Case Note & Summary
The petitioners, Vardhan Agro Processing Limited (petitioner No.1, an MSME) and its chairman and shareholder (petitioner No.2), filed a writ petition before the Bombay High Court seeking directions against respondent No.3, Union Bank of India, to implement the Government Notification dated 29.05.2015 issued by respondent No.1 (Union of India) and the Master Direction dated 21.07.2016 issued by respondent No.2 (Reserve Bank of India). The petitioners sought referral of their loan account to the Committee for restructuring of debt under the Framework devised by RBI for revival and rehabilitation of MSMEs. The core dispute centered on the eligibility of petitioner No.1 as an MSME for the benefit of the Framework. The petitioners contended that from the outset, when the loan account showed signs of stress, the bank was made aware of the MSME status, and as per the Supreme Court's decision in Pro Knits Vs. Board of Directors of Canara Bank and others, (2024) 10 SCC 292, the bank was obligated to grant the benefit of the Framework and refer the account to the Committee. The bank, however, argued that petitioner No.1 initially agreed to abide by the bank's directions but later defaulted, leading to the account being declared a Non-Performing Asset (NPA) and consequential steps under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Securitization Act). The bank contended that petitioner No.1 was not eligible under the Framework. The court examined the Notification, Master Direction, and the Framework, and considered the applicability of the Supreme Court precedent. The court found that the bank had not properly considered the MSME status and the binding nature of the Pro Knits judgment. The court directed the bank to refer the loan account to the Committee for restructuring in accordance with the Framework, and granted ancillary reliefs to protect the petitioners' interests pending the restructuring process.
Headnote
A) MSME Law - Restructuring of Debt - Eligibility - Government Notification dated 29.05.2015 and RBI Master Direction dated 21.07.2016 - The dispute pertains to whether petitioner No.1, an MSME, is eligible for debt restructuring under the Framework for revival and rehabilitation of MSMEs. The court examined the interpretation of the Notification and Master Direction, and held that the bank was obligated to refer the account to the Committee for restructuring, as per the law laid down in Pro Knits Vs. Board of Directors of Canara Bank and others, (2024) 10 SCC 292. (Paras 1-3)
Issue of Consideration
Whether petitioner No.1, as an MSME, is eligible for restructuring of its debt under the Framework devised by RBI pursuant to Government Notification dated 29.05.2015 and Master Direction dated 21.07.2016, and whether respondent No.3-Bank was obligated to refer the loan account to the Committee for restructuring.
Final Decision
The court directed respondent No.3-Bank to refer the loan account of petitioner No.1 to the Committee for restructuring of debt under the Framework, in accordance with the Government Notification dated 29.05.2015 and RBI Master Direction dated 21.07.2016, and granted ancillary reliefs.
Law Points
- MSME eligibility for restructuring framework
- interpretation of RBI Master Direction dated 21.07.2016
- applicability of Government Notification dated 29.05.2015
- duty of bank to refer stressed MSME accounts to committee
- binding nature of Supreme Court precedent in Pro Knits case
