Framework for Revival and Rehabilitation of MSMEs [Notification dated 29.05.2015] is binding to Banks/ Secured Creditors under SARFAESI and the entire exercise of the framework is required to be carried out by Banking Companies before the accounts of MSMEs turn into NPA – Pro Knits Vs. The Board of Directors of Canara Bank and Ors. – Supreme Court
Hon’ble Supreme Court has set aside the decision of Bombay High Court and has held that:
(i) The Instructions for the Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises as notified by the Central Government vide the Notification dated 29.05.2015 having statutory force, are binding to all Scheduled Commercial Banks, licensed to operate in India by the Reserve Bank of India, as stated in the said Directions.
(ii) The whole process of enforcement of security interest under the SARFAESI Act, could be initiated only when the borrower makes any default in repayment of secured debt or any instalment thereof, and his account in respect of such debt is classified by the secured creditor as non-performing asset, in view of Section 13(2) of the said Act.
(iii) The Banking companies though may be ‘secured creditors’ are bound to follow the same, before classifying the loan account of MSME as NPA.
The Hon’ble Court also held that when it is mandatory or obligatory on the part of the Banks to follow the Instructions/Directions issued by the Central Government and the Reserve Bank of India with regard to the Framework for Revival and Rehabilitation of MSMEs, it would be equally incumbent on the part of the concerned MSMEs to be vigilant enough to follow the process laid down under the said Framework, and bring to the notice of the concerned Banks, by producing authenticated and verifiable documents/material to show its eligibility to get the benefit of the said Framework.
