Shri Shri Swami Samarth Construction And Finance Solution vs. The Board Of Directors Of Nkgsb Co-Op. Bank Ltd

REPORTABLE
2025 INSC 908

IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL JURISDICTION

WRIT PETITION (CIVIL) No. 684 OF 2025



SHRI SHRI SWAMI SAMARTH CONSTRUCTION
& FINANCE SOLUTION & ANR. … PETITIONERS


VS.


THE BOARD OF DIRECTORS OF NKGSB
CO-OP. BANK LTD. & ORS. … RESPONDENTS


J U D G M E N T

DIPANKAR DATTA, J.

1. This is a writ petition under Article 32 of the Constitution of India by an
enterprise registered under the Micro, Small and Medium Enterprises
1
Development Act, 2006 .
2. The petitioning enterprise had executed a loan agreement with the NKGSB Co-
2
operative Bank but had failed in its obligation to repay the loan. In due course,
the account of the petitioning enterprise was classified as a non-performing
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asset . The authorised officer of the respondent no.2 issued a demand notice

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dated 13 May, 2024 under Section 13(2) of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
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2002 , calling upon the petitioning enterprise to repay the dues of the
respondent no.2 within 60 days. It does not appear from the writ petition, filed
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on 14 July, 2025, that the petitioning enterprise objected to classification of
its account as NPA as well as issuance of the demand notice on the ground that
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the action of the respondent no.2 was in violation of Notification dated 29
May, 2015, containing the “F RAMEWORK FOR R EVIVAL AND R EHABILITATION OF M ICRO ,
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S MALL AND M EDIUM E NTERPRISES ” issued by the Joint Secretary to the Government
of India, Ministry of Micro, Small and Medium Enterprises. The respondent no.2
having moved an application before the relevant Magistrate under Section 14
rd
of the SARFAESI Act, a Court Commissioner was appointed per order dated 3
April, 2025. Such order was communicated by the Court Commissioner to the
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petitioning enterprise on 18 June, 2025.
3. Mr. Nedumpara, learned counsel appearing for the petitioning enterprise,
submits that it was the obligation of the respondent no.2 to identify “incipient
stress” in the loan account of the petitioning enterprise but it did not so identify
prior to classifying the loan account as NPA which, according to him, is wholly
illegal. Mr. Nedumpara further submits that the Notification is binding on the
lending banks/secured creditors under the SARFAESI Act and, therefore, any
measure taken under the SARFAESI Act without complying with the terms of
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the F RAMEWORK against a micro, small or medium enterprise would amount to

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SARFAESI Act
5
Notification
6
RAMEWORK
F
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MSME
2


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an act in excess of jurisdiction. The decision in Pro Knits v. Canara Bank ,
forming part of the writ petition and though not formally cited, was referred to
by Mr. Nedumpara in course of his arguments in support of this submission .
Also, Mr. Nedumpara submits that such Notification/F RAMEWORK does not
mandatorily require an MSME to notify the lending bank/secured creditor first
that the MSME wishes to have incipient stress in its account identified;
therefore, any defence that the MSME did not voluntarily initiate proceedings
ought not to be allowed to be raised. He, thus, prayed for admission of the writ
petition and grant of ad-interim relief against the respondents.
4. The respondents are not required to be noticed since we are not persuaded to
agree with any of the submissions advanced by Mr. Nedumpara.
5. The Notification detailing the F RAMEWORK , more particularly paragraph 1 and its
sub-paragraphs, have to be read together to make its terms effective and
meaningful. Although, in the sequence of the F RAMEWORK “Identification by
Banks or Creditors” comes first, it is immediately followed by “Identification by
the Enterprise”. In terms of sub-paragraph 2, any MSME may choose to
voluntarily initiate proceedings under the F RAMEWORK if it “reasonably
apprehends failure of its business or its inability or likely inability to pay debts
and before the accumulated losses of the enterprise equals to half or more of
its entire net worth” (emphasis ours). The obligation of the MSME does not end
there. For initiation of proceedings under the F RAMEWORK , the application has to
be verified by an affidavit of an authorised person and upon receipt of a
request, the lending bank/secured creditor is mandatorily bound to proceed in

