The Kerala High Court, in a significant ruling, dismissed two writ petitions filed by M/S. M.D. Esthappan and its proprietor, challenging the enforcement proceedings initiated by Dhanlaxmi Bank Ltd. under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act). The petitioners contended that they were entitled to the benefits of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act) and that the bank failed to follow the prescribed rehabilitation framework before proceeding against them.
Case Background
The petitioners, M/S. M.D. Esthappan Infrastructure Pvt. Ltd. and its proprietor M.D. Esthappan, had availed of credit facilities from Dhanlaxmi Bank Ltd. Upon default, the bank initiated recovery proceedings under the SARFAESI Act. The petitioners approached the Kerala High Court, arguing that as an MSME, they were entitled to protection under the MSMED Act and the Reserve Bank of India (RBI) circular dated March 17, 2016, which mandates that banks must refer MSME accounts to a Committee for Stressed MSMEs before declaring them as Non-Performing Assets (NPA).
Justice Gopinath P., presiding over the matter, observed that the petitioners had not sought the benefits of the MSME framework before their accounts were classified as NPAs. The court relied on the Supreme Court’s ruling in Pro Knits v. Canara Bank (2024) 10 SCC 292, which established that MSMEs must claim rehabilitation before their loan accounts turn into NPAs. The petitioners had also pursued litigation before multiple forums, including the Bombay High Court and the Debt Recovery Tribunal, without previously asserting their MSME status.
Court’s Key Observations
The Kerala High Court held that the legal position was clearly covered by the Supreme Court’s judgment in Pro Knits and the Division Bench ruling in P.K. Krishnakumar v. IndusInd Bank (2024 SCC OnLine Ker 6888), which emphasized that MSMEs must act before their accounts become NPAs. The court observed:
“When the High Court declines to interfere in such circumstances, it does not mean that the petitioners’ waiver vested the bank with jurisdiction, assuming it is inherently lacking; it means that the borrower is not entitled to invoke writ jurisdiction irrespective of whether the bank’s actions are without jurisdiction or not.”
Further, the court rejected the petitioners’ argument that the RBI guidelines should override the SARFAESI Act, reiterating that Section 35 of SARFAESI Act prevails over any inconsistent provisions of the MSMED Act.
Unauthorized Recording of Court Proceedings
In an unexpected development, the court also addressed an issue concerning the unauthorized recording and circulation of court proceedings. It was brought to the court’s attention that certain individuals had recorded the virtual proceedings and circulated them through WhatsApp groups consisting of lawyers and borrowers. The petitioners’ counsel, Mathews J. Nedumpara, asserted his right to record and distribute the proceedings for transparency.
However, Justice Gopinath P. unequivocally rejected this argument, citing the Electronic Video Linkage Rules for Courts (Kerala), 2021 and the Standard Operating Procedure (SOP) for Video Conferencing, which explicitly prohibit the recording and dissemination of virtual court proceedings. The court held:
“Transparency in judicial proceedings does not extend to unauthorized recordings and circulation of court proceedings, which amounts to contempt of court and interferes with the administration of justice.”
The court directed the Registry to place the matter before the Chief Justice to consider whether contempt proceedings should be initiated.
Final Verdict
Dismissing both writ petitions, the court reiterated that borrowers who fail to invoke the MSME rehabilitation framework before their accounts are classified as NPAs cannot subsequently claim its benefits to stall recovery actions. It also reaffirmed that recording and circulating virtual court proceedings violates established legal norms and may attract contempt proceedings.
