Allowed

Ms Milan Enterprises and Others v. State Bank of India

DRT7 Sept 2026SA/150/2023

Case brief

AI extract

What is this about?

The Debts Recovery Tribunal allowed an application to quash SARFAESI action and possession notices issued by the State Bank of India. The court held the second demand notice was invalid as issued without explaining the change in NPA date and distinguished a DRAT case by noting the new cause of action. The tribunal also found deficiencies in service and MSME compliance, setting aside recovery measu

What did the court decide?

SARFAESI action challenged against applicants set aside with costs; respondent not entitled to expenses or recovery charges for the action.

Ms Milan Enterprises and Others versus State Bank of India — Banking and Recovery | DRT (2026)

SA 150 of 2023 IJI

DRT, PATN A

DEBTS RECOVERY TRIBUNAL PATNA

¶5

Presiding Officer : Shri Kaushalendra Yadav

¶6

SA- 150 of 2023

¶7

M/s MiLan Enterprises through its proprietor Md. Naseem, S/o Late Abdul Shakoor. at Dariyapur, Bari Road, Patna 800004.

¶8

Md. Naseem, S/o Late Abdul Shakoor. R/o - Dariyapur. Bari Road, Patna 800004.

¶9

Md. Aftab Alam, S/o - Md. Makshud Alam. R/o – Emambara Bari Path, Arya Kumar Road, Patna 800004.

¶10

Md. Mehtab ALam, S/o- Md. Makshud Alam, R/o - Emambara Bari Path, Arya Kumar Road, Patna 800004.

¶11

......._Applicants

¶12

Versus

¶13

The Authorized Officer-cum-Chief Manager, State Bank of India, Stressed Assets Recovery Branch, 2''d Floor, Patna Main Branch Building, W/o Gandhi Maidan. Patna 800001.

¶14

The Assistant General Manager, State Bank of India, Stressed Assets Recovery Branch. 2-d Floor, Patna Main Branch Building. W/o Gandhi Maidan, Patna 800001.

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The Chief Manager, State Bank of India, Govind Mitra Road Branch, Govind Mitra Road, P.S. – Pirbahor. Patna – 800004

¶16

-- respondents

¶17

Present :

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For the Applicants : Dr. Binay Kr. Singh, Advocate For the Respondent Bank : Sh. A.K. Sharan. Advocate

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Dated: 07.09.2026

¶20

JUDGMENT

¶21

Present application has been filed with a prayer to quash entire SARFAESI Action initiated against applicant including Possession Notice dated issued against the secured asset.

SA 150 of 2023 IJI

DRT, PATN A

The brief fact of the case is that the applicant availed Cash Credit facility to the tune of Rs.60 lacs and Term Loan facility to the tune of Rs.226.60 lacs from the respondent bank. To secure the loan facilities, the applicant mortgaged his property with the bank. Due to default in repayment of outstanding dues of the bank, the accounts were classified as NPA on 07.05.2022. In order to recover the outstanding dues, the respondent bank initiated SARFAESI action against the borrowers and guarantors by issuing Demand Notice dated 08.12.2022 u/s 13(2) of the act calling upon the borrowers to make the payment of Rs.4,15.92.482/-. Thereafter, the respondent took possession of the property by issuing Possession Notice dated 29.04.2023 u/s 13(Ii) of the SARFAESI Act. Aggrieved from the possession notice, the present SA has been filed by the applicants.

¶26

It is submitted by the Ld. Counsel of applicant that the letter dated 06.05.2022 issued by the respondent Bank indicates that all the accounts were standard as on 06.05.2022 but vide letter dated 30.05.2022 the respondent bank shown that all the accounts has been declared as NPA on 28.05.2022 violating the IRAC Norms and circular of RBI on Special Mention Account (SMA). The IRAC status of the accounts was either “1 or 2" but not even 3 or 4 but the accounts were classified as NPA on 28.05.2022 i.e. just after 22 days from the letter dated 06.05.2022.

¶27

It is further submitted that the respondent bank issued Demand Notice dated 05.07.2022 mentioning the date of NPA as 28.05.2022 without assigning any reason for declaration of NPA. However, the applicant raised an objection vide letter dated 05.08.2022 against the Demand Notice but the respondent bank instead of replying the objection of applicant, issued second Demand Notice dated 08.12.2022 withdrawing the earlier Demand Notice. In the second Demand Notice, the respondent bank mentioned the date of NPA as 07.05.2022 without assigning any reason for declaration of account as NPA and changing

\d.&A’

SA 150 of 2023 IJI

DRT. PATNA

the date of NPA and also violated the mandatory provision of section 13(3) of the SARFAESI Act.

