SHRI SHRI SWAMI SAMARTH CONSTRUCTION & FINANCE SOLUTION & ANRversusTHE BOARD OF DIRECTORS OF NKGSB CO-OP. BANK LTD. & ORS.

                [2025] 7 S.C.R. 1851 : 2025 INSC 908

    Shri Shri Swami Samarth Construction & Finance
                     Solution & Anr.
                            v.
The Board of Directors of NKGSB CO-OP. Bank Ltd. & Ors.
                   (Writ Petition (Civil) No. 684 of 2025)
                                 28 July 2025
       [Dipankar Dutta* and Augustine George Masih, JJ.]


                           Issue for Consideration
       Lending banks/secured creditors, if under an obligation, in terms
       of the notification dated 29.05.2015 containing the “Framework For
       Revival And Rehabilitation Of Micro, Small And Medium Enterprises”
       (Framework), to identify “incipient stress” in the loan account of
       the MSMEs prior to classifying the loan account as NPA.

                                  Headnotes†
       Micro, Small and Medium Enterprises Development Act, 2006 –
       Securitisation and Reconstruction of Financial Assets and
       Enforcement of Security Interest Act, 2002 – Loan account
       of the petitioner-MSME classified as NPA – Demand notice
       issued by respondent no.2-Bank u/s.13(2), SARFAESI Act –
       Present petition filed by the petitioner contending that it
       was the obligation of the respondent no.2 in terms of the
       Framework to identify “incipient stress” in the loan account
       of the petitioner prior to classifying the loan account as NPA
       and its failure to do so was illegal:
       Held: The confusing terms of the Framework are to be interpreted
       harmoniously to ensure that a right under the MSME Act is not
       destroyed by the SARFAESI Act or vice versa – The Framework
       does not prohibit the lending bank/secured creditor to classify the
       account of the defaulting MSME as NPA and to even issue the
       demand notice u/s.13(2), SARFAESI Act without such identification
       of incipient stress in the account of the defaulting borrower
       (MSME) – However, upon receipt of the demand notice, if such
       borrower in its response asserts that it is an MSME and claims
       the benefit of the Framework, the lending bank/secured creditor
       would then be mandatorily bound to look into such claim keeping

* Author
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    further action under the SARFAESI Act in abeyance; and, if the
    claim is found to be worthy of acceptance within the framework
    of the Framework, to act in terms thereof for securing revival
    and rehabilitation of the defaulting borrower – Furthermore, any
    MSME may choose to voluntarily initiate proceedings under the
    Framework if it reasonably apprehends failure of its business or its
    inability or likely inability to pay debts and before the accumulated
    losses of the enterprise equals to half or more of its entire net
    worth – Thus, it is equally incumbent on the part of the MSMEs
    to be vigilant enough to follow the process laid down under the
    Framework, and bring to the notice of the Banks concerned to
    show its eligibility to get the benefit of the said Framework – An
    Enterprise could not be permitted to misuse the process of law for
    thwarting the actions taken under the SARFAESI Act by raising
    the plea of being an MSME at a belated stage – Petitioner did not
    claim the benefit of the terms of the Framework after the demand
    notice u/s.13(2), SARFAESI Act was issued – It is at the stage of
    compliance with an order passed by the relevant Magistrate u/s.14,
    SARFAESI Act that the present writ petition was filed claiming
    benefits of the Framework to restrain the respondent no.2 and
    its officers from proceeding further under the SARFAESI Act and
    other enactments except in the manner contemplated under the
    said Notification – Bona fides of the petitioner suspected – No
    merit in the writ petition. [Paras 6-9]

                             Case Law Cited
    Pro Knits v. Canara Bank [2024] 8 SCR 140 : (2024) 10 SCC
    292 – clarified.

                               List of Acts
    Micro, Small and Medium Enterprises Development Act, 2006;
    Securitisation and Reconstruction of Financial Assets and
    Enforcement of Security Interest Act, 2002.

                            List of Keywords
    Lending banks/secured creditors; Framework For Revival
    And Rehabilitation Of Micro, Small And Medium Enterprises;
    Incipient stress; Non-performing asset (NPA); Loan account of
    MSME classified as NPA; Prior to classifying the loan account
    as NPA; Stressed MSMEs; Demand notice under Section 13(2),
[2025] 7 S.C.R.                                                          1853

     Shri Shri Swami Samarth Construction & Finance Solution & Anr. v.
          The Board of Directors of NKGSB CO-OP. Bank Ltd. & Ors.

       Securitisation and Reconstruction of Financial Assets and
       Enforcement of Security Interest Act, 2002; SARFAESI Act; MSME;
       Benefit of the Framework; MSME failed to repay loan; Defaulting
       borrower; Revival and rehabilitation of the defaulting borrower.

