Shri Shri Swami Samarth Construction & Finance Solution & Anr. vs The Board Of Directors Of Nkgsb Co-op. Bank Ltd. & Ors.

WRIT PETITION (CIVIL) No. 684 OF 2025

SHRI SHRI SWAMI SAMARTH CONSTRUCTION & FINANCE SOLUTION & ANR. … PETITIONERS

VS.

THE BOARD OF DIRECTORS OF NKGSB CO-OP. BANK LTD. & ORS. … RESPONDENTS

JUDGMENT

DIPANKAR DATTA, J.

1. This is a writ petition under Article 32 of the Constitution of India by an

enterprise registered under the Micro, Small and Medium Enterprises

Development Act, 20061.

2. The petitioning enterprise had executed a loan agreement with the NKGSB Co-

operative Bank2 but had failed in its obligation to repay the loan. In due course,

the account of the petitioning enterprise was classified as a non-performing

asset3. The authorised officer of the respondent no.2 issued a demand notice Signature Not Verified Digitally signed by NITIN TALREJA Date: 2025.07.30 16:58:35 IST Reason: 1 MSME Act 2 respondent no.2 3 NPA 1 dated 13th May, 2024 under Section 13(2) of the Securitisation and

Reconstruction of Financial Assets and Enforcement of Security Interest Act,

20024, calling upon the petitioning enterprise to repay the dues of the

respondent no.2 within 60 days. It does not appear from the writ petition, filed

on 14th July, 2025, that the petitioning enterprise objected to classification of

its account as NPA as well as issuance of the demand notice on the ground that

the action of the respondent no.2 was in violation of Notification5 dated 29th

May, 2015, containing the “FRAMEWORK FOR REVIVAL AND REHABILITATION OF MICRO,

SMALL AND MEDIUM ENTERPRISES”6 issued by the Joint Secretary to the Government

of India, Ministry of Micro, Small and Medium Enterprises. The respondent no.2

having moved an application before the relevant Magistrate under Section 14

of the SARFAESI Act, a Court Commissioner was appointed per order dated 3rd

April, 2025. Such order was communicated by the Court Commissioner to the

petitioning enterprise on 18th June, 2025.

3. Mr. Nedumpara, learned counsel appearing for the petitioning enterprise,

submits that it was the obligation of the respondent no.2 to identify “incipient

stress” in the loan account of the petitioning enterprise but it did not so identify

prior to classifying the loan account as NPA which, according to him, is wholly

illegal. Mr. Nedumpara further submits that the Notification is binding on the

lending banks/secured creditors under the SARFAESI Act and, therefore, any

measure taken under the SARFAESI Act without complying with the terms of

the FRAMEWORK against a micro, small or medium enterprise7 would amount to

4 SARFAESI Act 5 Notification 6 FRAMEWORK 7 MSME 2 an act in excess of jurisdiction. The decision in Pro Knits v. Canara Bank8,

forming part of the writ petition and though not formally cited, was referred to

by Mr. Nedumpara in course of his arguments in support of this submission.

Also, Mr. Nedumpara submits that such Notification/FRAMEWORK does not

mandatorily require an MSME to notify the lending bank/secured creditor first

that the MSME wishes to have incipient stress in its account identified;

therefore, any defence that the MSME did not voluntarily initiate proceedings

ought not to be allowed to be raised. He, thus, prayed for admission of the writ

petition and grant of ad-interim relief against the respondents.

4. The respondents are not required to be noticed since we are not persuaded to

agree with any of the submissions advanced by Mr. Nedumpara.

5. The Notification detailing the FRAMEWORK, more particularly paragraph 1 and its

sub-paragraphs, have to be read together to make its terms effective and

meaningful. Although, in the sequence of the FRAMEWORK “Identification by

Banks or Creditors” comes first, it is immediately followed by “Identification by

the Enterprise”. In terms of sub-paragraph 2, any MSME may choose to

voluntarily initiate proceedings under the FRAMEWORK if it “reasonably

apprehends failure of its business or its inability or likely inability to pay debts

and before the accumulated losses of the enterprise equals to half or more of

its entire net worth” (emphasis ours). The obligation of the MSME does not end

there. For initiation of proceedings under the FRAMEWORK, the application has to

be verified by an affidavit of an authorised person and upon receipt of a

request, the lending bank/secured creditor is mandatorily bound to proceed in

8 (2024) 10 SCC 292 3 terms of the FRAMEWORK and to constitute a committee to identify incipient

stress in the account.

