A.K.Karthikeyan vs. The Authorized Officer

Held

The Court held that the writ petitions are maintainable. It reasoned that the issue raised pertains to a jurisdictional question concerning the banks' obligation to formulate a revival scheme under the MSME Development Act, 2006, and related notifications, which is distinct from the recovery proceedings under the SARFAESI Act. The Court found that the banks' argument that the scheme lacked statutory force was contrary to the judgment in 'Pro Knits', as the notification was issued under Section 9 of the MSME Act and thus possesses statutory force. The Court emphasized that the notification imposes a duty on banks to constitute a committee and formulate a revival scheme, including repayment clauses. Therefore, blaming the MSME units for a belated claim was unacceptable. The Court also noted that the Central Government's communication supported the entitlement of MSMEs to be considered under the revival framework. Consequently, the Court held that banks are under a mandatory obligation to consider the loan accounts for revival before initiating SARFAESI proceedings. The sale notices were set aside, and the respondent banks were directed to formulate revival and rehabilitation schemes for the petitioner units as per the 2015 Notification and its revisions.

Facts

The petitioners, proprietors of MSME engineering units, filed writ petitions challenging sale notices issued by respondent banks (Canara Bank and State Bank of India) under the SARFAESI Act. The petitioners' businesses, primarily supplying components to BHEL Trichy, became sick due to a decline in the thermal power sector and a shift towards green energy. Their loans were declared Non-Performing Assets (NPA) as of April 1, 2018. The banks issued demand notices and symbolic possession notices. The petitioners sought to quash these notices and requested the formulation of a revival and rehabilitation scheme as per the MSME Development Act, 2006, and relevant notifications, arguing that the banks failed to follow prescribed revival procedures before initiating recovery proceedings.

Key Issues

1. Whether the writ petitions are maintainable despite the existence of an alternative remedy before the Debt Recovery Tribunal (DRT), considering the issue involves a jurisdictional question concerning the application of the MSME Development Act, 2006, and Notification dated 29.05.2015? 2. Whether the respondent banks are legally obligated to formulate a revival and rehabilitation scheme for the petitioner MSME units under the MSME Development Act, 2006, and the relevant RBI notifications before proceeding with recovery actions under the SARFAESI Act? Petitioner's Arguments: The petitioners contended that the banks failed to adhere to the mandatory requirement of formulating a revival and rehabilitation scheme under the MSME Development Act, 2006, and the RBI's Framework for Revival and Rehabilitation of MSMEs (Notification dated 29.05.2015, and subsequent revisions). They argued that this failure constitutes a jurisdictional defect, making the writ petitions maintainable. They also relied on a communication from the Central Government acknowledging the availability of enabling regulations for resolving stressed MSME accounts. Revenue/State's Arguments: The respondent banks argued that the petitioners' claim for a revival scheme was belated, as it was raised for the first time in the writ petition, and that they had not produced authenticated documents to show their eligibility. They also contended that the writ petitions were not maintainable due to the alternative remedy available before the DRT. Furthermore, they argued that the scheme under the 2015 notification lacked statutory force.