Judgments regarding MSME rights must comply with statutory obligations; prior decisions on similar grounds create res judicata.

JUDGMENT

(Dated this the 26^th day of March 2026)

The petitioners are guarantors for the loan facilities extended by the respondent bank to the 14^th respondent, M/S.G.K. Granites. They contend that the respondent bank initiated proceedings under the SARFAESI Act in violation of the notification dated 29.05.2015 and failed to comply with Section 26D , which mandates the registration of the property with the Central Registry. Following the classification of the petitioners' account as NPA on 26.06.2024, the 3^rd respondent issued Ext P2 notice under Section 13(2) on 02.08.2024, which was followed by the taking of symbolic possession via notices dated 12.09.2025 and 19.09.2025. Subsequently, the respondent bank issued Ext P3 notice on 17.10.2025 for sale of the petitioner’s property by e-auction. In the above scenario, petitioners approached this Court 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;

and b) In furtherance of prayer (a) above, to declare that the judgments of the Supreme Court in Pro Knits v. Canara Bank &Ors. (2024) 10 SCC 292 and Sri Sri Swami Samarth Construction & Anr v. The Board of Directors of NKGSB Co- op Bank & Ors. 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 Sri Sri 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 MSME Borrower and 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 records and proceedings leading to the classification of the Borrowers' account as a Non-Performing Asset (NPA), the issuance of notices under Sections 13(2) and 13(4), and the order passed under Section 14 of the SARFAESI Act , 2002 as well as the records p