Haridwar Education and Research Development Society v. Union of India and others

Learned counsel for the applicant would submit that the petitioner Society runs a school, for which loan was taken from the respondent bank; the students’ strength dipped alarmingly and it is a breaking point now, therefore, the loan could not be repaid on time. On 24.09.2024, the petitioner society filed an application to the respondent bank for restructuring the loan, which was rejected by the respondent bank by its communication dated 21.11.2024. It is 2 submitted that thereafter a demand notice under Section 13(2) of the SARFAESI Act was received, which was duly replied by the petitioner.

4. Learned counsel for the petitioner further submits that according to RBI Guidelines laid down in MSME Revival and Rehabilitation Framework Instructions and Directions, 2016 (“the Guidelines”), the petitioner falls in the category of Micro, Small and Medium Enterprises (“MSME”); the Ministry of MSME had issued notification dated 29.02.2015 for restructuring of loan, etc. in the cases of MSMEs; the petitioner requested for restructuring of loan, but it has been rejected.

5. Learned counsel would also submit that without taking recourse to the Guidelines, an account may not be declared as Non- Performing Assets (“NPA”) and if it is so done, a writ petition is maintainable. Reference has been made to the case law in the case of PRO KNITS v. Board of Directors of Canara Bank and Ors., (2024) 10 SCC 292.

6. In the case of PRO KNITS (supra), the Hon’ble Supreme Court observed as follows:- “22. In that view of the matter, we are of the opinion that the findings recorded by the High Court in the impugned order [A. Navinchandra Steels (P) Ltd. v. Union of India, (2024) 1 HCC (Bom) 290 : (2024) 246 Comp Cas 402] that the banks are not obliged to adopt the restructuring process on its own or that the Framework contained in the Notification dated 29- 5-2015, as revised from time to time could not be said to be mandatory in nature, are highly erroneous and cannot be countenanced. The Instructions/Directions issued by Central Government under Section 9 of the MSMED Act and by 3 the RBI under Section 21 and Section 35-A have statutory force and are binding to all the banking companies.

23. The impugned order [A. Navinchandra Steels (P) Ltd. v. Union of India, (2024) 1 HCC (Bom) 290 : (2024) 246 Comp Cas 402] therefore is set aside. Since, it has been submitted by the learned counsel for the respondent Banks that in all the cases, the proceedings under the SARFAESI Act have already been concluded and the possession of the respective premises of the petitioners has already been taken over, we do not propose to remand the matters to the High Court for deciding the writ petitions afresh. However, since the High Court has not dealt with the other issues based on the factual aspects of the writ petitions, we clarify that it would be open for the appellants to take recourse to any remedy as may be legally available to them for agitating the issues not decided by the High Court in the impugned order [A. Navinchandra Steels (P) Ltd. v. Union of India, (2024) 1 HCC (Bom) 290 : (2024) 246 Comp Cas 402] . All the appeals stand allowed to the aforesaid extent.”

7. Learned counsel would further submit that the petitioner had all the intention to repay the loan, but due to low strength of the students, they found it difficult to pay on time; therefore, application for restructuring of loan was given, which, it is argued, has been rejected without examining the application in view of the Guidelines; the petitioner is still ready to get his loan restructured and to cooperate with the respondent bank so that the loan may be repaid.

8. Learned counsel for the respondent bank would submit that the petitioner had given an application for restructuring of loan, but he was required to place certain documents by the bank’s communication dated 13.11.2024, Annexure No. 5 to the writ petition. But, it is argued that the petitioner did not submit any of the details or the documents; therefore, based on whatever material was available with the bank, a decision was taken and request for restructuring of 4 loan has been rejected as per the Guidelines. It is argued that after the decision is taken under Section 13(3A) of the SARFAESI Act, no right is accrued to the petitioner to challenge that decision; now the petitioner may challenge any action that may be taken under under Section 13(4) of the SARFAESI Act.

9. The SARFAESI Act is a self-contained Act to regulate securitisation and reconstruction of financial assets and enforcement of security interest, etc. It is true that in the case of PRO KNITS (supra), the Hon’ble Supreme Court, inter alia, held that the Framework for Revival and Rehabilitation of MSMEs is required to be followed prior to the classification of the borrower's account as NPA. In para 17, the Hon’ble Supreme Court observed as follows:- “17. What is contemplated in the “Framework for Revival Rehabilitation of MSMEs” contained Instructions/Directions stated hereinabove, is required to be followed prior to the classification of the borrower's account, (in the instant case MSMEs loan account), as non-performing assets. The said Instructions contained in the Notification dated 29-5-2015 as part of measures facilitating the promotion and development of MSMEs issued by the Central Government in exercise of powers conferred under Section 9 of the MSMED Act, followed by the Directions issued by the RBI in exercise of the powers conferred under Sections 21 and 35-A of the Banking Regulation Act, the banking companies though may be “secured creditors” as per the definition contained in Section 2(zd) of the SARFAESI Act, are bound to follow the same, before classifying the loan account of MSME as NPA.”

10. In the instant case, when such an application was moved by the petitioner; the respondent bank required certain documents and details from the petitioner, which they did not supply. Therefore, following the Guidelines, according to the respondent bank, they had no option but to reject the request for restructuring of loan that had 5 been placed by the petitioner. Thereafter, demand notice has been issued under Section 13(2) of the SARFAESI Act, which was duly replied by the petitioner, which was rejected by another communication dated 18.02.2025.

11. In the communication dated 18.02.2025, in para 4, the respondent bank has categorically stated that the request for restructuring of loan was not viable to be considered as the bank has fully complied with the due procedure envisaged by the Guidelines. It is not a case that the respondent bank did not consider the request of the petitioner for restructuring of loan. It is the positive case of the respondent bank that when the petitioner submitted a request for restructuring of loan, he was required to submit certain documents and details, which he did not supply.

12. If the petitioner has any intention to repay the loan, he is always free to approach the respondent bank. In so far as the proceedings under the SARFAESI Act are concerned, this Court is of the view that the only remedy that would be available to the petitioner is under 17 of the SARFAESI Act. Therefore, this Court does not see any reason to make any interference. Accordingly the writ petition deserves to be dismissed at the stage of admission itself.

13. The writ petition is dismissed in limine. Avneet/ (Ravindra Maithani, J.) 27.02.2025