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2025 Supreme(Ker) 1838
IN THE HIGH COURT OF KERALA AT ERNAKULAM
ANIL K. NARENDRAN, MURALEE KRISHNA S., JJ.
M/s. M.D. Esthappan - Appellant
Vs.
Reserve Bank Of India - Respondent
WA NO. 481, 484 Of 2025
Decided On : 24-06-2025
Advocate Appeared:
For the Appellant : SMT. MARIA NEDUMPARA, SHRI.SHAMEEM FAYIZ V.P.
For the Respondent: SHRI.C.DINESH, CGC SMT.O M SHALEENA, DSGI SMT. NISHA BOSE, SR. GP, SRI.C K KARUNAKARAN, SC, DHANALAKSHMI BANK, SRI.AJITHKRISHNAN, SCC, GAIL SRI.S.MOHAMMED AL-RAFI, SC, GAIL SMT.M.U.VIJAYALAKSHMI, SC, CSML SRI.JITHESH MENON, SC, SBI
Borrowers must proactively assert their MSME status before loans are classified as NPAs to avail protections under related regulatory frameworks.
Headnote:(A) Kerala High Court Act, 1958 - Sections 5(i) - Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) - Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) - The appellants challenged proceedings initiated by Dhanalaxmi Bank under the SARFAESI Act, claiming their rights as MSMEs under notifications issued by the Central Government and the Reserve Bank of India. The court dismissed the writ petitions stating that the claims raised by the writ petitioners were not made in previous litigations, and thus they cannot assert them now after the accounts were declared as Non-Performing Assets (NPA). The court emphasized that borrowers must proactively assert their MSME status before their accounts turn NPA to avail protections under relevant notifications, which was reiterated in previous judgments. (Paras 9, 10, 22, and 27)
(B) The court held that the SARFAESI Act's mechanisms and the statutory guidelines for MSMEs compete, and regulatory compliance must precede declarations of NPAs.
(C) Writ petitions dismissed. (Para 9)
Findings of Court:
The learned Single Judge found no merit in the applications, as the claims were not previously raised and the borrowers allowed processes under SARFAESI to conclude.
Issues: Whether the bank's classification of the accounts as NPA was justified; the extent of compliance required with the MSMED notifications.
Ratio Decidendi: The borrowers need to actively notify their classification as MSMEs before the classification as NPA.
Result: Writ appeals dismissed.
| Table of Content |
|---|
| 1. parties involved and their proceedings (Para 1 , 2) |
| 2. writ petition challenge and relief sought (Para 3) |
| 3. details of reliefs and contentions (Para 4 , 6) |
| 4. court's observations on contentions and law (Para 5 , 10 , 21) |
| 5. petitioners' contentions and responsibilities (Para 9 , 32) |
| 6. ratio decidendi regarding msme status (Para 20 , 23) |
| 7. outcome of the case (Para 34) |
JUDGMENT :
Anil K. Narendran, J.
These writ appeals filed under Section 5 (i) of the Kerala High Court Act , 1958, arise out of the common judgment dated 11.03.2025 of the learned Single Judge in W.P.(C)Nos.45166 of 2024 and 46514 of 2024. The 1st appellant in W.A.No.481 of 2025, arising out of W.P.(C)No.45166 of 2024, is M/s.M.D. Esthappan, a sole proprietorship concern, and the 2nd appellant M.D. Esthappan is the sole proprietor of the said concern. The 1st appellant in W.A.No.484 of 2025, arising out of W.P.(C)No.46514 of 2024, is M/s.M.D. Esthappan Infrastructure Pvt. Ltd., a company incorporated under the Companies Act, 1956, and the 2nd appellant M.D. Esthappan is the Managing Director of the said company.
2. The appellants in W.A.No.481 of 2025 filed W.P.(C)No. 45166 of 2024 challenging the proceedings initiated by the 3rd respondent Dhanalaxmi Bank Ltd. under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), seeking the following reliefs;
(a) To declare that the failure on the part of the Central Government/RBI to implement the MSMED notification dated 29.5.2015, in particular, to ensure that the Board of Directors of the Banks/financial institutions in this country, including the Respondent Bank, constitutes a committee for ‘stressed micro, small and medium enterprise’ and further to prevent the Banks and NBFCs from classifying the account of an MSME as NPA and resorting to recovery under the SARFAESI, RDB Act, IBC, NI Act, etc. in violation of the prohibition to do so as contained in Paragraph 1 and 5(4)(iii) of the said notification, amounts to gross failure on their part to comply with the statutory duty cast upon them under Sections 35, 35A, 35AA, 36, 36AA of the Banking Regulation Act and Sections 45-IE of the Reserve Bank of India Act, and Sections 9 and 10 of the MSMED Act;
(b) To declare that the entire proceedings initiated by the Respondent Bank as against the petitioner in violation of the notification dated 29.05.2015, which not a single bank/ financial institution in this country has given effect to, is rendered void ab initio, still born, and that that alone is the inevitable consequence because the notification does not provide for any penal provision for violation thereof, and that such an inevitable legal consequence is not lost or extinguished simply because an MSME, which the law recognizes as predominantly weak and financially illiterate, had failed to raise such a plea;
(c) To declare that Section 13 of the SARFAESI Act, and Section 19 of the RDB Act, Sections 7 , 9, 10 and 95 of the IBC are unconstitutional, ultra vires and void and are liable to be so declared, inasmuch as the said enactments are wholly one- sided, drafted on the grossly erroneous premise that the right to relief, nay, remedies, arise only at the hands of a banker as against the borrower and that the enquiry to be conducted is wholly one-sided, or in the alternative to declare that the borrower’s right to be an actor/petitioner for the enforcement of his remedies has to be read into the said Acts;
(d) To issue a writ in the nature of certiorari or any other appropriate writ or order or direction calling for the entire records and proceedings at the hands of the Authorised Officer as well as the Addl. Chief Judicial Magistrate, Ernakulam, leading to the order dated 27.06.2024 passed by the Addl. CJM, Ernakulam, as also, the issuance of notice dated 15.07.2024 by the Advocate Commissioner in furtherance thereof, and to quash and set aside the same as being without jur
