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TMI Blog2024 (1) TMI 1377X X X X Extracts X X X X X X X X Extracts X X X X ..... ep Subhash Agarwal, M/s. Pro Knits Versus Union of India, Ministry of Micro, State of Maharashtra, Abhyudaya Co-operative Bank Ltd., Authorized Officer Legal & Recovery Department, Shri. V.N. Lothey (Patil), Central Registrar Room, Hon. Chief Metropolitan Magistrate, Hon'ble Collector & District Magistrate Court Naka, The Governor, Board of Direcitors, Union of India Ministry, Court Commissioner, Senior Police Inspector, Mr. Vijay Vishwanath Gaikwad, Secretary in the Department of Banking, Commissioner of Police Office, Tahsildar Nasik, ICICI Bank Ltd, Shri. BenoyIdiculla Head of the ICICI, Ms. Ritu Maheshwari Relationship, Shri. Jignesh Shelani Authorized Officer, Technology Development Board, TransUnion CIBIL Limited, Jayalakshmi Neelkantan, Mr. P.G. Neelkantan, The Chairperson, The Presiding Officer, Mr. Gopal Kotian Authorised Officer, Mr. Abhishek S. More Court Commissioner, Station House Officer, Mrs. Elina Varun Jain, Mr. Shikharchand Mohanlal, Mr. Shivshankar, Palak Swapnil Desai, Mr. Bholanath Tripathi, Chandan Kumar Authorized Officer SSI Branch, NCLT Mumbai Court, Station House Officer, ASREC (India) Limited, Garden Silk Mills Ltd., Mr. Lalitkumar Vithaldas Raithatha, Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 023 Karl Tamboly i/b Mayank Samuel i/b Sirius Legal, for Resp. no. 3 & 4 in WP(L)/18563/2023 O.A.Das a/w Pallavi Chori & Priya Nigwekar i/b O. A. Das, for Resp. no. 1 to 3 WP(L)/20100/2023 Uma Palsule-Desai, AGP for State WP(L)/20414/2023 & WP(L)/12379/2023 Abhay Patki, Addl. G. P. For Respondent State in WP/4620/2022 M. A. Sayyed, AGP for State in WP(L)/18563/2023 & WP(L)/15492/2023 P. H. Kantharia, GP for State in WP(L)/17488/2023 Himanshu Takke, AGP for State in WP(L)/15369/2023 Milind More, Addl. G. P. a/w Jyoti Chavan, AGP for State in WP(L)/14807/2023 Manish Upadhyay, AGP for State in WP(L)/13410/2023 & WP(L)/12079/2023 Jyoti Chavan, AGP for State in WP(L)/35792/2022 & WPL/30038/2022 WP(L)/14710/2023 Himanshu Takke, AGP for State in WP(L)/11035/2023 Kedar Dighe, AGP for State in WP(L)/32617/2022 & WP(L)/36240/2022 Amit Shastri, AGP for State in WP(L)/10862/2023 L. T. Satelkar, AGP for State in wpl/23938/2022 JUDGMENT (PER : M.M. SATHAYE, J) 1. These group of Petitions raise a common issue involving a challenge to the action of Respondent Banks or Non-Banking Financial Companies, based on a Notification dated 29th May, 2015 issued under Section 9 of the Micro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more or less identical, in all the matters, are reproduced below : a) to declare that the MSME Act in so far as it has not created a special forum/tribunal to enforce the rights and obligations/remedies which it has created in addition to those rights/obligations/remedies recognized by the common law, the jurisdiction of the Tribunal/Civil Court is not ousted; b) to declare that the SARFAESI Act, 2002, is not applicable to the case of the Petitioner since the SARFAESI Act, 2002, is the earlier law qua the MSMED Act, 2006, which (MSMED Act) is a special Act to deal with the MSME and has exhaustively provides the mechanism to deal with stressed incipient account of MSME borrower in the view of objective of the MSMED Act i.e., to aim at providing nurture and care to MSME before initiating recovery; c) to declare that the Petitioners are entitled to be compensated from the Respondent No. 1 for the loss and injury which it has suffered on account of the gross breach of trust, culpable negligence, and malicious and tortious action at the hands of DHFL and their officers, which loss and injury far exceeds the very claim of the Respondents as against the Petitioner; d) to declare t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may vary on a case-to-case basis, he is restricting his present argument to the challenge as already set out hereinabove in paragraph Nos. 2 and 3. Based on this categorical statement and understanding between the parties, we have heard the matter. SUBMISSIONS OF THE PARTIES 6. Learned Counsel Mr. Nedumpara appearing for the Petitioners, has made following submissions: 6.a) It is submitted that MSMED Act is an Act of Parliament and the said Notification has received assent of both Houses of Parliament and is therefore an Act of Parliament for all the purposes. It casts a duty on the Board of Directors of the Bank or NBFC, as the case may be, to adopt a certain procedure as provided in the said Notification. 6.b) It is submitted that the said Notification covers not only banks but NBFCs also. It is submitted that the said Notification casts a duty to constitute a committee, primarily consisting of Bank officers and independent experts on MSME. 6.c) It is further submitted that the Banks/NBFCs are duty bound to make an application for effecting a corrective action plan and if such corrective action plan is not successful, only then it can adopt the recovery steps. 