MSME Status Not a Shield Against SARFAESI Action if SMA Norms Not Met | HC

Case Details: Ray Projects (P.) Ltd. vs. Board of Directors of Canara Bank - [2025] 179 taxmann.com 260 (HC-Bombay)

Judiciary and Counsel Details

• R.I. Chagla & Farhan P. Dubash, JJ.
• Mathews Nedumpara, Ms Hemali Kurne & Satsang Tailor for the Petitioner.
• Atharva Bhilare, Ms Vrushali Kabre & Ms Vaishali Bhilare for the Respondent.

Facts of the Case

In the instant case, the Respondent-Bank had granted various credit facilities to the petitioner company. However, when the petitioner failed to repay the loan, the bank initiated proceedings under the SARFAESI Act.

Thereafter, the petitioner filed an instant writ petition to restrain the bank from taking any further measures pursuant to the measures taken under Sections 13(2), 13(4) and 14 of the Act, and, in particular, the e-auction sale notice issued by the Bank to auction the property.

According to the petitioner, the Bank had wilfully violated MSME Notification S.O. 1432 (E) dated 29.05.2015 which provides that before a loan account of an MSME Borrower turns stressed, bank or creditor was required to identify incipient stress in account by creating three sub-categories, as laid down under Special Mention Account (SMA) pursuant to which, bank or creditor was required to inform MSME Borrower about mechanism of availing ‘Corrective Action Plan’ formulated by Composition of Committee for Stressed MSMEs.

It was noted that the petitioner had failed to produce any authenticated and/or verifiable material before the bank for identification of incipient stress in its loan account and categorisation under Special Mention Account (SMA), before its loan account turned into NPA.

Further, there was no application by the petitioner submitted to the Bank (duly verified by an Affidavit of an authorised person) for processing the account of the petitioner as SMA-0 and upon which, a Committee under the framework of the MSME Notification was to be formed immediately. Hence, the petitioner had failed to meet the mandatory requirement of the framework of the MSME Notification.

High Court Held

The High Court held that the petitioner had, at a belated stage of the auction notice for the sale of secured assets, pursuant to the issuance of the Demand Notice and the Possession Notice, chosen to file the instant Petition by raising a plea of MSME and non-compliance with the MSME Notification. This was nothing but an attempt to thwart the legitimate actions of the Bank under the SARFAESI Act. Therefore, the instant writ petition was to be dismissed.

List of Cases Reviewed

• Pro Knits v. Board of Directors of Canara Bank [2024] 165 taxmann.com 127/185 SCL 337 (SC) (para 29) followed

List of Cases Referred to

• Pro Knits v. Board of Directors of Canara Bank [2024] 165 taxmann.com 127/185 SCL 337 (SC) (para 12)
• A.K. Karthikeyan v. Authorised Officer [Writ Petition (MD)23328 of 2024, dated 12-6-2025] (para 13)
• PDMC Industries v. Ministry of Micro Small and Medium Enterprises [WP (C) No.5466 of 2025 dated 6-8-2025] (para 14)
• A. Navinchandra Steels Pvt. Ltd. v. Union of India (2024) 1 High Court Cases (Bom.) 290. (para 17)
• Perfect Infraengineers Ltd. v. Board of Directors of ICICI Bank [Writ Petition (L) No.4667 of 2024, dated 1-7-2024] (para 18)
• Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-op. Bank Ltd. [2025] 176 taxmann.com 949/189 SCL 697 (SC) (para 19)
• Ms Manisha Nimesh Mehta v. Technology Development Board [Writ Petition (St.)No.14829 of 2025] (para 29).