Closed companies ineligible for Ministry of Micro, Small and Medium Enterprisesbenefits: Karnataka high court
Bengaluru: The Karnataka high court has held that a company cannot claim MSME benefits if it ceases operations for two years.The ruling was delivered by Justice M Nagaprasanna while dismissing a petition by Bengaluru-based Metro Steel Section and its partners. The firm approached SBI in Oct 2022, seeking fund-based cash credit facilities, resulting in the sanction of Rs 15.5 crore under the small and medium enterprises segment.The firm used the credit facility for business and working capital requirements. However, its operations deteriorated from Aug 2023, leading to irregular repayments. The account was subsequently classified as a non-performing asset (NPA) in the same year and transferred to the bank's stress assets management branch, initiating recovery proceedings.The firm contested the SBI notices, arguing that MSME (micro, small and medium enterprises) guidelines for revival, rehabilitation, and restructuring should have been prioritised. SBI countered by presenting the firm's own admission of closure and emphasised the need to recover the outstanding Rs 18.5 crore.Justice Nagaprasanna noted that recovery remains the sole option when rectification and restructuring become unfeasible. He referenced a Supreme Court case, which supported rehabilitation opportunities for operational stressed-accounts.The judge pointed out the firm's communication during the petition, which confirmed the business closure two years ago. He concluded that directing revival or restructuring would be futile for a non-operational unit, akin to asking the bank to flog a dead horse. The court found no fault with the bank's recovery efforts and dismissed the petition.
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