Dismissed

Ms Appollo Cashew Plaza v. State Bank of India

DRT20 Jun 2025SA/199/2024

Case brief

AI extract

What is this about?

This tribunal dismissed a securitization application challenging demand and possession notices issued under the SARFAESI Act. The court ruled that the assets were not agricultural lands and held that borrowers cannot claim MSME status benefits after failing to request revival prior to NPA classification.

What did the court decide?

Securitization application dismissed with costs of Rs.30,000/- payable by applicants.

Ms Appollo Cashew Plaza versus State Bank of India — Company and Corporate | DRT (2025)

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated this the 20^th day of June, 2025

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SECURITIZATION APPLICATION No.199/2024

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Between

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M/s.Appollo Cashew Plaza, Represented by the sole proprietor Subalan R., East Maranad P.O., Kollam – 691 505.

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Subalan R., S/o.Raghavan, Dwaraka, Pochemkonam, Ezhukone P.O., Kollam – 691 505.

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Sulatha Bhai, W/o.Subalan, Dwaraka, Pochemkonam, Ezhukone P.O., Kollam – 691 505. …Applicants

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And

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State Bank of India, Represented by Authorised Officer, Regional Business Office (II), State Bank Bhavan, Near Railway Station, Kollam - 691 001. …Defendant

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SA 199/2024

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This Securitization Application having been heard on 16.05.2025 in the presence of Advocates M/s.John Prakash Bavakkat and Varsha Vijayakumar Nair for the applicants and Advocate Sri.Jojo George for the defendant and stood over to this day for consideration, the Tribunal delivered the following:

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F I N A L O R D E R

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This SA is filed under S.17(1) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the SARFAESI Act’) seeking relief to declare the demand notice and possession notice including the notice issued by the Advocate Commissioner in pursuance of the order passed by the CJM, Kollam as illegal, with some ancillary reliefs.

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Brief facts of the case :

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The 2^nd applicant, being the proprietor of the 1^st applicant, an MSME unit and the 3^rd applicant, being the guarantor to the credit facility availed by the 1^st applicant, have filed this SA stating that the 1^st applicant availed various loans from the defendant bank and was running the business of processing and sale of cashew nuts. The crisis in the cashew industry at Kollam has severely affected the operations sometime in the year 2018. The

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SA 199/2024

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applicants approached the committee constituted by the State Government as per the report of the State Level Banking Committee (SLBC) for assessing the financial viability of cashew unit including the representatives of Industries Department, the bank etc. After elaborate consideration and study of the committee, the applicant’s account was recommended for restructuring by providing additional finance. Based upon the said recommendation, the defendant bank issued a letter on 16.02.2019 calling upon the applicants to submit required documents. Accordingly, the applicants produced relevant documents and the bank issued a letter on 25.02.2019 intimating in-principal approval for restructuring of the loan account. It is claimed by the applicants that this restructuring is in tune with the Master Circular No.RBI/2016-16/338FIDD.MSME and NFS.BC.No.21/06.02.31/2015 -16 dated 17.03.2016 issued by RBI marked Annexure-A5. Despite several requests, no resolution was passed by the defendant bank to escalate the stress of the applicant no.1 business entity. In absence of sanction of additional loan for working capital, the applicants faced difficulty in running the business.

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The demand notice under S.13(2) of the SARFAESI Act was issued by the defendant on 05.07.2019 calling the applicants to

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SA 199/2024

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pay an amount of Rs.52,11,044/- vide Annexure-A8. Since the issuance of demand notice was illegal and without considering the proposal for restructuring and in deviation of the guidelines of RBI for MSME unit, the applicants approached the defendant by issuing a letter dated 30.11.2019 to reconsider their case but nothing was heard from the defendant bank. Subsequently, due to Covid-19 pandemic and the consequent lockdown, all the activities were put to standstill. Even various packages were sanctioned for MSME unit but the defendant bank refused to sanction any additional finance vide Annexure-A14. The applicants approached the Hon'ble High Court of Kerala in W.P.(C) No.25764/2020 challenging the noncooperation of the defendant bank for restructuring the account of the applicants in utter violation of the master circular of RBI. The defendant bank did not take any action instead issued a possession notice on 01.03.2021. Subsequently, the defendant issued fresh demand notice dated 11.01.2023 marked Annexure-A16 claiming some inadvertent mistake in the earlier Annexure-A8 demand notice, which was recalled. In fact there is no difference in Annexure-A8 and Annexure-A16 notices.