6.d) It is fu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that for such initiation, an application is required to be made which is mandated to be verified by an affidavit of the authorized person and only on such specific initiation, it is submitted, that the account is supposed to be processed as SMA-0 and the Committee is supposed to be formed immediately. 7.c) It is vehemently submitted that nothing of this kind, viz., application duly verified by an affidavit of the authorized person is ever made by any of the Petitioners for initiation of proceedings under the said Notification and therefore the Banks and NBFCs or Financial Institutions, as the case may be, are not under any obligation under Law to form a Committee and make an effort for restructuring the Petitioner MSMEs. In support of this submission, learned Counsel Mr. Sethna, relied upon the Judgment of this Court in the matter of M/s. Alexis Business Solutions Pvt. Ltd. Vs. The Board of Directors. (Writ Petition (L) No. 34253 of 2022, Judgment dated 2nd December, 2022.) 7.d) Drawing our attention to paragraphs 14, 15 & 16 of the said Judgment, it is submitted that the very same argument as canvassed before us was considered by this Court. It is submitted that in that c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g in a certain way, the thing must be done in that way or not at all and that other methods of performance are necessarily forbidden." 7.h) Mr. Sethna, lastly relied upon the Judgment of Himachal Pradesh High Court in the matter of M/S Neelkanth Yarn vs. Punjab National Bank and Ors. (Civil Writ Petition No. 4538 of 2023, decided on 02.08.2023) in support of his submissions that when an alternate remedy is available to the Petitioners, writ under Constitutional jurisdiction should not be entertained. He submitted that all the Petitioners have alternate remedy available under Section 17 and 18 of the SARFAESI Act, 2002, and therefore, this is not a fit case for exercise of extra ordinary Writ Jurisdiction by this Court. 8. Learned Counsel Mr. Bamne, appearing for Respondent Bank in Writ Petition (L) No. 12079 of 2023 and Writ Petition (L) No. 17488 of 2023 made following submissions opposing the case of the Petitioners : 8.a) Drawing our attention to clause 14 of the said Notification, it is submitted that the very same Notification provides that while a restructuring proposal is under consideration by the Committee or Enterprise Debt Restructuring Cell, as the case may be, the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , there is no escape under the said Notification and the action under SARFAESI Act, 2002, post NPA classification, must follow. 9.b) It is submitted that the Petitioners cannot rely on the said Notification or any other Notification for restructuring, to thwart the entire process initiated under SARFAESI Act, 2002. He submitted that in the case of Oriental Bank of Commerce Vs. Sunder Lal Jain and Anr. (2008) 2 SCC 280, regarding guidelines issued by the RBI (about settlement), the Hon'ble Apex Court has already held that such guidelines are merely internal guidelines for the Banks which are executive instructions and have no statutory force. It is already held that these guidelines do not create any rights in favour of the borrowers. Based on this Judgment, learned Counsel submitted that the present case is also squarely covered by the said Judgment in as much as the said Notification is in the nature of guidelines or instructions. 9.c) It is submitted and being recorded at the cost of repetition, that in none of the matters the Petitioners/MSMEs have ever invoked any mechanism under the said Notification for restructuring of their loans. He submitted that on the contrary, in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revised framework is furnished. 10.b) He submitted that the revised framework would apply to only such MSMEs which are having loan limits up to Rs. 25 Crores. Relying on Section 238 of the Insolvency and Bankruptcy Code, 2016, he submitted that the provisions of the IBC, 2016, overrides all other laws. He submitted that so far as his case is concerned, there is no requirement of classification of an account of borrower as NPA and under section 7 of the IBC, an NBFC can file an application for initiating Corporate Insolvency Resolution Process against corporate debtor when a default has occurred. In short, he submitted that the whole argument of the Petitioners at this stage, that without following process under the said Notification, an account of MSME cannot be classified as NPA, will not apply in his case because his action is under the IBC, 2016. 11. Mr. Nedumpara, learned Counsel appearing for the Petitioners in the rejoinder made following submissions. 