Karnataka High Court sets aside Canara Bank’s recovery proceedings, directs it to consider brewery’s MSME restructuring request first

Wanderers Brewing Pvt. Ltd. challenged Canara Bank’s SARFAESI proceedings concerning its loan accounts.

In W.P. No. 18808/2023, the company challenged a demand notice under Section 13(2) and sought consideration of its requests for relief under the MSME framework, contending that the bank had not appropriately restructured its loans following COVID-related financial stress

In W.P. No. 6302/2026, it challenged a subsequent auction sale notice dated 13 February 2026 and the bank’s NPA classification.

The bank disputed receipt of the borrower’s response under Section 13(3A) and argued, among other things, that the writ petitions were barred by the alternative remedy under Section 17 of the SARFAESI Act

The Court found that the borrower had placed a bank-stamped reply claiming MSME-related relief before it.

Whether the bank could proceed under the SARFAESI Act without considering the petitioner’s request for benefits under the MSME framework

Whether the writ petitions were maintainable despite the alternative remedy under Section 17 of the SARFAESI Act

Sections 13(2), 13(3A), and 17 of the SARFAESI Act govern the demand notice, consideration of a borrower’s representation, and the remedy before the Debt Recovery Tribunal; ordinarily, disputes concerning SARFAESI measures should be pursued before the Tribunal

The Court applied the MSME Framework for Revival and Rehabilitation, introduced by the Central Government under Section 9 of the MSMED Act and supplemented by RBI directions under Sections 21 and 35A of the Banking Regulation Act.

Relying on *Pro Knits v. Board of Directors of Canara Bank*, 2024 INSC 565, it held that the framework is binding on banks and must be followed before an MSME account is classified as an NPA, while also requiring the enterprise to establish its eligibility with verifiable material and raise the claim in time.

The framework gives an eligible MSME a right to consideration, not an automatic right to restructuring or any particular outcome.

The petitioner had raised its MSME claim in response to the SARFAESI notice rather than relying on that status only after recovery proceedings had substantially advanced.

Although the bank denied receiving the reply, the Court accepted the petitioner’s copy bearing the bank’s seal and found no contrary material.

The bank could assess eligibility, viability, and appropriate corrective measures, but it had to consider the request under the applicable framework before proceeding; the record did not satisfactorily establish that it had done so.

While the Court acknowledged the Section 17 remedy and the general restraint on writ interference in recovery matters, it held that the remedy did not bar intervention where the asserted failure was non-consideration of a mandatory framework.

It set aside the proceedings initiated pursuant to the Section 13(2) notice and directed the bank to consider the petitioner’s reply under Section 13(3A) and proceed in accordance with law, keeping the MSME framework in view.

Both writ petitions were disposed of; the Court did not direct that restructuring be granted.