                                 Case Arising From
       CIVIL ORIGINAL JURISDICTION: Writ Petition (Civil) No.
       684 of 2025
       Under Article 32 of the Constitution of India

                               Appearances for Parties
       Advs. for the Petitioners:
       Mathews J Nedumpara, Ms. Maria Nedumpara, Ms. Hemali Suresh
       Kurne, Shameem Fayiz, Chand Qureshi, Dewashish Vishwakarma.

                        Judgment / Order of the Supreme Court

                                     Judgment

       Dipankar Datta, J.

1.     This is a writ petition under Article 32 of the Constitution of India
       by an enterprise registered under the Micro, Small and Medium
       Enterprises Development Act, 20061.
2.     The petitioning enterprise had executed a loan agreement with the
       NKGSB Co-operative Bank2 but had failed in its obligation to repay
       the loan. In due course, the account of the petitioning enterprise was
       classified as a non-performing asset3. The authorised officer of the
       respondent no.2 issued a demand notice dated 13th May, 2024 under
       Section 13(2) of the Securitisation and Reconstruction of Financial
       Assets and Enforcement of Security Interest Act, 20024, calling upon
       the petitioning enterprise to repay the dues of the respondent no.2
       within 60 days. It does not appear from the writ petition, filed on 14th
       July, 2025, that the petitioning enterprise objected to classification


1     MSME Act
2     respondent no.2
3     NPA
4     SARFAESI Act
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       of its account as NPA as well as issuance of the demand notice on
       the ground that the action of the respondent no.2 was in violation of
       Notification5 dated 29th May, 2015, containing the “Framework for
       Revival and Rehabilitation of Micro, Small and Medium Enterprises”6
       issued by the Joint Secretary to the Government of India, Ministry of
       Micro, Small and Medium Enterprises. The respondent no.2 having
       moved an application before the relevant Magistrate under Section 14
       of the SARFAESI Act, a Court Commissioner was appointed per
       order dated 3rd April, 2025. Such order was communicated by the
       Court Commissioner to the petitioning enterprise on 18th June, 2025.
3.     Mr. Nedumpara, learned counsel appearing for the petitioning
       enterprise, submits that it was the obligation of the respondent no.2
       to identify “incipient stress” in the loan account of the petitioning
       enterprise but it did not so identify prior to classifying the loan account
       as NPA which, according to him, is wholly illegal. Mr. Nedumpara
       further submits that the Notification is binding on the lending banks/
       secured creditors under the SARFAESI Act and, therefore, any
       measure taken under the SARFAESI Act without complying with the
       terms of the Framework against a micro, small or medium enterprise7
       would amount to an act in excess of jurisdiction. The decision in Pro
       Knits v. Canara Bank8, forming part of the writ petition and though
       not formally cited, was referred to by Mr. Nedumpara in course of
       his arguments in support of this submission. Also, Mr. Nedumpara
       submits that such Notification/Framework does not mandatorily
       require an MSME to notify the lending bank/secured creditor first that
       the MSME wishes to have incipient stress in its account identified;
       therefore, any defence that the MSME did not voluntarily initiate
       proceedings ought not to be allowed to be raised. He, thus, prayed
       for admission of the writ petition and grant of ad-interim relief against
       the respondents.
4.     The respondents are not required to be noticed since we are not
       persuaded to agree with any of the submissions advanced by Mr.
       Nedumpara.



5    Notification
6    Framework
7    MSME
8    (2024) 10 SCC 292
[2025] 7 S.C.R.                                                           1855

     Shri Shri Swami Samarth Construction & Finance Solution & Anr. v.
          The Board of Directors of NKGSB CO-OP. Bank Ltd. & Ors.

