MSME units entitled to revival/rehabilitation review opportunity under RBI framework before SARFAESI recovery.

JUDGMENT

The petitioner has approached this court by filing this writ petition, seeking the following reliefs.

i. Declare that Petitioner’s MSME Unit ‘M/s. Orion Battery’ a small enterprise under the MSMED Act 2006 ought to be considered by Respondents 2 to 4 under Exhibit P22 Notification scheme for Revival and Rehabilitation of MSME Unit prior to the any classification of account as NPA by the Respondents 2 to 4;

ii. Declare that the recovery measures initiated by the 2^nd Respondent bank without adhering to Exhibit P22 is arbitrary and illegal;

iii. Issue a Writ of Certiorari or any other appropriate writ or order quashing Exhibit P17 and P19 and all recovery proceedings initiated by the 2^nd Respondent bank by way of Exhibit P13 and P20 to P21 Notices as illegal, arbitrary and in violation of Exhibit P6 and Exhibit P22;

iv. Issue a Writ of Mandamus or any other appropriate writ or order commanding the Respondents 3 & 4 to consider the Petitioner’s MSME unit for Revival and Rehabilitation as contemplated under Exhibit P22 and Exhibit P23 or such other policy of the bank and an afford an opportunity to the Petitioner to be heard in person by the Committee before any final decision is taken;

2. The petitioner is the proprietor of Orion Battery, which is an MSME unit, engaged in the business of manufacturing of Lead Acid Batteries used in vehicles, Invertors, Solar Systems, UPS etc.. In the year 2021, the petitioner had availed a loan from the 2^nd respondent and later due to financial stringency, faced strain in servicing the loan. When the petitioner faced financial strain, he approached the 2^nd respondent seeking restructuring of the financial facilities, as per Ext.P7 and P8. As per Ext.P9 and P10, the bank informed the petitioner that the account is in SMA2 category and directed clearance of the overdues.

3. In the meanwhile, the 2^nd respondent initiated steps under the SARFAESI Act against the petitioner and issued Ext.P13 demand notice. Immediately, the petitioner filed Ext.P14 reply, challenging the classification of the account as NPA and requesting the bank to initiate proceedings as contemplated by the RBI Circular dated 17.03.2016. The petitioner also filed Ext.P15 application dated 03.02.2026, for restructuring under resolution framework of MSME. The bank replied to the objection of the demand notice by Ext.P16, stating that the RBI framework of MSME does not prohibit the bank from initiating recovery action under the SARFAESI Act . Thereafter, the petitioner was also served with Ext.P17 communication dated 23.02.2026, stating that the petitioner’s request was placed before the committee for MSME Revival and Rehabilitation Committee of Regional Office Kozhikode and that the Committee has denied the restructuring process. On receiving Ext.P17, the petitioner submitted Ext.P18 application to review Ext.P17 order, to which Ext.P19 reply was issued by the Branch Manager, stating that the competent authority is of the opinion that the restructuring proposal is not viable. Thereafter, the bank took symbolic possession of the secured assets of the petitioner, as per Exts.P20 and P20(a). It is in such circumstance, the petitioner approached this court by filing this writ petition, seeking the afore reliefs.

4. Heard the learned counsel for the petitioner and the learned Standing Counsel appearing for respondents 2 to 5.

5. The learned counsel for the petitioner submitted that, the entire process adopted by respondents 2 to 5, in denying the rehabilitation scheme to the petitioner is against the law and the circular issued by the RBI. He contended that the finding of the 2^nd respondent in Ext.P16 that the frame work for revival and rehabilitation will not prohibit the bank from initiating recovery actio