MSME borrowers cannot claim benefits after their loan accounts are classified as NPAs unless they timely disclose their status.

JUDGMENT

The question of law raised in all these Writ Petitions appears to be squarely covered against the petitioners by the judgment of the Division Bench of this Court in P.K.Krishnakumar v. IndusInd Bank ; 2024 SCC Online Ker 6888 where the Division Bench has categorically taken the view that if the loan account of the borrower which is classified as MSME is permitted to attain Non-performing Asset (NPA) status, the borrowers cannot thereafter be permitted to turn around and claim the benefits of the notification issued by the Ministry of Micro, Small and Medium Enterprises under the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act 2006) and the corresponding circular issued by the Reserve Bank of India.

2. Paragraphs 14 to 19 of the judgment of the Division Bench in P.K.Krishnakumar v. IndusInd Bank (supra) reads thus:

“14. The Hon’ble Supreme Court in the case of M/s. Pro Knits had examined the scheme of MSMED Act in conjunction with the SARFAESI Act and had accepted the contention of the MSMEs that they could have a special status as regards recovery of loans. However, after concluding so, the Hon'ble Supreme Court observed thus:

“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 nonperforming 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 afÏdavit of an authorised person. Therefore, the stage of identification of incipient stress in the loan account of MSMEs and categorisation under the Special Mention Account category, before the loan account of MSME turns into NPA is a very crucial stage, and therefore it would be incumbent on the part of the concerned MSME also to produce authenticated and verifiable documents/ material for substantiating its claim of being MSME, before its account is classified as NPA. If that is not done, and once the account is classified as NPA, the banks i.e. secured creditors would be entitled to take the recourse to Chapter III of the SARFAESI Act for the enforcement of the security interest.

17. It is also pertinent to note that sufÏcient safeguards have been provided under the said Chapter for safeguarding the interest of the Defaulters-Borrowers for giving them opportunities to discharge their debt. However, if at the stage of classification of the loan account of the borrower as NPA, the borrower does not bring to the notice of the concerned bank/creditor that it is a Micro, Small or Medium Enterprise under the MSMED Act and if such an Enterprise allows the entire process for enforcement of security interest under the SARFAESI Act to be over, or it having challenged such action of the concerned bank/creditor in the court of law/tribunal and having failed, such an Enterprise could not be permitted to misuse the process of law for thwarting the actions taken under the SARFAESI Act by raising the plea of being an MSME at a belated stage. SufÏce it to say, when it is mandatory or obligatory on the part of the Banks to follow the Instructions/ Directions issued by the Central Government and the Reserve Bank of India with regard to the Framework for Revival and Rehabilitation of MSMEs, it would be equally incumbent on the part of the concerned MSMEs to be vigilant enough to follow th