¶33

Hon'ble DRAT Allahabad in the case of Bank of Baroda Vs. J.P. Associates and others (reported in 4(2025) BC 98 DRAT) date of judgment 28.08.2025 has held that without replying to the representation against the first Demand Notice the bank cannot issue Second Demand Notice. Hon’bLe DRAT has held that once the notice under section 13(2) of the SARFAESI Act has been issued by the Bank and the representation/objection is received from the borrowers than it is the obligation on the part of the bank to carry the matter to its final conclusion by considering and deciding the objections/representation received from the borrowers. Thus the second notice is invalid.

¶34

The applicants after receipt of second Demand Notice represented vide letter dated 26.12.2022 with the bank and in response to objection, the bank responded by a letter dated 09.01.2023 but without assigning any reason from change of date of NPA. The respondent bank further issued Possession Notice dated 29.04.2023 and the same was served to the applicant by affixation. Individual service of possession notice has not been made to the applicants.

¶35

It is further submitted that the applicant firm is an MSME and without following the notification of Ministry of MSME, Govt. of India dated 29.05.2015 and that of RBI circular dated 17.03.2016 on framework for revival and rehabilitation of MSME, the bank cannot classify the account as NPA

¶36

On the contrary, Id. Counsel of the respondent bank submits that the applicant have not disputed the execution of loan agreements, creation of equitable mortgage, utiLization of the sanctioned amounts and also not disputed the receiving of Demand Notice and Possession Notice. The scope of inquiry under Section 17 is very limited. In an appeal under the said Act, the Hon'ble Tribunal may decide the issue of validity of

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SA 150 of 2023 IJI

DRT. PATN A

measures taken by Banks/Fl. under Section 13(4) only. In other words, the purpose of an application U/s 17 is not the determination of quantum of claim per–se, as the Tribunal is concerned with the issue of the validity of measures by Secured Creditor/Bank taken under section 13(4) of the Sarfaesi Act, 2002. The question of staying the proceeding and quashing of Demand Notice as well as Possession notice by the Hon'ble Tribunal may not be considered on account of actual status of all the accounts and various other irregularities contrary to the financial discipline committed by the Applicants.

¶42

After availing loan facilities the borrower was required to pay 80 monthly installments of Rs. 70,750/- each commences w.e.f. 02.01.2018 in the Term Loan-1 and 113 monthly installments of Rs.1,49,113/- each commences w.e,f. 02.06.2018 in the Term Loan-II. Apart the Borrower was also liable to pay interest and other charges. But the statement of account of the Term Loan-1 shows the balance of Rs. 50,95.846.40 as on 30.11.2018 whereas it should be approx. Rs. 49,52,500/- after payment 10th installments. Further, as on 29.02.2020 which was cutoff date for the every borrower to be eligible to avail Covid-19 regulatory package, the actual status of the Term Loan-I Limit was Rs. 39,35,444.40 while it should be Rs.38,20,500.00, which clearly indicate the irregularity status of account. Similarly the Term Loan-II. from beginning and from 30.04.2019 to 27.02.2020 and thereafter again from 31.03.2020 to 31.12.2020 and even after restructure on 26.02.2021 the limit was remained in excess of its sanction limits till the account turned into NPA meaning thereby the Applicant has not paid the installments/interest as agreed upon. As the limits were irregular since beginning contrary to the allegation of Applicant that their account was standard and regular always, however on the request of Applicant/Borrower the account was restructured on 26.02.2021 to overall limit of Rs. 287.20 lacs (i.e. Term Loan-1 limit of Rs.36.00 lacs, Term Loan-II limit of Rs. 162.00 lacs, working capital /Cash Credit Limit

dw'’'

