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.

JUDGMENT

Anil K. Narendran, J.

The petitioners in W.P.(C)No.5466 of 2025 have 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, to the extent that the reliefs with respect to the 3^rd appellants-3^rd petitioners KCC Loan Account were not granted by the learned Single Judge.

2. The appellants-petitioners have filed W.P.(C)No.5466 of 2025, 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.”

3. 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.”

4. Going by the averments in the writ petition, the 1^st 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 Enterprises (MSME), on 27.11.2020, as per Ext.P1 Udyam registration certificate dated 17.08.2024, issued by the 1^st respondent Ministry of Micro, Small and Medium Enterprises, Government of India. The 2^nd 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 3^rd 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 1^st petitioner and the 2^nd petitioner from the 2^nd 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 3^rd 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 1^st 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 2^nd respondent Bank to petitioners 1 and 2 an