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Thereafter the defendant issued possession notice again on 28.03.2023 marked Annexure-A17 and filed MC No.518/2023

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SA 199/2024

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before the CJM, Kollam to take possession of the secured assets. The measures taken by the defendant was challenged by the applicants in the pending W.P.(C) No.25764/2020 and possession of the secured assets was not taken in view of the direction of the Hon'ble High Court. As per the direction of the Hon'ble High Court in W.P.(C) No.25764/2020, the applicant deposited Rs.7.50 lakhs. The writ application was disposed permitting the applicants to make a fresh proposal for OTS but the same was rejected by the defendant. It is also claimed that the properties now sought to be taken possession are agricultural properties for which securitization proceeding is not maintainable in view of the bar under S.31(i) of the SARFAESI Act. Hence the SA is filed challenging the entire measures initiated by the defendant starting from the stage of issuance of demand notice.

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The defendant filed written statement denying the averments and claimed inter alia that the 2^nd applicant, being the proprietor of the 1^st applicant business unit, availed cash credit limit of Rs.35 lakhs and term loan of Rs.25 lakhs. To secure repayment of the amount due under the cash credit limit, the applicants executed hypothecation-cum-working capital agreement dated 18.05.2015 and hypothecated the factory, machinery, stock etc. as

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SA 199/2024

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primary security. The 2^nd applicant executed guarantee agreement for the working capital limit of Rs.35 lakhs granted to the 1^st applicant. The 1^st applicant also availed a term loan of Rs.25 lakhs for the purpose of procuring factory building and machinery and the 2^nd applicant executed guarantee agreement in favour of the bank on 18.05.2015. All the facilities were secured by mortgage of 21.85 Ares of land by depositing the title deed and memorandum of deposit of title deed dated 19.05.2015 was executed by the applicants confirming the same.

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It is further averred in the written statement that demand notice dated 11.01.2023 under S.13(2) of the SARFAESI Act was issued to the applicants calling them to pay the outstanding amount and further stated that the earlier demand notice was withdrawn by the bank. No objection/representation as contemplated under S.13(3-A) of the SARFAESI Act was submitted by the applicants. Due to non-receipt of the demanded amount, further measure under S.13(4) of the SARFAESI Act was taken after following all the statutory requirements. So also, MC No.518/2023 under S.14 of the SARFAESI Act was filed before the CJM, Kollam to take physical possession of the secured assets after following all the statutory requirements. There is no illegality or irregularity in any

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SA 199/2024

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manner in the securitization proceedings and all the relevant documents are filed. Hence the SA, being devoid of any merit, is liable to be dismissed.

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From the respective pleading of both sides, the

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following points are emerged for adjudication in the SA:-

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(i) Whether the securitization measures initiated by the defendant starting from the stage of issuance of demand notice till filing of MC No.518/2023 before the CJM, Kollam under S.14 of the SARFAESI Act suffer from any illegality to interdict with the same?

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(ii) Whether the secured assets are agricultural lands exempted under the provision of the SARFAESI Act?

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(iii) Whether the applicants are entitled to get any relief in this proceeding?

