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IN THE HIGH COURT OF JUDICATURE AT MADRAS
Sanjay V. Gangapurwala, D. Bharatha Chakravarthy, JJ.
M/s. Craft Knit Garments – Petitioner
Versus
Board of Directors of Small Industries Development Bank of India (SIDBI) Represented by its Managing Director, Tirupur and Others – Respondents
W.P. No. 24067 of 2023
Decided On : 06-03-2024
NPA - Loan Classification - MSMED Act, 2006, SARFAESI Act - MSMED Act, 2006, Sections 9, 15 - SARFAESI Act, Section 13(2), 13(4), 17 - The judgment discusses the classification of the petitioner's loan account as a Non-Performing Asset (NPA) under the MSMED Act, 2006 and the subsequent proceedings under the SARFAESI Act. It highlights the mandatory nature of the rehabilitation and restructuring framework under the MSMED Act, 2006 and the discretion of the parties to apply for the same, as well as the grounds for challenging the NPA classification and the subsequent SARFAESI proceedings.
Fact of the Case:
The petitioner, a manufacturing unit, challenges the classification of its loan account as NPA and the possession notice issued under the SARFAESI Act. The petitioner availed a mortgage loan, defaulted in repayment, and faced further recovery proceedings initiated by the bank. The petitioner contends that the bank did not follow the mandatory rehabilitation and restructuring procedure under the MSMED Act, 2006.
Finding of the Court:
The court finds that the petitioner's operations have been wound up, and there is no scope for rehabilitation and restructuring. It allows the petitioner to raise all grounds in the pending proceedings before the Debts Recovery Tribunal, Coimbatore, and leaves the question of the mandatory nature of the rehabilitation and restructuring framework open for the Tribunal to decide.
Issues: The issues revolve around the classification of the petitioner's account as NPA, the applicability of the mandatory rehabilitation and restructuring framework under the MSMED Act, 2006, and the challenge to the SARFAESI proceedings.
Ratio Decidendi: The court decides that the question of the mandatory nature of the rehabilitation and restructuring framework should be decided in the pending proceedings before the Debts Recovery Tribunal, Coimbatore, and refrains from making a determination on the same.
Final Decision: The Writ Petition is disposed of with liberty to the petitioner to raise all grounds in the pending proceedings before the Debts Recovery Tribunal, Coimbatore, and there is no order as to costs.
ORDER :
D. Bharatha Chakravarthy, J.
(Prayer: Writ Petition filed under Article 226 of the Constitution of India praying for a Writ of Certiorari calling for the records on the files of respondent 2 in pursuant to their proceedings: classifying the petitioner's loan account as Non-Performing Asset (NPA); demand-notice TPBO No.150750412/SBL (24), dated 28.06.2017; and possession notice, dated 05.09.2017, and quash the same as being illegal, void, arbitrary, unconstitutional, and contrary to the principles of natural justice.)
1. The Writ Petition:
This Writ Petition is filed with a prayer to call for the records on the file of the second respondent i.e., Small Industries Development Bank of India, in respect of their proceedings, dated 28.06.2017, thereby, classifying the account of the writ petitioner as a Non-Performing Asset (hereinafter referred to as 'NPA') and the consequential possession notice, dated 05.09.2017, to quash the same as being illegal, unconstitutional and without jurisdiction.
The Case of the Petitioner:
2. The case of the petitioner is that it is a manufacturing unit engaged in the manufacture of garments. It was registered as a Tiny Unit with the Directorate of Industries, Government of Tamil Nadu, vide Permanent Registration Certificate, dated 10.03.1995. In the year 2016, the petitioner was registered under the Micro, Small and Medium Enterprises Development Act, 2006 (from now on referred to as 'MSMED Act') as an MSME vide Udyog Aadhar Certificate, dated 24.12.2016. The said certificate is being renewed periodically. In the year 2016, the petitioner availed mortgage loan from the Union Bank of India which was subsequently taken over by the first respondent under the category "Secured Business Loan for MSMEs in Manufacturing Sector" to the tune of Rs.3,85,00,000/-. The same is secured by the mortgage of Ac.0.59 cents of non-agricultural property belonging to the partners of the petitioner.
2.1. It is submitted that the respondent Bank did not enhance the credit facilities, did the petitioner have to default in repayment of installments. Despite a massive block of inflow of funds of the petitioner, the petitioner honoured commitments from other sources. However, hastily, the petitioner's loan account was classified as an NPA on 10.04.2017 and further proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as 'SARFAESI Act') were initiated. The petitioner has challenged the action under the SARFAESI Act before the Debts Recovery Tribunal, Coimbatore and the same is pending. The petitioner's effort to settle the matter amicably by way of One Time Settlement also did not fructify since the petitioner could not remit the amount in time and the said One Time Settlement offer stood forfeited. Now, a sum of Rs.8,34,52,957/- is demanded from the petitioner. A sale notice is also issued to sell the property of the petitioner and the same is also challenged before the Debts Recovery Tribunal, Coimbatore.
2.2. The Government of India has issued the notification in S.O.1432(E), dated 29.05.2015 under the provisions of the MSMED Act which is mandatory. Without following the procedure of rehabilitation and restructuring under the said notification, the respondent Bank straightaway proceeded to classify the account of the petitioner as a NPA and therefore, the same is illegal and hence the Writ Petition.
The Case of the Respondents:
3. The Writ Petition is resisted by respondent Nos.1 to 3 by filing a common counter-affidavit. It is the case of the respondents that it sanctioned financial assistance under the Secured Business Loan Scheme, whereby, a sum of Rs.3,85,00,000/- was sanctioned in favour of the petitioner which is a partnership firm consisting of two partners. The petitioner was given a repayment period of 171 months with an initial moratorium of six months. The petitioner executed the mortgage of the non-agricultural land measu
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