The Bombay High Court has recently rejected a series of petitions filed by nineteen micro, small, and medium enterprises (MSMEs). These petitions contested the determination by banks and non-banking financial companies (NBFCs) that classified them as non-performing assets (NPAs).
While rendering this decision, a division bench comprising Justices BP Colabawalla and MM Sathaye dismissed a contention presented by the MSMEs.
The argument asserted that banks and NBFCs were obligated to first implement the revival and rehabilitation measures outlined in a 2015 notification under the Micro, Small, and Medium Enterprises Development Act, 2006 (MSMED Act) before classifying MSMEs as non-performing assets (NPAs).
The High Court concluded that, according to the said notification, it was incumbent upon the MSMEs to submit an application to the banks or NBFCs to initiate the revival and rehabilitation process.
In essence, the High Court clarified that the onus for initiating the rehabilitation or restructuring process does not lie with the banks or NBFCs; rather, it is the responsibility of the MSMEs to formally submit an application for such proceedings under the specified notification.
"A conjoint reading of Clause 1(1) and Clause 1(3) of the said Notification, leads to an indisputable interpretation that the said Notification can be pressed into service only and only after the MSME [such as the Petitioners] approaches the Banks/NBFCs with an appropriate application supported by an affidavit of the authorized person," the Court held.
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