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FINDINGS:

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Point No.(ii):

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In the SA the applicants averred in paragraph 13 that the secured properties are agricultural lands which are registered with the rubber board since 1988. It is claimed that the applicants had cultivated rubber trees over the said properties over 30 years and thereafter replanted the entre extent of land with fresh rubber

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SA 199/2024

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saplings from time to time. The applicants were beneficiary of various rubber board sponsored schemes sponsored by the rubber board. Some photographs marked Annexure-A22 series are filed showing plantation of rubber trees. No material is placed by the applicants showing that they had any intention to retain the subject matter properties as agricultural from the stage of availing the loan in the year 2015. No document is filed showing that rubber board issued any certificate regarding registration of the subject matter properties for agriculture purpose or rubber plantation. Mere production of some photographs showing some trees, no presumption can be drawn that at the time of availing the loan, the secured assets were used as agricultural lands. Existence of some rubber trees would not convert the lands into agriculture for seeking exemption under the SARFAESI Act unless the applicants have any intention to treat the land as agriculture before creating security interest over the same. No such material is placed on record. Annexure-A23 document is filed by the applicants showing that an application was submitted to rubber board field station officer which was acknowledged on 29.11.2021. Even the same is submitted, it would not help the applicants to establish that the

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SA 199/2024

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secured assets are agricultural lands at any point of time particularly at the time of availing the loan.

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The Hon'ble Apex Court in the judgment reported in 2023 KHC 6012 in the case of K.Sreedhar v. M/s.Raus Constructions Pvt. Ltd. & others had held that “ When it was the case on behalf of the borrowers that in view of Section 31(i) of the SARFAESI Act, the properties were agricultural lands, the same were being exempted from the provisions of the SARFAESI Act, the burden was upon the borrower to prove that the secured properties were agricultural lands and actually being used as agricultural lands and/or agricultural activities were going on.” In the judgment reported in 2018 (18) SCC 252 in the case of Indian Bank &

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another vs. K.Pappireddiyar & another , it is held by the Hon'ble Apex Court that the question as to whether the land is agricultural has to be determined on the basis of the totality of facts and circumstances including the nature and character of the land, the use to which it was put and the purpose and intent of the parties on the date on which the security interest was created. In view of the ratio decidendi of the Hon'ble Apex Court, it is necessary on the part of the claimants to establish that at the time of availing the loan, they had intention to retain the land as agriculture. As

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SA 199/2024

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discussed earlier, no material or proof is produced by the applicants that the secured asset was used exclusively for agricultural purpose at the time of availing the loan in the year 2015 and having intention to retain the agricultural character all along at the time of availing the loan and in absence of such proof, the said property cannot be treated as agricultural to exempt from the provision of S.31(i) of the SARFAESI Act. Hence point No.(ii) is answered against the applicants.

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Point Nos.(i) & (iii):-

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The applicants have challenged the proceeding under S.14 of the SARFAESI Act initiated by the defendant to take physical possession of the secured assets. It is claimed that in Annexure-A16 demand notice, the properties are not described properly and there is difference between the description of lands, both in the demand notice and possession notice. The 1^st applicant is an MSME unit and the applicants were not provided with the facility of revival/restructuring etc. in violation of the master circular issued by RBI. Without reviving the MSME unit, classification of the loan as NPA is illegal and hence the defendant cannot proceed with the securitization proceedings. In support of his contention, the learned counsel has referred a judgment of the

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SA 199/2024

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Hon'ble Apex Court reported in 2024 KHC 6408 in the case of Pro

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Knits vs. The Board of Directors of Canara Bank & others.

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On the other hand, learned counsel for the defendant contended that after availing the loan, the applicants defaulted in repaying the amount. Hence the loan was classified as NPA on 05.06.2019. Prior to classification of the loan as NPA, the applicants have not submitted any letter for revival of the unit, rather submitted a letter admitting that the business unit is not working and no plan was submitted for revival of the unit. In the earlier demand notice marked Annexure-A8, some defect was noticed and hence the same was withdrawn and fresh demand notice dated 11.01.2023 marked Annexure-A16 was issued. All the statutory measures are duly complied and relevant documents are filed. So also, the applicants approached the Hon'ble High Court of Kerala and the Hon'ble Court permitted them to submit an OTS. The applicants submitted a proposal on 05.09.2024 but the same was rejected as the offer was not acceptable. Since there is no illegality in the proceeding, the SA is not sustainable and the same may be dismissed.

