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2025 Supreme(Ker) 2355
IN THE HIGH COURT OF KERALA AT ERNAKULAM
MOHAMMED NIAS C.P., J.
M/s. M.D. Esthappan Infrastructure Pvt. Ltd. -Appellant
Versus
Reserve Bank Of India - Respondent
WP(C) No. 17617 of 2025
Decided on : 28-07-2025
Advocate Appeared:
For the Appellant : SMT. MARIA NEDUMPARA, SHRI.SHAMEEM FAYIZ V.P.
For the Respondent: SRI.MILLU DANDAPANI, SRI.C.K.KARUNAKARAN, SMT.LEKSHMI P. NAIR, SMT.SHIFNA MUHAMMED SHUKKUR, SMT.KRISHNA SURESH, SHRI.ANIRUDH INDUKALADHARAN, SMT.MEKHA MANOJ
Concurrent proceedings under SARFAESI and RDB Acts are permissible, and borrowers must not fragment claims across different forums.
Headnote:The petitioner company contends that the respondent bank failed to comply with the Micro, Small and Medium Enterprises Development Act and associated notifications which mandate timely actions during financial distress, leading to an improper classification of the account as a Non-Performing Asset (NPA). The court found that the bank's actions were permissible under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act without breaching provisions of the Recovery of Debts Due to Banks and Financial Institutions Act. Key issues of concurrent proceedings under both acts were discussed, reinforcing the stance that borrowers cannot litigate claims piecemeal across different forums. The petition is thus dismissed.
| Table of Content |
|---|
| 1. petitioner contends that npa classification violates various laws. (Para 2) |
| 2. critique on the one-sided nature of the rdb act. (Para 3 , 4 , 5 , 6) |
| 3. respondents highlight procedural compliance and litigant conduct. (Para 8 , 9 , 10 , 11 , 12 , 13 , 14 , 15) |
| 4. concurrent remedies under sarfaesi and rdb established. (Para 17 , 18 , 19 , 20) |
| 5. petition dismissed based on res judicata and prior ruling. (Para 24 , 25) |
JUDGMENT :
MOHAMMED NIAS C.P., J.
The petitioner company is a registered Micro, Small and Medium Enterprise (MSME) under the Micro, Small and Medium Enterprises Development Act, 2006 (hereinafter referred to as the ‘MSMED Act’ for short). The petitioners assert that the respondent bank failed to comply with the rehabilitation framework established by the Ministry of MSME's Notification dated 29.05.2015 and the Reserve Bank of India Notification No. FIDD.MSME & NFS.BC.No. 21/06.02.31/2015-16, issued on 17.03.2016. These notifications required banks to recognise early signs of financial distress and take timely action for rehabilitation. Instead, the bank classified the petitioner’s account as a Non-Performing Asset (NPA) on 31.07.2023, violating these circulars. The petitioners rely on the Apex Court's ruling in Pro Knits v. The Board of Directors of Canara Bank & Ors. [(2024) 10 SCC 292], which reaffirmed that the MSME Notification is obligatory for all banks.
2. After the incorrect NPA designation, the bank initiated actions under Section 13 (2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as the ‘SARFAESI Act’) on 16.08.2023 and subsequently filed Ext.P16 Original Application No. 104/2025 before the Debts Recovery Tribunal (DRT) on 28.11.2024. The petitioners contend that such simultaneous proceedings contradict Section 19(1) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (RDB Act) and Section 13 (10) of the SARFAESI Act, which prohibit this dual-track approach.
3. The petitioners' critique the RDB Act for creating a one-sided adjudication system that only allows banks to initiate proceedings in the DRT. The Act does not provide for borrowers to file independent claims or counterclaims, leading to multiple proceedings for the same transaction. Judicial interpretations have undermined attempts to resolve these issues. Although Parliament introduced amendments to address this, the Supreme Court allowed borrowers the choice between civil court and DRT proceedings, leading to parallel litigation and compromising the principle of ne bis in idem.
4. The petitioners highlight past cases where simultaneous actions by banks were disallowed by several High Courts, leading to the enactment of the Securitisation Amendment Act of 2004, which required banks to withdraw pending RDB Act applications before invoking the SARFAESI Act. Nonetheless, existing actions before 11.11.2004 were protected. The petitioners also address cases like Transcore v. Union of India (AIR 2007 SC 712), where the Hon’ble Supreme Court improperly extended the assessment to allow simultaneous recourse under both statutes.
5. The petitioners criticise the judgments in Mardia Chemicals Ltd. v. Union of India [(2004) 4 SCC 311], which mischaracterise borrower applications as original proceedings, and highlight how this creates confusion and leads to multiple forums for the same dispute. Such a scenario contravenes the principle of res judicata and creates burdensome parallel litigation.
6. Adding complexity to the recovery landscape, the introduction of parallel forums under the Insolvency and Bankruptcy Code (IBC) has further fractured the legal framework. The petitioners rely on the judgment Delhi High Court Bar Association v. Union of India (AIR 1995 Del 323) to contend that the DRT's structure favoured banks, urging this Court to address the inconsistencies that undermine borrower protections and restore statutory integrity fo