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(2024) 10 SCC 292
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RAMEWORK
terms of the F and to constitute a committee to identify incipient
stress in the account.
6. The way Mr. Nedumpara urges us to read the Notification and the terms of the
F RAMEWORK , if accepted, would lead to the conclusion that every lending
bank/secured creditor under the SARFAESI Act would be obliged to find out in
every event of continuing default, likely to give rise to classification of the
relevant account as NPA, whether the borrower is an MSME to which the
F RAMEWORK applies, whether its business has failed or whether it is suffering
from any disability to pay its debts; and upon receiving a response, to apply
the terms thereof by, inter alia , including the account in the Special Mention
Account for the claim for a corrective action plan to be considered by the
Committee for stressed MSMEs. This could not have been the intention behind
RAMEWORK
introduction of the F to aid the MSMEs which, for reasons personal to
them, is unable to clear its debt and require revival and rehabilitation that the
F RAMEWORK envisages. If indeed it is only the obligation of the lending
bank/secured creditor to identify incipient stress in the account, sub-
paragraphs 2 and 3 of paragraph 1 would be rendered redundant. An MSME,
despite finding that its business is failing or that it is unable to pay its debts or
accumulation of losses equals to half or more of its entire net worth and
classification of its account as NPA is imminent, it would rest on its oars
believing that it has no responsibility and that its account will not be classified
as NPA because it is the entire obligation of the lending bank/secured creditor
RAMEWORK
to do what the F requires. We would read and interpret the seemingly
confusing terms of the F RAMEWORK harmoniously to ensure that a right under
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the MSME Act is not destroyed by the SARFAESI Act or vice versa. In our
reading, the terms of the F RAMEWORK do not prohibit the lending bank/secured
creditor (assuming that it has no conscious knowledge that the defaulting
borrower is an MSME) to classify the account of the defaulting MSME as NPA
and to even issue the demand notice under Section 13(2) of the SARFAESI Act
without such identification of incipient stress in the account of the defaulting
borrower (MSME); however, upon receipt of the demand notice, if such
borrower in its response under Section 13(3-A) of the SARFAESI Act asserts
that it an MSME and claims the benefit of the F RAMEWORK citing reasons
supported by an affidavit, the lending bank/secured creditor would then be
mandatorily bound to look into such claim keeping further action under the
SARFAESI Act in abeyance; and, should the claim be found to be worthy of
RAMEWORK
acceptance within the framework of the F , to act in terms thereof for
securing revival and rehabilitation of the defaulting borrower.
7. As has been noted above, the petitioning enterprise does not seem to have
ever claimed the benefit of the terms of the F RAMEWORK after the demand notice
under Section 13(2) of the SARFAESI Act was issued. It is at the stage of
compliance with an order passed by the relevant Magistrate under Section 14
of the SARFAESI Act that this writ petition has been presented before this Court
claiming benefits of the F RAMEWORK to restrain the respondent no.2 and its
officers from proceeding further under the SARFAESI Act and other enactments
except in the manner contemplated under the said Notification. We find the
bona fides of the petitioning enterprise to be suspect.
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8. Pro-Knits (supra) is a decision of a coordinate Bench of this Court holding,
inter alia , that the Notification is binding on the lending banks/secured
creditors. Finding to the contrary by the High Court of Bombay in the judgment
and order under challenge in the appeal was, thus, quashed. Though while
stressing that the terms of the F RAMEWORK need to be followed by the lending
banks/secured creditors before the account of an MSME is classified as NPA,
this decision also lays stress on the obligation of the MSMEs by holding that “it
would be equally incumbent on the part of the MSMEs concerned to be vigilant
enough to follow the process laid down under the said Framework, and bring
to the notice of the Banks concerned, by producing authenticated and verifiable
documents/material to show its eligibility to get the benefit of the said
Framework” . It was cautioned that “if such an Enterprise allows the entire
process for enforcement of security interest under the SARFAESI Act to be over,
or it having challenged such action of the bank/creditor concerned in the court
of law/tribunal and having failed, such an Enterprise could not be permitted to
misuse the process of law for thwarting the actions taken under the SARFAESI
Act by raising the plea of being an MSME at a belated stage” . This decision,
however, left unsaid something which we have explained hereinabove while
construing the terms consistently to prevent undermining of rights that one
central enactment confers by another.
9. No case for interference under Article 32 of the Constitution has been set up.
There being no merit in the writ petition, the same is accordingly ordered to be
dismissed. Pending applications, if any, stand closed.
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10. Needless to observe, the petitioning enterprise will be at liberty to pursue its
remedy under Section 17 of the SARFAESI Act, in accordance with law.


………………………………………J.
(DIPANKAR DATTA)



……………….………………………J.
(AUGUSTINE GEORGE MASIH)


NEW DELHI;
JULY 28, 2025



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