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2025 Supreme(Online)(Mad) 54673
IN THE HIGH COURT OF JUDICATURE AT MADRAS
J. Nisha Banu, S. Srimathy, JJ
A.K.Karthikeyan – Appellant
Versus
The Authorized Officer, Canara Bank – Respondent
W.P.(MD)No.23328 of 2024|W.P.(MD)No.21556 of 2024|W.P.(MD)No.22787 of 2024|W.P.(MD)No.22789 of 2024
For the Appellants/Petitioners:Mr.Isaac Mohanlal Senior Counsel, M.R.Sreenivasan, Mr.M.R.Venkatesan|For the Respondents: Mr.M.Ajmal Khan Senior Counsel, M/s.C.Deepak, Mr.B.Saravanan Senior Counsel
Banks must formulate a revival and rehabilitation scheme for MSME units under the 2015 Notification before proceeding with recovery actions under the Sarfaesi Act.
Headnote:(A) Micro, Small and Medium Enterprises Development Act, 2006 - Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises - Sale notices issued by banks challenged as unconstitutional - Petitioners entitled to relief as banks failed to formulate a mandatory revival scheme under the 2015 Notification before proceeding under the Sarfaesi Act - The banks must consider MSME units for rehabilitation in accordance with statutory obligations. (Paras 10-23)
(B) Jurisdiction - Writ jurisdiction maintained as the issue pertains to the statutory obligation of banks, not merely a remedy under Sarfaesi Act. (Paras 21-22)
Facts of the case:
Four writ petitions were filed by proprietors of MSME units challenging sale notices issued by banks for recovery of loans declared as Non-Performing Assets (NPA). The petitioners contended that they are entitled to a revival scheme under the MSME Development Act, 2006, which the banks failed to consider.
Findings of Court:
The court held that the banks are under a statutory obligation to formulate a revival scheme under the 2015 Notification before proceeding with recovery actions under the Sarfaesi Act.
Issues: Whether the banks are required to formulate a revival scheme under the MSME Act before proceeding with recovery actions.
Ratio Decidendi: The court emphasized that the statutory framework mandates banks to consider MSME units for rehabilitation, and failure to do so invalidates the recovery proceedings.
Result: Writ petitions allowed; sale notices set aside.
| Table of Content |
|---|
| 1. petitioner seeks quashing of sale notice. (Para 3) |
| 2. government initiatives for msme revival. (Para 4 , 5) |
| 3. respondents argue fraudulent conduct by petitioner. (Para 6) |
| 4. petitioner's msme status is recognized. (Para 10 , 11) |
| 5. bank's obligation under msme notification emphasized. (Para 12 , 13 , 14) |
| 6. court rejects bank's arguments on res judicata. (Para 15 , 16 , 17) |
| 7. court critiques banks' approach towards msme support. (Para 18 , 19 , 20 , 21) |
| 8. court mandates formulation of revival scheme. (Para 22) |
| 9. writ petitions allowed; sale notices set aside. (Para 23 , 24) |
COMMON ORDER
(Order of the Court was delivered by S.SRIMATHY, J.
All the four writ petitions have raised common issues and hence all the writ petitions were taken up for hearing and a common order is passed.
2. The W.P.(MD)No.23328 of 2024 was filed for Writ of Certiorarified Mandamus to quash the impugned sale notice dated 06.09.2024 issued by the 1st respondent as unconstitutional and consequently direct the respondents 1 and 2 to formulate a revival and rehabilitation scheme for the petitioner unit as per the MSME-Development Act, 2006 within stipulated time.
3. The brief facts are that the petitioner is a Proprietor of M/s. KKM Engineering Industries, a MSME Enterprises having UDYOG Aadhaar No.TN-22-0016206. The concern is an ancillary unit engaged in the manufacturing of power and heavy electrical equipment to BHEL. The BHEL is a Public Sector Undertaking in Heavy Engineering established in the year 1967 and its main business for BHEL Trichy is Thermal Boilers - i.e., Electricity Generating Boilers using Coal as Feedstock. The petitioner units are mainly dependant on BHEL's business and all MSME vendors in and around the Trichy BHEL plant are benefitted by serving BHEL for the past four decades. The Ancillaries units are specializing in Engineering, Welding, Precision Engineering. And Machining was groomed, molded and developed by BHEL through their Welding Research Institute to supply components and execute job work. The Ancillaries developed critical skills in various manufacturing process in Engineering and supplied Pressure Parts, Non-Pressure Parts, Valves, Electro Static Precipitators etc. Infact Trichy Campus of BHEL contributed highest Total Turnover amongst its many campuses and at one stage Ancillaries had supplied close to 4 Lakh tones to BHEL. The Ancillaries developed Drawing Skills, Electronic CAD, Manufacturing, Quality Control, Blasting by keeping delivery deadlines and also supplied for BHEL's export boilers too, where the standards were exacting and rigorous. The Manufacturing Ecosystem at Trichy is one of the best in the world. However, due to Climate Change, changing Government Policy about Green Planet, Global Warming, Pollution Standards and Environment concern most nations have taken policy decision to reduce Coal Fed Power Plants and move towards Green Energy like Wind, Solar and Nuclear. Government very rarely puts up Thermal Power Plants but was only maintaining the existing plants. Hence, the Thermal Boiler Business of BHEL has suffered a great setback dure to movement towards Cleaner Energy and business has drastically fallen, the ancillary units like the petitioner’s units had faced long recession and had become sick. Hence the financial assistances availed by the petitioner from the banking sectors were declared as Non-Performing Asset (NPA) on 01.04.2018 for Rs.1,98,75,935/- by the 2nd respondent. The 1st respondent issued Section 13 (2) Demand Notice on 16.07.2018, on 06.09.2024 issued Section 13 (4) symbolic possession notice.
4. In the meanwhile, Government of India came with the proposal of Indigenization of Defence and Aerospace by Domestic Manufacturing. Approximately Rs.50,000/- crores worth of defence imports were intended to be granted to Domestic Manufacturing thereby encouraging Indian Companies to produce the same. In consequence of such policy two Defence Corridors were announced in India, one