11.a) He once again clarified that it is not his argument that SARFAESI Act, 2002 or other Acts (such as RDB Act or IBC) are not applicable. He further clarified that he is not arguing that recovery proceedings are not allowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in 3 sub-categories provided as per Clause 1(1) of the said Notification. None of the learned Counsels appearing for either the Petitioners or the Respondent Banks/NBFCs have submitted anything about this aspect of 'identification of incipient stress'. This Court has also on its own endeavored to find out guiding principles on this issue, so that it can be beneficially used. However, we have not found any such guidance. Faced with such a stonewall of non-availability of any precedent or earlier views, we are left with only one choice and that is to go to the very concept of "incipient stress" as it might have been intended by the legislature. After all, it is one of the Court's fundamental functions to interpret what is provided by the legislature. 14. As per the Merriam-Webster dictionary, the word 'incipient' means "beginning to come into being or to become apparent". As per the Oxford Learners' Dictionary as well as the Cambridge Dictionary, the meaning of the word incipient is "just beginning". Keeping in mind this meaning and coupling the same with the word stress, it is obvious that Clause 1(1) of the said Notification provides that Banks or Creditors are required to identi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f has two components. Before the account turns into NPA, the bank or the creditors are required to identify three special categories, i.e. whether the principal or interest payment is overdue for 30 days, 31 to 60 days, and overdue between 61 to 90 days. The second part of this clause is that any micro or small enterprise may voluntarily initiate a proceeding when it apprehends its inability to pay the debt. A Committee, subject to regulations prescribed by the Reserve Bank of India for the banks, is constituted. Under Clause 4, any eligible MSME, a bank, or a creditor can apply to this Committee. Upon application, the Committee can explore the possibility of resolving stress rectification etc. 16. Under the Notification dated 29 May 2015, it was open to the Petitioners to voluntarily initiate proceedings when it is apprehended that it cannot pay the loan. There are no pleadings, nor is it argued that the Petitioners made any effort to apply under the Notification for the benefits thereof. Even today, it is not stated that the Petitioners intend to take benefits of the Notification of 2015. It was orally argued that there is no Committee, and in the past, no such relief was grant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s an NPA as early as 27-12-2019. 19. Apart from the above, on a reading of clause 1 of the Framework issued under the MSME Act, it can be seen that it is only an optional framework available to the bank and the borrower. The said framework in the notification cannot prevail over the statutory provisions of the SARFAESI Act in the matter of recovery of loans. As per Section 24 of the MSME Act, only the provisions of Sections 15 to 23 are given precedence over other laws. Section 9 or the notifications issued thereunder cannot prevail over the statutory provisions of the SARFAESI Act. In the decision in Kotak Mahindra Bank Limited v. Girnar Corrugators Private Limited and Others [(2023) 3 SCC 210], it has been held that the SARFAESI Act will prevail over the MSME Act. 20. Even if a harmonious construction is to be adopted, as argued finally by the learned counsel, failure to abide by the terms of the notification of 2015 cannot render the declaration of the account as NPA void or bad in law. The words in the notification do not provide for a mandatory procedural requirement. No consequence is provided for non-compliance with the Framework. The notification only gives an opportuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Financial Institutions or NBFCs are at liberty to decide those applications and inform the concerned MSME about this decision as expeditiously as possible. 21. In view of the disposal of the above Writ Petitions, nothing survives in any Interim Applications filed therein and the same are disposed of accordingly. If any stay was granted in any of the Interim Applications, the same are vacated forthwith. 22. This order will be digitally signed by the Private Secretary/Personal Assistant of this Court. All concerned will act on production by fax or email of a digitally signed copy of this order. 23. At this stage, Mr. Nedumpara, the learned Counsel appearing on behalf of the Petitioners requested that any stay granted in any of the Interim Applications be continued for a period of 2 weeks from today. 24. Since according to Mr. Nedumpara, the issues involved in the above Writ Petitions are important issues and he would like to test the same before the Hon'ble Supreme Court, we direct that any Interim Orders passed in any Interim Applications in the above Writ Petitions shall continue for a period of two weeks from today after which they shall be automatically vacated, unless exten ..... X X X X Extracts X X X X X X X X Extracts X X X X
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