SARFAESI Act | Lending Banks Only Obligated To Consider Revival Scheme For NPA MSMEs If Borrower Claims Relief U/S 13(3A): Bombay High Court

The Bombay High Court bench, comprising Justice Suman Shyam and Justice Manjusha Deshpande, has held that the lending bank is obligated to consider the MSME revival scheme for classification of account as NPA only if it has been claimed by the MSME in response to the demand notice under Section 13(3A) of the SARFAESI Act. The petitioner's MSME unit took certain loans from ICICI Bank and the Technology Development Board (TBD). The ICICI Bank classified its account as NPA on February 29th, 2020, with a retrospective effect and also issued notices under the SARFAESI Act. It is the case of the petitioner that a 2015 MSME notification mandates that the bank should identify the incipient stress and constitute a committee to implement a corrective action plan before classifying the account as NPA and commencing recovery actions. The petitioner initiated various proceedings and appeals at various forums, but no relief was granted; therefore, the present writ was preferred. The respondent contended that the petitioner didn't raise the plea of incipient stress or claim benefits under the notification at the earliest opportunity, and now the recovery proceedings have been substantially advanced. The bench heard Mr. Mathews Nedumpara appearing for the petitioner and agreed that the issue is of significance and involves a pure question of law, which calls for determination by the court. The bench found that the issue had already been conclusively decided against the petitioner by a coordinate bench in July 2024, which the petitioner has not mentioned in this petition. However, the counsel argued that the judgment doesn't lay down the correct position of law. Relying on the Hon'ble Apex Court's ruling in the case of Pro Knits vs. The Board of Directors of Canara Bank & Ors., 2024 SCC OnLine SC 1864, which mandated the adherence to the MSME notification for restructuring of the MSME loans. The Pro Knit (Supra) was further explained in the case of Shri Shri Swami Samarth Construction & Finance Solution & Anr vs The Board of Directors of NKGSB Coop Bank Ltd & Ors, 2025 SCC OnLine SC 1566, where it was held that the framework doesn't prohibit classification of an MSME account as an NPA or issuance of a section 13(2) SARFAESI notice without identification of incipient stress in the account of the defaulting borrower. But if the borrower, in response to u/s 13(3A), asserts that it's an MSME and claims the benefit of the scheme, then the bank is bound to look into such a scheme. The present facts show that the notice u/s 13(2) of the SARFAESI Act was received by the petitioner in the year 2020, but the MSME Notification dated 29th May 2015 was invoked by her in September 2023 only. By that time the proceedings under the SARFAESI and IBC were either in the advanced stage or were concluded. The Court found the petitioner guilty of contempt of court, as the petitioner has not withdrawn all its pending proceedings as per the direction of the court. Further, the court found the petitioner guilty of the suppression of material facts. With the above observations, the bench dismissed the petition; however, the liberty was granted to avail legal remedy in line with the Pro Knits (Supra) Judgment. Case Name: Mrs Manisha Nimesh Mehta v. Technology Development Board & ors. Case No.: WRIT PETITION (ST) NO. 14829 OF 2025 and Ors. Coram: Justice Suman Shyam and Justice Manjusha Deshpande Judgment Date: 07.10.2025Click Here To Read/Download The Order

SARFAESI Act | Lending Banks Only Obligated To Consider Revival Scheme For NPA MSMEs If Borrower Claims Relief U/S 13(3A): Bombay High Court

Mohd.Rehan Ali

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