IMPORTANT POINT
Borrowers classified as MSMEs must assert their status timely to benefit from protective frameworks; failure to do so precludes relief under the SARFAESI Act.

JUDGMENT :

1. The petitioners have approached this Court challenging the proceedings initiated against the petitioners under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the SARFAESI Act) to recover amounts due under a loan availed by the petitioners from the respondent bank.

2. The 1st petitioner claims that it is a Micro, Small or Medium Enterprise (hereinafter referred to as ‘the MSME’) entitled to the benefits of the framework for revival and rehabilitation of the MSME’s which has been framed in respect of MSME’s registered as such under the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as ‘the MSMED Act’). It is submitted that the Reserve Bank of India (hereinafter referred to as 'the RBI') has issued guidelines directing that the framework for the revival and rehabilitation of the MSME’s issued by the Ministry of Micro Small and Medium Enterprises, shall be implemented by all Banks and Financial institutions falling under the umbrella of the RBI.

3. The learned counsel for the petitioners would submit that the framework is a statutory framework issued in terms of the powers conferred on the Central Government, under the provisions of Section 9 of the MSMED Act. It is submitted that, when a unit is registered as an MSME, the framework mandates that the loan account shall be referred to a committee [known as the Committee for Stressed Micro Small and Medium Enterprises] for implementation of a corrective action plan, which may include rectification and re-structuring; and only if either rectification or restructuring is not possible, can the bank proceed for recovery. It is submitted that the framework contains detailed guidelines for re-structuring/ rectification and any action for recovery without considering the scope of rectification or re-structuring, would be contrary to the statutory framework and the guidelines issued by the RBI. It is submitted that the judgment of the Supreme Court in Pro Knits v. Canara Bank, (2024) 10 SCC 292 deals with a situation where no claim was made by the unit in question that it was an MSME. It is submitted that where the loan itself was granted as an MSME loan, the question of identification or a claim being raised by the borrower that the matter is to be referred to the committee for corrective action plan as noticed above, does not arise. It is submitted that it is clear from the judgment of Pro Knits (supra) especially paragraph No. 16 thereon, that where there are verifiable materials already before the bank which show that the borrower is to be classified as an MSME, the failure of the bank to refer the issue for the consideration of the committee is clearly illegal and contrary to the circular issued by the RBI.

4. The learned counsel appearing for the respondent bank submits that the issue raised in the writ petition is covered against the petitioner by the judgment of the Supreme Court in Pro Knits (supra) and also by the Division Bench judgment of this Court in P.K. Krishnakumar v. Induslnd Bank, 2024 SCC OnLine Ker 6888. It is submitted that once the account has been classified as a Non-Performing Asset (NPA) in terms of the prudential norms issued by the RBI, the question of referring the matter to the committee constituted under the framework does not arise for consideration. It is submitted that in the facts of the present case, the account was classified as an NPA on 27.09.2024 and before the classification of the account as an NPA, no request for reference to the committee constituted under the framework was ever submitted to the bank. It is submitted that a reading of the provisions of the framework indicates that while the bank may also refer the issue for consideration of the committee, there is nothing in the guidelines to indicate that it is mandatory on behalf of every bank to refer the issue for consideration of the committee e