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IN THE HIGH COURT OF KERALA AT ERNAKULAM
ANIL K. NARENDRAN, P.M. MANOJ, JJ.
The South Indian Bank – Appellant
Versus
M/s. PDMC Industries – Respondent
W.A. No. 2281 of 2025
Decided On : 12-12-2025
Based on the provided legal document, the key points are as follows:
The case involves an appeal by The South Indian Bank challenging a judgment that partly allowed a writ petition filed by M/s. PDMC Industries and related entities, concerning the classification of their loan accounts as NPAs. The court found that the bank failed to comply with mandatory procedures stipulated under MSME guidelines before declaring the accounts as NPAs, rendering the classification illegal (!) (!) .
The court emphasized that banks must identify incipient stress in MSME accounts and classify them under specific categories before declaring them NPAs, in accordance with prescribed guidelines. Failure to do so breaches legal requirements and invalidates subsequent recovery actions (!) (!) .
The court held that judicial intervention under Article 226 is only permissible where there are no effective alternative remedies available. Since the challenge is to the legality of the NPA classification itself, which is a preliminary act with serious civil consequences, the remedy lies in judicial review, not in proceedings under the SARFAESI Act (!) (!) .
The court found that the bank did not follow the mandatory procedures under the MSME notification before classifying the accounts as NPAs, which invalidates the classification. The bank's internal processes lacked proper consideration and communication, especially with regard to the mandatory committee’s review as prescribed in the guidelines (!) (!) .
The court dismissed the bank’s argument that the writ petition was barred by res judicata, noting that the petitioners had left their contentions open in previous proceedings and that the current challenge pertains to the initial illegal classification, which was not previously adjudicated (!) .
The court observed that the classification of accounts as NPAs is a preliminary step that can be challenged through writ proceedings if procedural violations are alleged. However, once the classification is deemed illegal, the proper remedy is to approach the Debts Recovery Tribunal under the provisions of the SARFAESI Act, specifically Section 17, rather than continuing with writ petitions (!) (!) .
7.
| Table of Content |
|---|
| 1. overview of the case and parties involved. (Para 2 , 3) |
| 2. arguments on maintainability and previous judgments. (Para 4 , 8 , 9 , 10 , 11 , 15) |
| 3. analysis on classification of loan accounts. (Para 5 , 6 , 7) |
| 4. legal reasoning regarding npa classification. (Para 12 , 13 , 14) |
| 5. principles of res judicata and judicial efficiency. (Para 25 , 26 , 28 , 29) |
| 6. final judgment on the case. (Para 42 , 43) |
JUDGMENT :
ANIL K. NARENDRAN, J.
1. The 2nd respondent in W.P.(C)No.5466 of 2025 has filed this writ appeal, invoking the provisions under Section 5(i) of the Kerala High Court Act , 1958, challenging the judgment dated 06.08.2025 of the learned Single Judge in that writ petition, which was one filed by respondents herein-petitioners, invoking the writ jurisdiction of this Court under Article 226 of the Constitution of India, seeking the following reliefs:
“i) Issue a writ of certiorari calling for the records leading to Exts.P8, P8(a) and P8 (b) whereby the loan facility was recalled;
ii) Issue a writ declaring further that the classification of the loan accounts of the petitioners as NPA by resorting to circuitous methods contrary to the provisions of law is bad in law;
iii) Issue a writ declaring that the petitioner is entitled to the benefits as per Exts.P3 and P4 and the denial otherwise is violative of the fundamental rights of the petitioners;
iv) Issue a writ of certiorari calling for the records leading to Exts.P23 and P25 orders as well as P24 and P26 notices and all further actions taken thereunder and to quash the same;
v) Issue a writ declaring that the action taken to take possession of the property given as security towards KCC loan is a device resorted to defeat the MSME benefits, which the petitioner is entitled and the action is nothing but a fraud on power.”
2. The interim relief sought for in W.P.(C)No.5466 of 2025 reads thus:
“For the reasons stated above, it is most respectfully prayed that this Hon’ble Court may be pleased to stay all action initiated and taken which resulted in the issuance of Exts.P23 and P25 orders, and further actions pursuant thereto, including Exts.P24 and P26 notices, pending disposal of the writ petition, in the interest of justice.”
3. Going by the averments in the writ petition, the 1st petitioner M/s.PDMC Industries is a partnership firm engaged in metal crushing and M-sand production, having Udyam registration for Micro, Small and Medium Enterprise (MSME), on 27.11.2020, as per Ext.P1 Udyam registration certificate dated 17.08.2024, issued by the 1st respondent Ministry of Micro, Small and Medium Enterprises, Government of India. The 2nd petitioner M/s.PDMC Co-Rubber is a proprietary concern engaged in the business of rubber processing, having Udyam registration for MSME, on 27.11.2020, as per Ext.P2 Udyam registration certificate dated 17.08.2024. The 3rd petitioner is the Managing Partner of M/s.PDMC Industries and the proprietor of M/s.PDMC Co-Rubber. The details of the financial assistance/facilities availed by the 1st petitioner and the 2nd petitioner from the 2nd respondent South Indian Bank are stated in sub-paragraphs (A) and (B) of paragraph 2 of the statement of facts of W.P.(C)No.5466 of 2025. The details of the Kisan Credit Card overdraft facility availed by the 3rd petitioner and his brother Cyriac Mathew are stated sub-paragraph (C) of paragraph 2 of the statement of facts of the said writ petition. Along with the writ petition, the petitioners have placed on record Exts.P1 to P28(a) documents. The document marked as Ext.P3 is a copy of the notification dated 29.05.2015 issued by the 1st respondent Ministry, namely, the Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises; Ext.P4 is a copy of Reserve Bank of India [Lending to Micro, Small and Medium Enterprises (MSME) Sector] Directions, 2016; Ext.P8 is a copy of loan recall notice dated 19.04.2023 issued by the 2nd respondent Bank to petitioners 1 and 2 and also to Cyriac Mathew, after
Banks must comply with MSME guidelines before classifying accounts as NPAs; failure leads to illegal classification and invalid judicial intervention under Article 226.
Banks must adhere to mandatory guidelines for MSMEs under the SARFAESI Act before classifying accounts as NPAs; failure to do so renders such classification invalid.
The principle of constructive res judicata bars re-litigation of claims that could have been addressed in prior proceedings, establishing finality in judicial decisions.
High Courts cannot invoke Article 226 to interfere with statutory remedies under the SARFAESI Act when a suitable mechanism exists for resolution, ensuring judicial efficiency and finality.
Litigants must present all claims in one proceeding to uphold judicial efficiency and avoid res judicata principles, preventing piecemeal litigation.
Financial institutions must follow statutory procedures when dealing with MSME classification and recovery; non-compliance can render actions invalid, emphasizing the need for judicial adherence to e....
Financial institutions must follow statutory procedures when dealing with MSME classification and recovery; non-compliance can render actions invalid, emphasizing the need for judicial adherence to e....
Writ petitions under Article 226 not maintainable against private scheduled banks' SARFAESI actions; borrowers must exhaust Section 17 remedy before Debts Recovery Tribunal; High Courts cannot direct....
Writ petitions against private banks are not maintainable when statutory remedies under the SARFAESI Act exist, illustrating the separation of judicial authority from statutory mechanisms.
A writ petition cannot be entertained against SARFAESI Act proceedings when an adequate statutory remedy before the Debts Recovery Tribunal is available.
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