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It is seen from the averment in the SA that the applicants approached the committee constituted as per the report

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SA 199/2024

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of State Level Banking Committee by the State Government for accessing the financial viability of cashew unit. The committee comprised of the convener of the State Level Banking Committee, Deputy Secretary, Industries Department, and representative of the bank concerned and the committee filed its interim report on 31.01.2019. The loan account of the applicants was recommended for restructuring by providing the need based additional finance. Thereafter, final report dated 17.05.2019 was submitted by the committee. Pursuant to such interim report, the defendant issued a letter dated 16.02.2019 calling upon the applicants to submit the documents sought for and thereafter intimated the in-principal approval for restructuring of their loan account.

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The defendant in the written statement submitted that

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in the letter dated 17.02.2020 marked Annexure-A11, it was informed that the unit was not working for two years and there were no usable stocks available and activity is seen to be ‘nil’. The reason for erosion of entire working capital was not stated and the request for a fresh exposure of Rs.0.75 crores is not backed with any concrete plan. Accordingly, clarification was sought for and the applicants submitted a reply on 10.03.2020 marked Annexure-A12 wherein they have admitted that the unit was not able to work for a

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SA 199/2024

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couple of years mainly for reasons beyond their control and submitted various letters also. The defendant informed the applicants vide letter dated 09.09.2020 marked Annexure-A14 that the loans availed were NPA and there is no present scheme of the bank under which additional finance can be provided to their unit.

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From the contentions of both sides, it appears that the committee framed by the State Government has afforded facilities to the applicants for revival, but as the business unit was not in a running condition for long, the defendant did not provide any additional funds for the revival of the unit. Admittedly, the loan was classified as NPA on 05.06.2019 vide Annexure-A16 demand notice. No material is placed by the applicants to show that they had submitted any proposal for revival of the unit, rather a letter was submitted stating that the unit was not functioning due to some unforeseen reasons beyond their control.

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In the judgment cited by the learned counsel for the applicants in the case of M/s.Pro Knits referred supra , the Hon'ble Apex Court at paragraph 17 held as follows:-

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“17. It is also pertinent to note that sufficient safeguards have been provided under the said Chapter for safeguarding the interest of the Defaulters-Borrowers for giving them opportunities to discharge their debt. However, if at the stage of classification of the loan account of the borrower as NPA, the borrower does not bring to the notice of the concerned bank/creditor that it is a Micro, Small

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SA 199/2024

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or Medium Enterprise under the MSMED Act and if such an Enterprise allows the entire process for enforcement of security interest under the SARFAESI Act to be over, or it having challenged such action of the concerned bank/creditor in the court of law/tribunal and having failed, such an Enterprise could not be permitted to misuse the process of law for thwarting the actions taken under the SARFAESI Act by raising the plea of being an MSME at a belated stage. Suffice it to say, when it is mandatory or obligatory on the part of the Banks to follow the Instructions/Directions issued by the Central Government and the Reserve Bank of India with regard to the Framework for Revival and Rehabilitation of MSMEs, it would be equally incumbent on the part of the concerned MSMEs to be vigilant enough to follow the process laid down under the said Framework, and bring to the notice of the concerned Banks, by producing authenticated and verifiable documents/material to show its eligibility to get the benefit of the said Framework.”

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As the applicants/borrowers did not take any initiative for revival of the unit before the loan was classified as NPA, subsequently they cannot challenge the proceeding claiming the benefit under the provision of MSMED Act.

