TaxTMI 
TaxTMI 
2024 (1) TMI 1377
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....ile India Pvt. Ltd., Shri. Sandeep 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. La....
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.... Girish T. i/b Meghnath Mavlani, for Resp. no. 1 & 2 in WP(L)/18563/2023 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-Bank....
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....e of clarity, the all encompassing prayers made by the Petitioner in the lead petition, which are stated to be 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 ....
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....ct, 2002 by the Respondent Banks/NBFCs. When the above matters were taken up for hearing, learned Counsel Mr. Nedumpara, has categorically stated that de hors the facts of all the Petitions, which 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 th....
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.... therefore it cannot be interpreted to have a force of Law. He submitted that under Clause 1(2) of the said Notification, an option is given to the MSME to initiate proceedings under the framework provided. He further submitted 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 2....
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....of this submission Mr. Sethna has relied upon, Supertech Limited Vs. Emerald Court Owner Resident Welfare Association and Ors, [2021] 10 SCR 569 which specifically states that "It is that where a power is given to do a certain thing 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....
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.... on its financial conditions / its repayment capacity and must apply for constitution of committee for the restructuring efforts. He submitted that once the sunset period is over and an account has been classified as NPA, then from that darkness, 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....
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....ated 29th May, 2015), it is provided that certain changes in the captioned framework have been carried in consultation with the Government of India, Ministry of MSME in order to make it compatible with the existing regulatory guidelines and accordingly a 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 rejoi....
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....re issue about application of the said Notification. From the perusal of the said Notification, it can be seen that the whole process as provided under the said Notification starts from identification of 'Incipient Stress' in the account of an MSME and thereafter classifying it 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' Diction....
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....ectors. (Writ Petition (L) No. 34253 OF 2022 order dated 2nd December, 2022). We are in agreement with the view taken in the said Judgment. The relevant portion of this decision reads thus:- "15. The Notification of 2015 deals with the framework of reviewing MSME. Clause-1 thereof 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....
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.... any, under the Framework can be claimed, if at all eligible, only thereafter and not before. 18. The benefit, if at all any, that flows from the Framework provided under the notification of 2015 cannot, therefore, be applicable or claimed by the firm or by the petitioner since the account was declared as 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 co....