Justice M.S. Karnik, Justice N. R. Borkar, Bombay High Court
MSME Borrower Has To Proactively Approach Lender To Avail Benefits Of Revival Or Restructuring: Bombay High Court Dismisses Director’s Petition
|The Petitioner had approached the Bombay High Court seeking a declaration that the entire recovery process initiated by the Respondent Bank under the SARFAESI Act was without jurisdiction.
While dismissing a petition filed by the director of a Company challenging the entire recovery steps initiated by the Bank under the SARFAESI Act, the Bombay High Court has held that the petition was only an attempt to stall the auction of the immovable properties. The High Court also observed that it is incumbent upon the MSME borrower to proactively approach the lender to avail the benefits of revival or restructuring.
The Petitioner had approached the High Court seeking a declaration that the recovery steps initiated by the Respondent Bank under the SARFAESI Act were without jurisdiction. The Petitioner also sought a recall of the recovery action.
The Single Bench of Justice M.S. Karnik and Justice N. R. Borkar said, “Even as per the MSME notification dated 29/05/2015 and the corresponding RBI guidelines, it is incumbent upon the borrower to proactively approach the lender to avail the benefits of revival or restructuring. It is the submission of learned counsel for the Petitioner that before declaring the account as NPA, it is the responsibility of the bank to ensure that the MSME gets all the benefits of revival or restructuring. However, the petition falls short of demonstrating the steps taken to avail benefits under the MSME framework before the account was classified as NPA on 21/10/2019. There is nothing on record to indicate that the MSME borrower notified the bank of stress and request assistance for resolution or that the petitioner approached the bank for assistance under the MSME notification or that he sought a corrective action plan at the relevant time.”
Advocate Mathews Nedumpara represented the Petitioner while Senior Advocate Kevic Setalwad represented the Respondent.
Arguments
It was the petitioner’s case that the framework for revival and rehabilitation of micro, small and medium enterprises and notification dated May 29, 2015 to submit that the procedure contemplated thereunder for identification by bank before the loan account of MSME is declared into a Non-Performing Asset (NPA) had not been followed in the present case. It was submitted that before the action of recovery was initiated in terms of clause 5 of the notification, the options under the corrective action plan ought to have been explored by the Committee, which were not followed in the present case.
Reasoning
The Bench found that the petitioner’s account was classified as NPA on October 21, 2019 and the SARFAESI proceedings were initiated by issuing 13(2) demand notice dated January 16, 2020 The Petition was filed by the Petitioner in his capacity as a Director of Ritu Automobiles Pvt. Ltd. The National Company Law Tribunal (NCLT) by order had admitted the company to the Corporate Insolvency Resolution Process (CIRP) under the IBC and the liquidation of the corporate debtor was approved. Under Section 17 of the IBC, upon the commencement of CIRP and Liquidation, the powers of the board of directors, including that of the petitioner, stand suspended, and the management of the company vests exclusively with the Insolvency Resolution Professional (IRP) and the Liquidator, it explained.
The Bench also found substance in the bank's objection that the Petitioner had no statutory authority to institute or pursue this Petition. The Bench made it clear that as per the MSME notification dated May 29, 2015 and the corresponding RBI guidelines, it is incumbent upon the borrower to proactively approach the lender to avail the benefits of revival or restructuring.
Reference was also made to the judgment of the Apex Court in Satiate Engineering Pvt. Ltd. vs. Axis Bank and others (2024) wherein it has been reiterated that the MSME framework is not a substitute for statutory recovery mechanisms under SARFAESI or IBC. Noting that all the contentions raised in this petition are subject matter of an interlocutory application made before the NCLT under Section 60(5)C of IBC, 2016 in an application for recall of an order dated October 3, 2021, the Bench said, “We are thus of the opinion that the present petition is only an attempt on the part of the petitioner to stall the auction of the immovable properties.”
Dismissing the Petition, the Bench said, “We are satisfied that this petition and the application is only an attempt to stall the recovery proceedings. The petitioner has already availed of alternate statutory remedies and the petitioner has adequate remedies in law to challenge the action of the bank. We are therefore not inclined to entertain the present writ petition.”
Cause Title: Manoj Lalwani, Director of Ritu Automobiles Pvt. Ltd. v. Reserve Bank of India and ors. (Neutral Citation: 2025:BHC-OS:9098-DB)
Appearance
Petitioner: Advocate Mathews Nedumpara, Hemali Kurne, Maira Nedumpara, Shameen Fayiz, Akhilesh, Satsang, Sweta, Nedumpara & Nedumpara
Respondent: Senior Advocate Kevic Setalwad, Advocates Y.R.Mishra, Upendra Lokegaonkar, GP Sachidanand T. Singh, Advocate P.H.Kantharia, AGP Vikrant Parshurami, Advocate Bijal Gogri, O.M. Gujar Law Chambers, Advocate Dhaval Patil, K.Ashar & Co., Advocates Narpat Singh, Malvika Sachin India Law LLP, Advocate Amir Arsiwala