A borrower cannot belatedly invoke MSME protections in subsequent litigation after omitting them earlier.

Appellant No. 1, an MSME proprietorship represented by Appellants Nos. 2 and 3, had availed an overdraft facility of ₹2 crores from Canara Bank. The facility was sanctioned for one year from 14 August 2023 and was required to be renewed by 14 August 2024. The Bank alleged that the appellants failed to seek renewal or furnish the required documents despite a final reminder dated 9 August 2024. The account was consequently classified as NPA on 8 February 2025, followed by initiation of proceedings under Sections 13(2), 13(4) and 14 of the SARFAESI Act

The appellants initially challenged the Bank’s recovery proceedings in W.P.(C) No. 31231 of 2025, seeking, inter alia, time to clear the arrears and regularise the account. The writ petition was dismissed, with liberty to challenge the SARFAESI measures before the Debts Recovery Tribunal (DRT). Instead of approaching the DRT, the appellants filed a second writ petition seeking protection under the MSME Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises, notified through S.O.1432(E) dated 29 May 2015, and the RBI Circular dated 17 March 2016. The learned Single Judge dismissed the petition, holding that the appellants had invoked the MSME framework belatedly and had not claimed its benefit after issuance of the Section 13(2) notice

Whether the High Court should exercise jurisdiction under Article 226 despite the availability of an efficacious alternative remedy before the DRT under Section 17 of the SARFAESI Act.

Whether the appellants could, in a subsequent writ petition filed after initiation of SARFAESI proceedings and issuance of an auction notice, claim the benefit of the 2015 MSME Framework and the RBI Circular when that ground was not raised in the earlier writ petition.

Whether the Bank’s failure to undertake the MSME revival and rehabilitation process invalidated the SARFAESI proceedings in the facts of the case.

The Court applied the MSME Framework for Revival and Rehabilitation issued under the MSMED Act, 2006, together with the RBI’s binding directions issued under Sections 21 and 35A of the Banking Regulation Act, 1949, which require identification of incipient stress in eligible MSME accounts and provide for corrective and rehabilitation measures.

Under the interpretation in M/s Pro Knits v. Board of Directors of Canara Bank, (2024) 10 SCC 292, and Shri Shri Swami Samarth Construction & Finance Solution v. Board of Directors of NKGSB Co-operative Bank Ltd., 2025 SCC OnLine SC 1566, an MSME borrower must ordinarily voluntarily invoke the framework; however, even after a Section 13(2) notice, the borrower may assert its MSME status and claim the framework’s benefit in its Section 13(3A) response, requiring the secured creditor to examine the claim and keep further SARFAESI action in abeyance if the claim is found meritorious.

The Court also applied the alternative-remedy rule in SARFAESI matters, as recognised in South Indian Bank Ltd. v. Naveen Mathew Philip, (2023) 17 SCC 311, and the doctrines of constructive res judicata, abuse of process and the Henderson Principle, reaffirmed in CELIR LLP v. Sumati Prasad Bafna, 2024 INSC 978, State of U.P. v. Nawab Hussain, (1997) 2 SCC 806, and Yat Tung Investment Co. Ltd. v. Dao Heng Bank Ltd., [1975] A.C. 581, which bar parties from raising in subsequent proceedings grounds that could and should have been advanced in earlier litigation.

The Court found that the appellants had not applied for rehabilitation or submitted a rehabilitation package under the MSME Framework. Although they claimed that documents, including MSME certificates and financial statements, had been handed over to the Bank, there was no documentary proof that the Bank’s reminder dated 9 August 2024 had been answered or that the alleged submission of documents had been communicated in subsequent correspondence.

The appellants had also failed to raise the MSME-framework objection in their first writ petition, despite challenging the Section 13(2) and Section 13(4) measures and seeking time to regularise the account. The later auction notice was merely a consequence of the earlier SARFAESI measures and did not create an independent cause of action enabling the appellants to reopen the validity of the initial proceedings. Applying the Henderson Principle and constructive res judicata, the Court held that the appellants could not split their grounds of challenge across successive writ petitions. Since the SARFAESI Act provided an efficacious remedy under Section 17 and no procedural illegality in the auction process was demonstrated, the Court declined to exercise discretionary jurisdiction under Article 226.

The appellants retained the liberty to challenge the secured creditor’s measures before the DRT under Section 17 of the SARFAESI Act. If such an application was filed within three weeks from 1 September 2026, the DRT was directed to entertain it without insisting upon a separate application for condonation of delay.