SA 150 of 2023 [JI

DRT, PATN A

of Rs.18.00 lacs, FITL Limit of Rs. 28.58 lacs and WCTL limit of Rs.42.62 lacs). As per agreed terms of restructure the working capital was repayable on demand for 12 months subject to review every 12 months and Term Loan-I limit (Rs.36.00 lacs) was repayable in 60 monthly installment of Rs. 75,000/each commences w.e.f. March 2022 including 12 months of moratorium and Term Loan-II limit (Rs.162.00 lacs) was repayable in 100 monthly installments of Rs.1,84,091/- each commences w.e.f. March 2022 including 12 months of moratorium and WCTL limit (Rs. 42.62 lacs) was repayable in 36 monthly installments of Rs.1,77.600/- each commences w.e.f. March 2022 including 12 months of moratorium and FITL limit (Rs. 28.58 lacs) was repayable in 24 monthly installments of Rs.1,19,100/- each commences w.e.f. March 2022 including 12 months of moratorium apart the Applicant/ Borrower was liable to pay interest and other charges which will be served separately as and when applied. However, the restructure of accounts has established that the accounts at all were not standard and regular. On the request, Applicants were further provided GECL of Rs. 89.50 lacs in view of C:ovid–19 package vide Arrangement Letter dated 04.12.2021, which was availed by the Applicants but the GECL limits was also remained in excess of its sanction limit from 31.01.2022 to 31.03.2022 Apart from this, the Applicant had not submitted the original invoice / bill of the machine purchased from the Term Loan and was under hypothecation of Bank as primary security in spite of repeated requests on several occasions. The Bank through letter dated 26.12.2019 again requested the Applicant to produce the original invoice/bill but the Applicant intentionally not provided. Hence, the account of applicant was turned into NPA on 28.05.2022 and in order to recover its outstanding dues, the respondent bank initiated SARFAESI Action by issuing Demand Notice dated 05.07.2022 U/s 13(2) of the said Act. Thereafter the accounts of the Applicant were migrated to the SARB, respondent No.1 Branch. Earlier Notice of Demand dated 05.07.2022

SA 150 of 2023 lil

DRT, PATN A

stands withdrawn. In the meantime it is came to the notice of respondent bank that that One 0D account No.38441964144 of the Applicant maintained at Rajendra Nagar Branch turned into NPA on 07.05.2022 having same PAN, hence all six account have also been turned into NPA on 07.05.2022 in terms of RBI Guidelines and thus the date of NPA was changed. Later, fresh demand notice U/s 13 (2) dated 08.12.2022 was issued to the Applicants by respondent No.1, who is a special outfit for redressal of such loan accounts.

¶52

When the Applicant amongst others have not taken any interest towards payment of outstanding dues of the bank hence, the bank took measures u/s 13(4) of the said Act and issued possession Notice on 29.04.2023 to the Borrower. The said Possession notice was served to the Applicant in compliance of Rule 8 (1) by affixing the possession notice on the outer door / conspicuous part of the property and the same was also served through registered post to the Applicant. In compliance with Rule 8 (2) the same was published in Hindustan dated 30.04.2023 and Hindustan Times dated 30.04.2023 to show the specific compliance of procedure in compliance of Rule 8(2) of the said Act.

¶53

The Applicant had earlier filed a writ before the Hon’ble Patna High Court bearing CWJC No.12934/2022. After hearing the parties, on 14.09.2022 the Division Bench of the Hon’ble Patna High Court directed the Bank to consider and to decide the various letter / representation(s) of the applicant. The respondent bank after considering the various letter(s)/ Representation(s) of Applicant as referred in the aforesaid writ had decided the objection on 27.10.2022 in accordance with banking procedure and law. In the said letter dated 27.10.2022, the Defendant/Bank has clearly mentioned in para 7 at page 3 and 4 of the reply that as because of the 0D account No. 38441964144 standing in the name of Applicant No.2 having same PAN maintained in other branch turned NPA on 07.05.2022, all six loan account have been classified NPA in terms of RBI's guidelines on prudential norms on income Recognition,

d, w”

SA 150 of 2023 [JI

DRT. PATN A

Asset Classification and provision pertaining to advances vide Master Circular RBI/2022-23/15 DOR.STR. REC.4/21.04.048/2022-23 dated 01/04/2022. Aggrieved for order dated 14.09.2022, the Applicant had filed the contempt Petition bearing MJC No. 2609 of 2022 before the Hon'ble Patna High Court which was dismissed vide order dated 17.05.2023 . During pendency of aforesaid MJC the Applicant No.1 represented through Applicant No.2 preferred their second writ bearing CWJC No. 1689 of 2023 on 11.01.2023 for quashing of Demand Notice dated 08.12.2022 issued U/s 13(2) of the Said Act on the pretext of erroneous declaration of account as NPA and violation of RBI guidelines which is still pending for adjudication. After the dismissal of first MJC, the Applicant had filed another MJC bearing MJC No. 1725 of 2023 before the Hon’ble Patna High Court for non-compliance of order dated 14.09.2022 passed in CWJC No. 12934 of 2022. The Division Bench of the Hon’ble Court has again dropped the MJC vide order dated 02.08.2023. During pendency of second writ, the Applicant has again rushed to the Hon’ble Patna High Court by filing their third writ bearing CWJC No.11785 of 2023 on 16.08.2023 for quashing of communication dated 27.10.2022 and for erroneous declaration of account as NPA. Being aggrieved from the counter affidavit filed in third writ, the Applicant has filed the third MJC bearing MJC No. 252/2024 on 12.01.2024.

