (Paras 18 , 19 )
JUDGMENT :
The petitioners are before this Court challenging the proceedings initiated under the provisions of theSecuritisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) for recovery of amounts due under credit facilities availed by the petitioners from the respondent bank. It is their specific case before this Court that they are registered as Micro, Small or Medium Enterprises (MSME) and therefore the proceedings under the SARFAESI Act could not be taken without following the guidelines issued by the Reserve Bank of India (RBI) read along with the notification issued by the Government of India in the Ministry of Micro, Small and Medium Enterprises in terms of the power conferred under Section 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the ‘MSMED Act’) laying down the framework for revival and rehabilitation of MSMEs.
2. The learned counsel appearing for the respondent bank submits that the issue raised in these writ petitions is squarely covered against the petitioners by a Division Bench judgment of this Court in Krishnakumar P.K. v. IndusInd Bank ; 2024 (6) KLT 606, where this Court, after referring to the judgment of the Supreme Court in M/s. Pro Knits v. The Board of Directors of Canara Bank and Others , 2024 SCC OnLine SC 1864 , has taken the view that where the claim for revival in terms of the guidelines referred to above and the instructions of the RBI is not taken by the borrower at the earliest stage, ie, before the classification of the account as a Non-Performing Asset (NPA), they cannot thereafter be permitted to turn around and claim the benefits. It is submitted that in Krishnakumar P.K. (supra), this Court took the view that, in the earlier rounds of litigations conducted by the borrowers in that case, they had not raised any claim for the benefits of the notification and the instructions/guidelines of the RBI. It is submitted that in the facts of the present case, the petitioners in W.P(C)No.41069 of 2024 had earlier approached this Court by filing O.P(DRT)No.298 of 2024 which was later dismissed by judgment dated 04-10-2024. It is submitted that, thereafter, the petitioner No.5 in W.P(C)No.41069 of 2024 approached this Court by filing W.P(C)No.36482 of 2024 and had obtained an order for payment of the outstanding amount in instalments. It is submitted that the judgment in W.P(C)No.36482/2024 (Ext.P8) was challenged by the respondent bank by filing W.A.No.1761/2024, and this Court, by Ext.P9 judgment, allowed the appeal and set aside the judgment in W.P(C)No.36482/2024 reserving the right of the petitioner No.5 in W.P(C)No.41069/2024 to approach the Debts Recovery Appellate Tribunal. It is submitted that, the petitioners in W.P.(C) No. 41103 of 2024 had also filed OP(DRT) No.276 of 2024, which was disposed of by the judgment marked as Exhibit P8 (in that writ petition), directing that if the petitioners in that writ petition were to make payment of Rs.20 lakhs on or before 23.09.2024, the bank shall not proceed to take possession till the consideration of the interim application for stay by the Tribunal. It is submitted that, though the petitioners in W.P.(C) No.41103 of 2024 paid the amount of Rs.20 lakhs, the interim application is still pending consideration of the Tribunal. It is submitted that, on account of the directions contained in the judgment in OP(DRT) No.276 of 2024, the bank has not proceeded further to take physical possession of the secured asset. It is submitted that no contention similar to the contention (regarding rehabilitation of MSME’s) was taken in the earlier rounds of litigation.
3. Learned counsel appearing for the petitioners would submit, in reply, that Exhibit P1 request [marked as such in W.P.(C) No.41103 of 2024] would indicate that the petitioners in that writ petition had actually addressed the bank at the very outset (even prior to the issuance of notice under Sectio
MSMEs must raise their status before loan accounts are classified as NPAs; failure to do so precludes later claims for benefits under the SARFAESI Act.
MSMEs must timely assert their status to benefit from statutory protections under the SARFAESI Act; failure to do so precludes them from raising claims at a later stage.
Borrowers classified as MSMEs must assert their status timely to benefit from protective frameworks; failure to do so precludes relief under the SARFAESI Act.
Borrowers classified as MSMEs must assert their status before NPA classification to invoke benefits under the SARFAESI Act; failure to do so precludes subsequent claims.
A registered MSME must disclose its status before NPA classification to invoke protections under relevant frameworks; failure to do so precludes later challenges to recovery actions.
Borrowers classified as MSMEs must assert their status before NPA classification to invoke benefits under the SARFAESI Act; failure to do so precludes subsequent claims.
MSMEs must assert their status timely to claim protections under the MSMED Act; failure to do so prior to NPA classification precludes relief from SARFAESI proceedings.
The court upheld that simultaneous proceedings under the SARFAESI Act and the Recovery of Debts and Bankruptcy Act are permissible, and reiterated principles of res judicata and the responsibilities ....
Failure to assert MSME status prior to NPA classification precludes later claims for protection under the MSMED Act in SARFAESI proceedings.
A borrower classified as an MSME must promptly disclose their status to the banks to receive protective benefits, failing which they cannot contest recovery actions post their NPA classification.
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