‘Benefits of scheme for revival of NPA account is not permissible when MSME is closed or wound up'
The High Court of Karnataka has said that benefits of the scheme for restructuring or revival/rehabilitation of a bank account, which has become a non-performing asset (NPA), of a micro, small and medium enterprise (MSME) is permissible under the law only if the MSME is functioning.
Justice M. Nagaprasanna passed the order while rejecting a petition filed by M/s Metro Steel Section, which has questioned the proceedings initiated by the State Bank of India to recover about ₹18.5 crore loan due to the bank from the petitioner-firm.
It was contended on behalf of the petitioner that the benefit of rectification and restructuring of loan amount as has been provided in the notification, issued by the Reserve Bank of India (RBI) in 2015 under Section 19 of the MSME Development Act, 2006, ought to have been considered prior to resorting to recovering proceedings under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
However, the High Court said that the benefit of the RBI's notification and its interpretation by the apex court in the case of Pro Knits vs. Board of Directors of Canara Bank would not be available to the petitioner-firm as it was already closed when the bank resorted to recovery proceedings as stipulated in the 2015 notification of the RBI.
The court also pointed out that during the pendency of its petition, the petitioner-firm communicated to the bank indicating that it had wound up the business and closed the operation two years ago.
'If the firm has wound up the business and closed the operations two years ago, it cannot take the benefit of the firm being a MSME and the notifications issued under the MSMED Act or even the judgement of the apex court in Pro Knits case,' the court said.
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