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The Hon'ble High Court of Kerala in the judgment reported in 2024 (6) KLT 606 in the case of Krishnakumar vs. IndusInd Bank by referring the judgment of the Hon'ble Apex Court in the case titled M/s.Pro Knits (supra) at paragraph 19 held as follows:-

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“19……………. In cases where a borrower who qualifies as MSME does not initially raise its status to challenge a bank's recovery proceedings under the SARFAESI Act but instead participates fully in the process without objection, cannot later use their MSME status to argue that the proceedings were without jurisdiction………..”

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SA 199/2024

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Since the applicants did not take any steps for revival, the defendant bank cannot be blamed for the same. In view of the ratio decided by the Hon'ble Apex Court and the Hon'ble High Court of Kerala, the applicants cannot resist the securitization proceedings due to non-taking of steps for revival of the business unit prior to classification of the loan as NPA.

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Regarding S.14 measure is concerned, no specific defect or illegality is pointed out by the learned counsel for the applicants. All the steps are duly followed. The applicants challenged the notice issued by the Advocate Commissioner before the Hon'ble High Court of Kerala in W.P.(C) No.25764/2020 and the Hon'ble Court permitted them to submit OTS proposal, which was submitted but the same was rejected by the defendant as the proposal was not acceptable. No material is placed by the applicants in depositing any substantial amount in the loan account except Rs.7.50 lakhs as directed by the Hon'ble High Court. After submission of the OTS to settle the loan, the applicants cannot turn around to claim that securitization proceedings suffer from any illegality to interdict with the same. The defendant produced all the relevant documents in compliance of the statutory requirements.

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SA 199/2024

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The Hon'ble Apex Court in the judgment reported in (2022) 2 SCC 221 in the case of Arce Polymers Private Limited

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v. Alphine Pharmaceuticals Private Limited and others, at

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paragraph 18 held as follows:-

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“18. ……….. Taking into consideration the entire facts of the case, which perspicuously reflect disingenuous conduct on part of the Borrower to gain indulgence, unfulfilled assurances and promises, their unwillingness to pay, and in light of the law laid down by this Court, we are of the view that the Borrower has waived and is estopped from challenging violation of Section 13(3A) of the SARFAESI Act and hence, the first issue is decided in favour of the Bank………”

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In view of this ratio, by submitting the proposal for OTS the applicants waived defect, if any, in the securitization proceeding. In absence of any illegality in the proceedings causing substantial prejudice to the applicants, interference with the securitization proceedings is not warranted and the applicants are not entitled to get any relief in this proceeding. Hence both the points are answered against the applicants.

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Hence it is ordered:-

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ORDER

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In view of the foregoing reasons, this SA, being devoid

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of any merit, is hereby dismissed with cost of Rs.30,000/- (Rupees thirty thousand only) payable by the applicants to the defendant

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SA 199/2024

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bank for causing unnecessary delay in the securitization proceeding

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without any valid reason.

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(Dictated to my PA, corrected and pronounced by me in the open Tribunal on this the 20^th day of June, 2025)

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[SOVAN KUMAR DASH] PRESIDING OFFICER

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SA 199/2024

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Documents on the part of the applicants

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Annexures	Date	Particulars of documents
Annexure-A1	07.07.2020	Copy of MSME certificate issued to 1^stapplicant.	the
Annexure-A2	…	Copy of report of the committee assessing the viability of cas processing unit.	for hew
Annexure-A3	16.02.2019	Copy of letter issued to the applicant by the defendant.	1^st
Annexure-A4	25.02.2019	Copy of letter issued by the defend regarding in-principle approval for restructuring of the loan account.	ant the
Annexure-A5	17.03.2016	Copy of master circular of RBI.
Annexure-A6	01.01.2019	Copy of circular issued by RBI.
Annexure-A7	13.08.2020	Copy of order issued by Indust Department, Government of Kerala.	ries
Annexure-A8	05.07.2019	Copy of demand notice under S.1 of the SARFAESI Act issued to applicants.	3(2) the
Annexure-A9	26.07.2019	Copy of letter issued by the defenda	nt.
Annexure-A10	30.11.2019	Copy of letter submitted to defendant regarding restructuring the loan.	the of
Annexure-A11	17.02.2020	Copy of letter issued to the applicant by the defendant.	1^st
Annexure-A12	10.03.2020	Copy of letter issued to the defend by the 1^stapplicant.	ant
Annexure-A13	09.09.2020	Copy of letter submitted to the ban the 1^stapplicant.	k by
Annexure-A14	09.09.2020	Copy of letter issued to the applicant by the defendant.	2^nd
Annexure-A15	01.03.2021	Copy of possession notice issued to applicants by the defendant.	the

