Court rules MSMEs must proactively seek benefits under Revival and Rehabilitation Framework before loan classification as Non-Performing Asset; parallel writ petitions disallowed once SARFAESI proceedings initiated
In a significant judgment delivered on September 2, 2026, the Calcutta High Court, presided over by Mr. Krishna Rao, J., dismissed the writ petition filed by Debpara Tea Company Limited and others challenging the State Bank of India’s classification of their loan account as a Non-Performing Asset (NPA). The court underscored the necessity for Micro, Small and Medium Enterprises (MSMEs) to claim benefits under the Reserve Bank of India’s Framework for Revival and Rehabilitation of MSMEs at the appropriate stage, prior to the classification of their accounts as NPAs.
The petitioners, being MSMEs with loan limits below Rs. 25 crore, contended that the bank failed to follow the prescribed MSME framework dated March 17, 2016, before declaring their loan account as NPA on December 29, 2023. They argued that the bank did not issue prior reminders or follow the Special Mention Account (SMA) classification sub-categories to identify incipient stress, as mandated by the Reserve Bank of India (RBI). The petitioners sought a declaration that the NPA classification was null and void and requested that the bank be directed to consider their case under the MSME revival framework.
The respondent bank countered by stating that the petitioners had not availed themselves of the benefits under the MSME framework at the requisite time. Although the petitioners sent replies to demand notices and made representations later, they failed to request the framework’s application before the loan was declared NPA. After classification as NPA, the bank issued notices under Sections 13(2) and 13(4) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), initiating recovery proceedings. The petitioners subsequently filed an application under Section 17 of the SARFAESI Act before the Debt Recovery Tribunal (DRT), which is pending adjudication.
The court meticulously analyzed the RBI’s Framework for Revival and Rehabilitation of MSMEs and relevant Supreme Court precedents, including Pro Knits v. Board of Directors of Canara Bank (2024) and Shri Shri Swami Samarth Construction and Finance Solution v. Board of Directors of NKGSB Co-op. Bank Ltd. (2025). It reaffirmed that:
- Banks are mandated to identify incipient stress in MSME accounts through SMA sub-categories (SMA-0, SMA-1, SMA-2) before classifying loans as NPAs.
- MSMEs have an equal obligation to proactively claim the benefits of the framework by furnishing authenticated and verifiable documentation before the account is declared NPA.
- Once the loan account is classified as NPA and SARFAESI proceedings have commenced, MSMEs cannot belatedly seek relief under the revival framework through writ petitions.
The court noted that the petitioners neither asserted their MSME status nor requested the application of the framework at the critical juncture before the loan was declared NPA. Their attempts to seek relief post-classification and after initiation of SARFAESI proceedings were held to be untenable. Moreover, since the petitioners had already invoked Section 17 of the SARFAESI Act before the DRT, the court held that the writ petition was not maintainable.
This ruling sends a clear message to MSMEs that while the regulatory framework aims to support their revival, it is imperative for them to be vigilant and compliant with procedural timelines. Banks are bound to follow the framework, but MSMEs must also actively engage and substantiate their claims at the appropriate stages to avail protection.
The writ petition was dismissed, and parties were permitted to act on the judgment’s certified copy. This judgment reinforces the balance between protecting MSMEs and empowering banks to enforce security interests lawfully.
Bottom Line:
Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSMEs) - Banks must follow the prescribed framework before classifying an MSME's loan account as a Non-Performing Asset (NPA). However, MSMEs must also proactively claim the benefit of the framework at the appropriate stage by providing authenticated and verifiable documentation to substantiate their claim.
Statutory provision(s):
Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (17th March, 2016), SARFAESI Act 2002 Sections 13(2), 13(4), 17, Recovery of Debts and Bankruptcy Act 1993, Reserve Bank of India Guidelines, Banking Regulation Act Sections 21 and 35-A, Micro, Small and Medium Enterprises Development Act (MSMED Act).
Debpara Tea Company Limited v. State Bank of India, (Calcutta) : Law Finder Doc Id # 2971938
