Paulson Mathew vs. South Indian Bank
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The petitioner, Paulson Mathew, proprietor of Gemini Digital Press, sought to set aside a communication (Ext.P9) and direct the respondent bank to disburse a credit facility under the Credit Guarantee Scheme for Subordinate Debt (CGSSD). The petitioner owes approximately Rs. 77 lakhs to the bank. The CGSSD scheme, introduced by the 3rd respondent (Union of India), provides credit guarantees for MSMEs. The petitioner, a sole proprietor, based his claim on the definition of "Existing stake" in the scheme, interpreting "debt" to include loans taken from the bank. The respondents contended that "debt" in the scheme refers only to loans extended by the promoter to the business, not loans taken by the promoter from external entities.
Held
The Court held that the petitioner's interpretation of the term "debt" under the CGSSD scheme is not acceptable. The scheme defines "Existing stake" as the "total contribution of the promoter" in the form of equity as well as debt. The Court reasoned that a "contribution as a debt" can only mean a loan given by the promoter to the business, not a loan taken by the promoter from an outside entity. Therefore, the petitioner's prayer for relief under the scheme was found to be misplaced. Faced with this, the petitioner requested permission to pay off the outstanding loan amount in easy installments. The Court noted that SARFEASI proceedings were at the Section 13(4) stage, with physical possession not yet taken. Consequently, the Court directed the petitioner to pay the outstanding amount in 12 equal monthly installments, with the first installment due by March 14, 2023, and subsequent installments on the 14th of each succeeding month. The petitioner was also directed to pay accrued interest along with the installments. The coercive steps under the SARFEASI Act were to be kept in abeyance, but the bank was free to proceed if the petitioner defaulted on the installments.
Key Issues
1. Whether the term "debt" in the definition of "Existing stake" under the Credit Guarantee Scheme for Subordinate Debt (CGSSD) includes loans taken by the promoter from external entities, such as a bank? (Question of law) Petitioner's arguments: The petitioner argued that the phrase "as well as debt" in the definition of "Existing stake" should be interpreted to include the loan amount taken from the bank, thereby increasing his total stake and making him eligible for the scheme. He contended that the total stake should be calculated by adding his capital and the loan from the bank. Respondents' arguments: The respondents argued that "debt" in the context of "contribution of the promoter" refers only to a loan extended by the promoter to the business, not a loan taken by the promoter from an outside entity. They relied on the general understanding of promoter's contribution.
Sections Cited
Section 13(4)
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Cause title — parties, addresses and appearances
JUDGMENT The writ petition has been filed praying to set aside Ext.P9 communication and to direct the respondent bank to disburse the credit facility available under Ext.P2 scheme to the petitioner.
The petitioner had taken a loan from the 1st respondent and a sum of about Rs.77 lakhs is said to be due. The 3rd respondent has envisaged a scheme called ‘Credit Guarantee Scheme for Subordinate Debt (CGS )’, whereby, protection is given to Micro, Small and Medium Enterprises (MSMEs) in the form of a credit guarantee. The petitioner, who is a sole proprietor, claims relief under the scheme primarily based on the definition of the word “Existing stake” in the scheme.
As per the scheme, “credit facility” is defined to be financial assistance provided under the scheme by way of Sub-
WP(C) NO. 17761 OF 2021 3 Debt facility extended by the lending institutions to the promoters of the MSME units up to 15 % of promoters stake or Rs.75 lakhs whichever is lower. The above facility which is treated as a personal loan is not to exceed the original debt of the beneficiary. Purpose of the scheme as per clause 3 is to provide guarantee coverage for the credit guarantee scheme for subordinate debt to provide Sub-Debt support in respect of restructuring of MSMEs. Eligible borrower means promoters of MSME units which are stressed. “Existing stake” is defined to be the total contribution of the promoter in the form of equity as well as debt. The petitioner relies on the words ‘‘as well as debt’’ and submits that the debt includes the amount secured as loan from the bank and the total stake of the petitioner should be arrived at by adding his capital and the loan taken from the bank.
The respondents have filed a counter affidavit and it is their case that, what is contemplated by the word debt is not a loan taken by the promoter and can only be a loan extended by the promoter to the business.
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Having considered the entirety of the scheme, I find that the interpretation raised by the petitioner cannot be accepted. The scheme specifically says about “contribution of the promoter” in the form of equity as well as debt. A contribution as a debt can only be a loan given by the promoter and cannot be a loan which had been taken by the promoter from an outside entity. Hence, the prayer in the writ petition for grant of relief under the scheme is misplaced.
Faced with the above situation, the petitioner prays that he may be permitted to pay off the amounts outstanding in easy instalments. The SARFEASI proceedings is under Section 13 (4) stage, and physical possession has not so far been taken. In the above circumstances, I am of the view that the petitioner can be granted the benefit of paying off the amounts due in instalments. There will be a direction that the petitioner to pay off the amounts outstanding in 12 equal monthly instalments, the 1st instalment falling due on or before the 14th of March, 2023 and the subsequent instalments falling due on or before the 14th of the succeeding months. The petitioner shall pay the accrued interest along with instalments. If the WP(C) NO. 17761 OF 2021 5 petitioner makes any default in the payment of the instalments as directed above, the respondents are free to proceed further in the steps already initiated under the SARFEASI Act. The coercive steps already initiated shall be kept in abeyance to facilitate the payment by way of instalments as directed above. T.R. RAVI, JUDGE ded/14.02.2023
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Appendix — schedule of exhibits
Reproduced from the public record of the Kerala High Court. Verify against the court's own copy before relying on it. Income tax judgments are on bharattax.net.