Micro, Small and Medium Enterprises Development Act, 2006 – Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 – Loan account of the petitioner-MSME classified as NPA – Demand notice issued by respondent no.2-Bank u/s.13(2), SARFAESI Act – Present petition filed by the petitioner contending that it was the obligation of the respondent no.2 in terms of the Framework to identify “incipient stress” in the loan account of the petitioner prior to classifying the loan account as NPA and its failure to do so was illegal:
Held: The confusing terms of the Framework are to be interpreted harmoniously to ensure that a right under the MSME Act is not destroyed by the SARFAESI Act or vice versa – The Framework does not prohibit the lending bank/secured creditor to classify the account of the defaulting MSME as NPA and to even issue the demand notice u/s.13(2), 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 asserts that it is an MSME and claims the benefit of the Framework, 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, if the claim is 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 – Furthermore, 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 – Thus, it is equally incumbent on the part of the MSMEs to be vigilant enough to follow the process laid down under the Framework, and bring to the notice of the Banks concerned to show its eligibility to get the benefit of the said Framework – 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 – Petitioner did not claim the benefit of the terms of the Framework after the demand notice u/s.13(2), SARFAESI Act was issued – It is at the stage of compliance with an order passed by the relevant Magistrate u/s.14, SARFAESI Act that the present writ petition was filed 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 – Bona fides of the petitioner suspected – No merit in the writ petition. [Paras 6-9]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
This page is for informational and research purposes only and does not constitute legal advice. Consult a qualified advocate for advice specific to your situation.