6. The way Mr. Nedumpara urges us to read the Notification and the terms of the

FRAMEWORK, if accepted, would lead to the conclusion that every lending

bank/secured creditor under the SARFAESI Act would be obliged to find out in

every event of continuing default, likely to give rise to classification of the

relevant account as NPA, whether the borrower is an MSME to which the

FRAMEWORK applies, whether its business has failed or whether it is suffering

from any disability to pay its debts; and upon receiving a response, to apply

the terms thereof by, inter alia, including the account in the Special Mention

Account for the claim for a corrective action plan to be considered by the

Committee for stressed MSMEs. This could not have been the intention behind

introduction of the FRAMEWORK to aid the MSMEs which, for reasons personal to

them, is unable to clear its debt and require revival and rehabilitation that the

FRAMEWORK envisages. If indeed it is only the obligation of the lending

bank/secured creditor to identify incipient stress in the account, sub-

paragraphs 2 and 3 of paragraph 1 would be rendered redundant. An MSME,

despite finding that its business is failing or that it is unable to pay its debts or

accumulation of losses equals to half or more of its entire net worth and

classification of its account as NPA is imminent, it would rest on its oars

believing that it has no responsibility and that its account will not be classified

as NPA because it is the entire obligation of the lending bank/secured creditor

to do what the FRAMEWORK requires. We would read and interpret the seemingly

confusing terms of the FRAMEWORK harmoniously to ensure that a right under

4 the MSME Act is not destroyed by the SARFAESI Act or vice versa. In our

reading, the terms of the FRAMEWORK do not prohibit the lending bank/secured

creditor (assuming that it has no conscious knowledge that the defaulting

borrower is an MSME) to classify the account of the defaulting MSME as NPA

and to even issue the demand notice under Section 13(2) of the SARFAESI Act

without such identification of incipient stress in the account of the defaulting

borrower (MSME); however, upon receipt of the demand notice, if such

borrower in its response under Section 13(3-A) of the SARFAESI Act asserts

that it an MSME and claims the benefit of the FRAMEWORK citing reasons

supported by an affidavit, the lending bank/secured creditor would then be

mandatorily bound to look into such claim keeping further action under the

SARFAESI Act in abeyance; and, should the claim be found to be worthy of

acceptance within the framework of the FRAMEWORK, to act in terms thereof for

securing revival and rehabilitation of the defaulting borrower.

7. As has been noted above, the petitioning enterprise does not seem to have

ever claimed the benefit of the terms of the FRAMEWORK after the demand notice

under Section 13(2) of the SARFAESI Act was issued. It is at the stage of

compliance with an order passed by the relevant Magistrate under Section 14

of the SARFAESI Act that this writ petition has been presented before this Court

claiming benefits of the FRAMEWORK to restrain the respondent no.2 and its

officers from proceeding further under the SARFAESI Act and other enactments

except in the manner contemplated under the said Notification. We find the

bona fides of the petitioning enterprise to be suspect.

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8. Pro-Knits (supra) is a decision of a coordinate Bench of this Court holding,

inter alia, that the Notification is binding on the lending banks/secured

creditors. Finding to the contrary by the High Court of Bombay in the judgment

and order under challenge in the appeal was, thus, quashed. Though while

stressing that the terms of the FRAMEWORK need to be followed by the lending

banks/secured creditors before the account of an MSME is classified as NPA,

this decision also lays stress on the obligation of the MSMEs by holding that “it

would be equally incumbent on the part of the MSMEs concerned to be vigilant

enough to follow the process laid down under the said Framework, and bring

to the notice of the Banks concerned, by producing authenticated and verifiable

documents/material to show its eligibility to get the benefit of the said

Framework”. It was cautioned that “if such an Enterprise allows the entire

process for enforcement of security interest under the SARFAESI Act to be over,

or it having challenged such action of the bank/creditor concerned in the court

of law/tribunal and having failed, such an Enterprise could not be permitted to

misuse the process of law for thwarting the actions taken under the SARFAESI

Act by raising the plea of being an MSME at a belated stage”. This decision,

however, left unsaid something which we have explained hereinabove while

construing the terms consistently to prevent undermining of rights that one

central enactment confers by another.

9. No case for interference under Article 32 of the Constitution has been set up.

There being no merit in the writ petition, the same is accordingly ordered to be

dismissed. Pending applications, if any, stand closed.

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10. Needless to observe, the petitioning enterprise will be at liberty to pursue its

remedy under Section 17 of the SARFAESI Act, in accordance with law.

………………………………………J. (DIPANKAR DATTA)

……………….………………………J. (AUGUSTINE GEORGE MASIH)

NEW DELHI;

JULY 28, 2025

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