¶59

So far the allegation regarding the maturity of said SBI life policy was on 07.04.2022. It is specifically mentioned at Page 34 Annexure- 1 series of the instant S.A. that the maturity of poLicy will be 07.04.2027. Applicant never informed about discontinuance of premium of policy till turning off his 0D account as NPA. The Respondent Bank never acknowledged the receipt of the letter dated 12.04.2022. The genuineness of the letter dated 12.04.2022 was doubted by the Bank as it is neither mentioned in the Bank’s diary / record nor is in the concerned file. The initials on the letter were also not acknowledged by any old staff member of the Branch posted at the reLevant point of time.

DRT. PATN A

SA 150 of 2023 IJI

The Applicant may be directed to produce the original receipt of letter dated 12.04.2022 to ascertain the genuineness and to get it examined by a forensic expert in the interest of justice.

¶64

The Term loan-I was in irregularity of Rs.93,964.46. Term Loan-II was in irregularity of Rs.3,53,299.86. FITL limit was in irregularity of Rs.2,76,987.00, WCTL limit was in irregularity of Rs.4,63,613.00. CC limit was in irregularity to Rs.19,642.00 and GECL limit was in irregularity of Rs.1,10,724.00. Further in the last column the likely NPA dates were also mentioned. Various other reminders / irregularities as mentioned on the said letter were neither replied nor acted upon by the Applicant. The Bank is justified in classification of accounts as NPA.

¶65

1 have heard Ld. Counsel for the parties and gone through the record.

¶66

It has been alleged that as per letter dated 06.05.2022 of the respondent Bank indicates that all the accounts were standard as on 06.05.2022 but vide letter dated 30.05.2022 the respondent bank shown that all the accounts has been declared as NPA on 28.05.2022 i.e. just after 22 days violating the IRAC Norms and circular of RBI on Special Mention Account (SMA) as the accounts was either “1 or 2". In the Demand Notice dated 05.07.2022 issued by the respondent bank no reason for declaration of NPA has been assigned and also violated the section 13(3) of the Act. Against the demand notice the applicant raised an objection vide letter dated 05.08.2022 but without replying the said objection the respondent bank issued second Demand Notice dated 08.12.2022 withdrawing the earlier Demand Notice. In the second Demand Notice dated 08.12.2022 the date of NPA has been changed as 07.05.2022 instead of 28.05.2022 without assigning any reason and without bifurcation in the teeth of section 13(3) of the SARFAESI Act. Against the Demand Notice dated 08.12.2022, the applicant represented vide letter dated 26.12.2022 with the bank which was replied by the bank vide letter dated 09.01.2023 but without assigning any reason from change of date of NPA. h / , - k)\\w

SA 150 of 2023 IJI

DRT, PATN A

On perusal of records it appears from the letter dated 06.05.2022 issued by the respondent bank annexed with S. application as annexure 2, page 79 that the applicant was well informed that accounts were running irregular with the respective amount and also informed that the account were likely to be declared as NPA. Accordingly, the accounts were declared as NPA on 28.05.2022. Thereafter, the respondent bank issued Demand Notice dated 05.07.2022 and served to the applicants as also admitted by the applicants in his application. Against the demand notice, the applicant represented a vide letter dated 05.08.2022. Thereafter, the respondent bank withdrawing the Demand Notice dated 05.07.2022 issued fresh Demand Notice dated 08.12.2022 indicating the date of NPA as 07.05.2022. The respondent bank in its counter affidavit clearly stated that the applicant was maintaining an 0D account No.38441964144 with State Bank of India, Rajendra Nagar Branch which was turned into NPA on 07.05.2022 therefore all the accounts were classified as NPA on 07.05.2022 but on perusal of said Demand Notice it appears no details of said 0D account maintained at Rajendra Nagar Branch has been mentioned in the Demand Notice. Furthermore, in response to the representation of applicant against second Demand Notice, no such averments have been made. Therefore, the reason for preponment of the date of NPA is not justifiable. On receipt of the Demand Notice, the applicant represented the same vide letter dated 26.12.2022 raising various issues and the same was also replied by the respondent bank vide its letter dated 09.01.2023 but no reason for change of date of NPA has been mentioned by the Bank. Merely stated in para 9 of the reply stated that “we have examined the NPA date mentioned in the latest Demand Notice Ref: SARB-PAT/05176/PK/1488 dated 08.12.2022 and found it correct in terms of the regularity IRAC Norms".