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SA 199/2024

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Annexure-A16	11.01.2023	Copy of demand notice under S.13(2) of the SARFAESI Act issued to the applicants.
Annexure-A17	28.03.2023	Copy of possession notice issued to the applicants.
Annexure-A18	06.12.2023	Copy of notice issued by the Advocate Commissioner in MC No.518/2023.
Annexure-A19	21.12.2023	Copy of order in W.P.(C) No.25764/2020 of the Hon'ble High Court of Kerala.
Annexure-A20	30.01.2024	Copy of judgment in W.P.(C) No.25764/2020 of the Hon'ble High Court of Kerala.
Annexure-A21	24.02.2024	Copy of notice issued by the Advocate Commissioner in MC No.518/2023.
Annexure-A22	…	Photographs showing existence of rubber trees in a property.
Annexure-A23	29.11.2021	Copy of acknowledgement showing submission of application by the 2^nd applicant under the rubber plantation development scheme.
Doc	uments on th	e part of the defendant

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Annexure-B1	11.01.2023	Copy of demand notice under S.13(2) of the SARFAESI Act issued to applicants 1 and 2.
Annexure-B2	...	Copy of acknowledgement card signed by the 1^stapplicant.
Annexure-B3	…	Copy of acknowledgement card signed by the 2^ndapplicant.
Annexure-B4	11.01.2023	Copy of demand notice under S.13(2) of the SARFAESI Act issued to the 3^rd applicant.
Annexure-B5	…	Copy of acknowledgement card signed by the 3^rdapplicant.

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SA 199/2024

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Annexure-B6	28.03.2023	Copy of possession notice issued by the defendant.
Annexure-B7	...	Copy of acknowledgement card signed by the 1^stapplicant.
Annexure-B8	…	Copy of acknowledgement card signed by the 2^ndapplicant.
Annexure-B9	…	Copy of acknowledgement card signed by the 3^rdapplicant.
Annexure-B10	02.04.2023	Copy of publication of possession notice in The New Indian Express daily.
Annexure-B11	02.04.2023	Copy of publication of possession notice in Kerala Kaumudi daily.
Annexure-B12	08.04.2023	Photographs evidencing affixture of possession notice on the property.
Annexure-B13	12.01.2015	Copy of valuation report obtained by the bank from an approved valuer.
Annexure-B14	03.03.2023	Copy of CERSAI registration report.
		PRESIDING OFFICER

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IN THE DEBTS RECOVERY TRIBUNAL-2, KERALA AT ERNAKULAM

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PRESENT: SRI.SOVAN KUMAR DASH PRESIDING OFFICER

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Dated this the 20^th day of June, 2025

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SA No.199/2024

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Between

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M/s.Appollo Cashew Plaza, Represented by the sole proprietor Subalan R., East Maranad P.O., Kollam – 691 505 & 2 others. …Applicants

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…Applicants

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And

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State Bank of India, Represented by Authorised Officer, Regional Business Office (II), State Bank Bhavan, Near Railway Station, Kollam - 691 001. …Defendant

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F I N A L O R D E R

Ms Appollo Cashew Plaza v. State Bank of India

Case brief

What is this about?

What did the court decide?

Ms Appollo Cashew Plaza v. State Bank of India

Case brief

What is this about?

What did the court decide?

What the court decided

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