Judicial Analysis Court Copy Headnote Facts Arguments Court observation

2025 Supreme(Online)(Ker) 57826

2025 KER 98082
IN THE HIGH COURT OF KERALA AT ERNAKULAM
ANIL K. NARENDRAN, MURALEE KRISHNA S., JJ.
M/s. G.K. Granites – Appellant
Versus
Board of Directors of South Indian Bank Ltd. – Respondent
W.A. No. 3095 of 2025
Decided On : 19-12-2025
Advocates Appeared :
For the Appellant : Maria Nedumpara
For the Respondents : C. Ajithkumar, T.K. Vipindas, O.M. Shalina

Advocates:
For the Appellants/Petitioners: Smt. Maria Nedumpara
For the Respondents: C. Ajithkumar, T.K. Vipindas, O.M. Shalina

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 established protocols.

Headnote:(A) Constitution of India - Article 226 - Micro, Small and Medium Enterprises Development Act, 2006 - Notification dated 29.05.2015 and RBI Circular dated 17.03.2016 - The appellant challenged the classification of its account as Non-Performing Assets (NPA) without the bank's adherence to procedures outlined for MSME support, asserting the bank had a duty to identify and assist with incipient stress - The court addressed issues regarding the legal standing of prior judgments and the procedural propriety of interim orders. (Paras 1-39)

(B) Writ Jurisdiction - Limitations and adherence to statutes - A court should not interfere with determinations made under an established statutory procedure unless in extraordinary circumstances, and the party invoking the court must approach with clean hands. (Paras 1-39)

Facts of the case:
The appellant, an MSME, contested the classification of its account as NPA by South Indian Bank Ltd., alleging procedural violations under the MSMED Act and insufficient hearing during interim proceedings. Proceedings had commenced under the SARFAESI Act with notices sent to the appellant.

Findings of Court:
The court found the interim order had not been issued without due process, ruling against the appellant's claims of procedural improprieties.

Issues: The primary issues were the bank's duty under relevant MSME guidelines, lawful classification of the account as NPA, and the validity of the interim order passed without open court pronouncement.

Ratio Decidendi: The court emphasized adherence to statutory obligations by financial institutions when dealing with MSMEs and the necessity of transparency in judicial proceedings, concluding that an effective forum was available for the appellant to resolve these issues.

Result: The appeal was dismissed.

Table of Content
1. claims regarding notifications by the msme. (Para 2)
2. details about notifications and their implications. (Para 3)
3. allegations of unlawful classification of accounts. (Para 4 , 6)
4. petitioner's request for loan restructuring. (Para 5)
5. details about the interim orders and submissions. (Para 7 , 8)
6. arguments regarding the interim relief. (Para 9 , 10)
7. contentions regarding appeals and prior petitions. (Para 11 , 12)
8. observations on previous judgments impacting current cases. (Para 13 , 14 , 15)
9. impacts of non-compliance with court orders. (Para 16 , 17)
10. extension of time to meet court-directed obligations. (Para 19)
11. discussions of interim orders and their implications. (Para 20 , 21 , 22)
12. judicial references impacting the case. (Para 23 , 24)
13. judicial standards governing appeals and conduct. (Para 25 , 26 , 27 , 29 , 30)
14. moral obligations of parties in legal proceedings. (Para 28 , 31 , 32)
15. finality of court orders and resolution. (Para 33 , 34 , 35 , 36 , 37 , 38 , 39)

JUDGMENT :

ANIL K. NARENDRAN, J.

1. The appellant, a Micro, Small and Medium Enterprise (MSME) issued with Ext.P1 Udyam Certificate dated 24.03.2021 by the Ministry of Micro, Small and Medium Enterprises, Government of India, filed W.P.(C)No.46770 of 2025, invoking the writ jurisdiction of this Court under Article 226 of the Constitution of India, seeking the following reliefs:

“a) To declare that the notification dated 29.05.2015, in unmistakable terms, declares that the MSME-borrower has no obligation to make an application for resolution of stress and, on the contrary, that banks and financial institutions are duty-bound to identify incipient stress based on the illustrative signs indicated in Annexure-I to the RBI Circular dated 17.03.2016; and further, that in any case where the bank has failed to identify incipient stress, it is duty-bound to classify the account as SMA-1 if the default is more than 31 days and as SMA-2 if the default is more than 61 days, and thereafter shall constitute a Committee and make a reference to that Committee for resolution of stress; and further, that the Committee is empowered to permit recovery in terms of Para 5(3)(iv) if the resolution of stress is not feasible;

b) In furtherance of prayer (a) above, to declare that the judgments of the Supreme Court in Pro Knits v. Canara Bank , (2024) 10 SCC 292 and Shree Shree Swami Samarth Construction v. The Board of Directors of NKGSB Co-op Bank , 2025 SCC OnLine SC 1566 were rendered per incuriam and sub silentio and will not bind the courts and tribunals in this country under Article 141 of the Constitution, inasmuch as- (i) in Pro Knits, the Court had, contrary to the letter and spirit of the notification, observed that if the MSME had allowed its account to be classified as NPA and for recovery action to be initiated, having failed to bring to the notice of the bank that it is an MSME supported by identifiable and verifiable documents, it cannot be allowed to “thwart” the SARFAESI action at a later stage and (ii) in Shree Shree Swami Samarth, the Court observed that if the MSME had not even replied to the notice under Section 13(2) and claimed protection as an MSME supported by an affidavit, the recovery action cannot thereafter be challenged - which, to repeat, are contrary to the very letter as well as the spirit of the notification and have created a scenario where the said judgments have been instrumental in denying the benefit of the notification to MSMEs across the country.

c) To declare that the entire proceedings initiated by the Respondent against the Petitioners under Sections 13(2), 13(4) and 14 of the SARFAESI Act , are unconstitutional, illegal and void, being in violation of Paragraph 5(4)(iii) of the notification dated 29.5.2015 under the MSMED Act and without jurisdiction for more than one reason;

d) To issue a writ in the nature of certiorari or any other appropriate writ, order or direction, calling for the entire rec

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2025 Supreme(Online)(Ker) 57826

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 established protocols.

Cases Referred (10)