M.S.M.E borrowers must proactively notify banks of their status to avoid adverse actions like classification as N.P.A, underscoring compliance with statutory obligations outlined in the M.S.M.E.D. Act.

JUDGMENT

Heard Sri. Mathew Nedumpara, learned counsel for the petitioner and Sri. H.Ramanan, learned Standing Counsel for respondents 1 to 3. Perused the records.

2. The solitary ground canvassed in this Writ Petition to challenge the proceedings, as per which, the petitioner's account was classified as a Non Performing Asset, is the non-adherence of the provisions of the Micro, Small and Medium Enterprises Development Act, 2006 (for short, 'M.S.M.E.D Act') and M.S.M.E notification number S.O.1432(E) dated 29.05.2015 (produced at Ext.P2). Inasmuch as the learned counsel appearing for the respective parties have been heard on this point, the Writ Petition itself is being disposed of by this judgment.

3. Brief facts: The petitioner availed an M.S.E cash credit facility from the 3^rd respondent UCO Bank, Kollam branch, which was classified as a Non Performing Asset ('N.P.A', for short) on 31.07.2024. Invoking the provisions of the SARFAESI Act, 2002 , Ext.P4 demand notice under Section 13(2) of the SARFAESI Act was issued. Thereafter, vide Ext.P5, the 3^rd respondent Bank took symbolic possession of the secured asset under Section 13(4). To take physical possession of the property mortgaged, the 3^rd respondent Bank approached the Chief Judicial Magistrate, Kollam and as per Ext.P6 Order dated 03.05.2025, an Advocate Commissioner was appointed to take physical possession. Thereafter, Ext.P7 sale notice was issued on 05.11.2025 scheduling sale of the secured asset on 28.11.2025. On 13.11.2025, the Advocate Commissioner issued Ext.P8 notice for taking physical possession of the mortgaged properties, on 03.12.2025.

4. The specific case put forward by the petitioner is that the petitioner Unit, being an M.S.M.E, is entitled to protection under Ext.P2 notification, which includes measures like identification of incipient stress in the M.S.M.E account, efforts for resolution of stress by classifying the account as S.M.A-0 and also protection from classifying a M.S.M.E account as N.P.A, except after following the procedural safeguards and that too, by the Committee constituted under the notification. This contention finds elaboration in the following submissions of the learned counsel for the petitioner.

5. Learned counsel would first invite the attention of this Court to Ext.P2 notification, specifically to clause-1 therein, which deals with identification of incipient stress, which provision mandates the Banks or creditors to identify incipient stress in a M.S.M.E account, before the same is classified as a N.P.A. Although clause-1(2) of Ext.P2 notification enables a M.S.M enterprise to voluntarily initiate proceedings under Ext.P2 framework, learned counsel would submit that the mandate in clause 1(1) is independent of the same and a definite duty is cast on Banks and creditors to identify incipient stress, before classifying a M.S.M.E account as N.P.A. On facts, it is admitted that the petitioner Unit had not made any application voluntarily to initiate proceedings under Ext.P2 notification. However, it is the contention of the learned counsel for the petitioner that the Bank was quite aware that the credit facility availed by the petitioner is nothing, but a M.S.E cash credit as is specifically described in Schedule-A to Ext.P4 notice issued under Section 13(2) of the SARFAESI Act. Thereafter, learned counsel invited this Court's attention to clause-2 of Ext.P2, which provides for constitution of Committees for stressed M.S.M.Es; to composition of the Committee under clause-3; to the application to a Committee for corrective action plan under clause-4; to the corrective action plan by the Committee under clause-5 etc. According to the learned counsel, only after exhausti