An MSME borrower cannot raise the plea of its MSME status for the first time in a writ petition at a belated stage after failing to inform the secured creditor during the SARFAESI notice proceedings to claim the benefit of the 'Framework for Revival and Rehabilitation of MSMEs'.

JUDGMENT :

P.V. BALAKRISHNAN, J.

This writ petition is filed by the petitioners seeking protection of Ext.P1 MSME Notification No.S.O.1432(E) dated 29.05.2015 and Ext.P2 Circular issued by the Reserve Bank of India dated 17.03.2016, apart from challenging the entire proceedings initiated by the bank under Sections 13(2), 13(4) and 14 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (hereinafter referred to as the ‘SARFAESI Act', for short), 2002, being violative of the afore notification.

2. Heard the learned counsel for the petitioners and the learned counsel appearing for respondents 2 to 4.

3. The learned counsel for the petitioners contended that the action of the respondents in not granting the benefits of Exts.P1 and P2 to the petitioners is illegal and unconstitutional. He argued that respondents 2 to 4, who were fully aware of the fact that the loan availed by the petitioners is an MSME loan and the fact that they are entitled to the benefits under Exts.P1 and P2, have illegally denied the benefit of Exts.P1 and P2. He further submitted that it is the bounden duty of respondents 2 to 4, even without an application from the side of the petitioners, to grant protection to the petitioners as per Exts.P1 and P2 and the bank is duty bound to make a reference to the committee for stressed micro, small, and medium enterprises.

4. Per contra, the learned counsel for respondents 2 to 4 vehemently opposed the submissions made by the learned counsel for the petitioners and contended that there is no bona fide in the contentions raised by the petitioners. He argued that even though the petitioners were asked to produce the documents for renewal of the loan accounts, they have kept quiet and have raised the contentions based on Exts.P1 and P2 notifications, for the first time in this writ petition. He further submitted that the 1^st petitioner has earlier approached this Court by filing W.P.(C)No.31231 of 2025 and in that writ petition, there is not even a whisper regarding the contentions now taken by them. He also relied on the decision of the Hon'ble Apex Court in Pro Knits (M/s.) v. Board of Directors of Canara Bank [2024 KHC OnLine 6408] and Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-op. Bank Ltd. [2025 KHC OnLine 6647] to contend that once the borrower has permitted the loan account of the MSME to attain non-performing asset status, they cannot turn around and claim the benefits of Exts.P1 and P2.

5. On an anxious consideration of the rival submissions and the materials on record, I find considerable force in the submissions made by the learned counsel for respondents 2 to 4. The Hon'ble Apex Court in the case of Pro Knits (M/s.) (supra) had examined the scheme of the MSMED Act along with the provisions of the SARFAESI Act in detail and has observed as follows:-

''16. We may hasten to add that under the "Framework for Revival and Rehabilitation of MSMEs", the banks or creditors are required to identify the incipient stress in the account of the Micro, Small and Medium Enterprises, before their accounts turn into non - performing assets, by creating three sub-categories under the "Special Mention Account" Category, however, while creating such sub- categories, the Banks must have some authenticated and verifiable material with them as produced by the concerned MSME to show that loan account is of a Micro, Small and Medium Enterprise, classified and registered as such under the MSMED Act. The said Framework also enables the Micro, Small or Medium Enterprise to voluntarily initiate the proceedings under the said Framework, by filing an application along with the affidavit of an authorized person. Therefore, th