5.     The Notification detailing the F ramework , more particularly
       paragraph 1 and its sub-paragraphs, have to be read together to
       make its terms effective and meaningful. Although, in the sequence
       of the Framework “Identification by Banks or Creditors” comes first, it
       is immediately followed by “Identification by the Enterprise”. In terms
       of sub-paragraph 2, any MSME may choose to voluntarily initiate
       proceedings under the Framework if it “reasonably apprehends
       failure of its business or its inability or likely inability to pay debts
       and before the accumulated losses of the enterprise equals to half
       or more of its entire net worth” (emphasis ours). The obligation of
       the MSME does not end there. For initiation of proceedings under
       the Framework, the application has to be verified by an affidavit of
       an authorised person and upon receipt of a request, the lending
       bank/secured creditor is mandatorily bound to proceed in terms of
       the Framework and to constitute a committee to identify incipient
       stress in the account.
6.     The way Mr. Nedumpara urges us to read the Notification and the
       terms of the Framework, if accepted, would lead to the conclusion
       that every lending bank/secured creditor under the SARFAESI Act
       would be obliged to find out in every event of continuing default, likely
       to give rise to classification of the relevant account as NPA, whether
       the borrower is an MSME to which the Framework applies, whether
       its business has failed or whether it is suffering from any disability
       to pay its debts; and upon receiving a response, to apply the terms
       thereof by, inter alia, including the account in the Special Mention
       Account for the claim for a corrective action plan to be considered
       by the Committee for stressed MSMEs. This could not have been
       the intention behind introduction of the Framework to aid the MSMEs
       which, for reasons personal to them, is unable to clear its debt and
       require revival and rehabilitation that the Framework envisages. If
       indeed it is only the obligation of the lending bank/secured creditor
       to identify incipient stress in the account, sub-paragraphs 2 and 3
       of paragraph 1 would be rendered redundant. An MSME, despite
       finding that its business is failing or that it is unable to pay its debts
       or accumulation of losses equals to half or more of its entire net worth
       and classification of its account as NPA is imminent, it would rest
       on its oars believing that it has no responsibility and that its account
       will not be classified as NPA because it is the entire obligation of the
       lending bank/secured creditor to do what the Framework requires.
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                          Supreme Court Reports


     We would read and interpret the seemingly confusing terms of the
     Framework harmoniously to ensure that a right under the MSME
     Act is not destroyed by the SARFAESI Act or vice versa. In our
     reading, the terms of the Framework do not prohibit the lending
     bank/secured creditor (assuming that it has no conscious knowledge
     that the defaulting borrower is an MSME) to classify the account of
     the defaulting MSME as NPA and to even issue the demand notice
     under Section 13(2) of the SARFAESI Act without such identification
     of incipient stress in the account of the defaulting borrower (MSME);
     however, upon receipt of the demand notice, if such borrower in
     its response under Section 13(3-A) of the SARFAESI Act asserts
     that it an MSME and claims the benefit of the Framework citing
     reasons supported by an affidavit, the lending bank/secured creditor
     would then be mandatorily bound to look into such claim keeping
     further action under the SARFAESI Act in abeyance; and, should
     the claim be found to be worthy of acceptance within the framework
     of the Framework, to act in terms thereof for securing revival and
     rehabilitation of the defaulting borrower.
7.   As has been noted above, the petitioning enterprise does not seem
     to have ever claimed the benefit of the terms of the Framework after
     the demand notice under Section 13(2) of the SARFAESI Act was
     issued. It is at the stage of compliance with an order passed by the
     relevant Magistrate under Section 14 of the SARFAESI Act that this
     writ petition has been presented before this Court claiming benefits of
     the Framework to restrain the respondent no.2 and its officers from
     proceeding further under the SARFAESI Act and other enactments
     except in the manner contemplated under the said Notification. We
     find the bona fides of the petitioning enterprise to be suspect.
8.   Pro-Knits (supra) is a decision of a coordinate Bench of this Court
     holding, inter alia, that the Notification is binding on the lending banks/
     secured creditors. Finding to the contrary by the High Court of Bombay
     in the judgment and order under challenge in the appeal was, thus,
     quashed. Though while stressing that the terms of the Framework
     need to be followed by the lending banks/secured creditors before
     the account of an MSME is classified as NPA, this decision also
     lays stress on the obligation of the MSMEs by holding that “it
     would be equally incumbent on the part of the MSMEs concerned
     to be vigilant enough to follow the process laid down under the
[2025] 7 S.C.R.                                                        1857

     Shri Shri Swami Samarth Construction & Finance Solution & Anr. v.
          The Board of Directors of NKGSB CO-OP. Bank Ltd. & Ors.

       said Framework, and bring to the notice of the Banks concerned,
       by producing authenticated and verifiable documents/material to
       show its eligibility to get the benefit of the said Framework”. It was
       cautioned that “if such an Enterprise allows the entire process for
       enforcement of security interest under the SARFAESI Act to be over,
       or it having challenged such action of the bank/creditor concerned
       in the court of law/tribunal and having failed, such an Enterprise
       could not be permitted to misuse the process of law for thwarting the
       actions taken under the SARFAESI Act by raising the plea of being
       an MSME at a belated stage”. This decision, however, left unsaid
       something which we have explained hereinabove while construing
       the terms consistently to prevent undermining of rights that one
       central enactment confers by another.
9.     No case for interference under Article 32 of the Constitution has
       been set up. There being no merit in the writ petition, the same is
       accordingly ordered to be dismissed. Pending applications, if any,
       stand closed.
10. Needless to observe, the petitioning enterprise will be at liberty
    to pursue its remedy under Section 17 of the SARFAESI Act, in
    accordance with law.

       Result of the case: Writ petition dismissed.




       †
           Headnotes prepared by: Divya Pandey