¶71

So far allegation regarding the respondent bank cannot issue second Demand Notice withdrawing the first demand notice without replying

SA 150 of 2023 IJI

DRT, PATN A

the objection raised by the applicant against the first Demand Notice relying upon the judgment dated 28.08.2025 passed by Hon’ble DRAT Allahabad in the matter of Bank of Baroda Vs. J.P. Associates and others (reported in 4(2025) BC 98 DRAT). The aforesaid authority is applicable for the cases when the second demand notice is issued on the cause of action which was shown to have a crude in earlier demand notice. But in the present case the second demand notice was issued entirely upon a new cause of action, i.e. when the account maintained in the Rajendra Nagar branch turned irregular. As a result of that, all connected accounts of the applicants have been declared non performing assets. As such there was no need to make futile exercise to explain the previous demand notice which was specifically withdrawn. At the most it may be inferred that the objections against previous demand notice were sustained. But the same objection may not hold ground for subsequent notice issued on default of another account

¶76

It is further alleged that the Individual service of possession notice has been made to the applicants after affixation of possession notice which is against the Rule. The law specifically requires individual service of notice and affixation both. Default in compliance of any of these modes makes the compliance incomplete. On perusal of records, it appears that Possession Notice was issued on 29.04.2023 and the same was affixed on secured asset as also admitted by the applicants and the possession notice was sent to all the applicants through postal service on 03.05.2023 as appear from the postal receipt filed with counter affidavit as annexure – D/29 series, page 99. The applicant relied upon the judgment passed by Hon'ble DRAT Allahabad reported in 2(2026) BC 53 (DRAT) decided on 15.12.2025 (No copy of abovesaid judgment has been submitted by the applicant). Further. to prove the delivery, the respondent bank annexed the tracking reports as annexure – D/29, page 100-103 which shows the item delivery confirmed. To prove the

SA 150 of 2023 lil

DRT, PATN A

publication of possession notice, the respondent bank annexed the copy of publication of newspaper with counter affidavit at page 104-105 but the same neither indicates the name of newspaper nor the date of its publication merely the it has been marked as “Hindustan" & “Hindustan Times"/30.04.2019 by hand.

¶81

So far allegation regarding the applicant firm is an MSME and without following the notification of Ministry of MSME, Govt. of India dated 29.05.2015 and that of RBI circular dated 17.03.2016 on framework for revival and rehabilitation of MSME, it has been submitted on behalf of the respondent Bank the the request of financial assistance and restructuring was already considered and provided to the applicants. As such it was not necessary to refer the matter to the committee for the same purpose. In this regard, it is impressed upon that under the RBI Circular dated March 17, 2016, whether it is necessary to refer the account to the Committee depends entirely on how that restructuring was carried out. If the Restructuring was done outside the Framework of the aforesaid circular i.e. under the Standard Bank Policy under a generic internal restructuring or repayment rescheduLing without convening the designated Committee for Stressed MSMEs, the mandatory requirement under the RBI framework is not permanently waived. If the previously restructured loan shows signs of stress again and drops into SMA-1 or SMA-2 status (or if the borrower voluntarily requests further relief), the bank must formally refer the case to the Committee. A bank cannot bypass the Committee approach to push an eligible MSME straight into recovery or NPA classification simply because a "prior internal restructuring" failed.

¶82

Under Section 5.4 of the framework, if an option like 'Rectification' or 'Restructuring' has been decided and implemented, but the account fails to perform as per the agreed terms, the case must be referred back to the Committee. The bank cannot unilaterally initiate recovery actions or enforce SARFAESt on its own terms. The Committee must reconvene to \4q'"

SA 150 of 2023 IJI

DRT, PATNA

evaluate if a secondary restructuring is viabLe, or if it is time to officially move the Corrective Action Plan (CAP) to the "Recovery" stage. Even if a bank claims, "a restructuring package m/as already given. " they are legally barred from classifying the account as an NPA or issuing a SARFAESI possession notice now, unless the specific Committee for Stressed MSMEs has evaluated the current failure and formally approved a ''Recovery" mandate. As such when there was existing material and information to the effect that the accounts in question are irregular, even after restructuring as requested, the bank was not justified to classify all the accounts as NPA on the ground of default in 0D account No.38441964144 with State Bank of India, Rajendra Nagar Branch which was turned into NPA on 07.05.2022.

¶87

Any interim order of Hon’ble High court has not been filed hence in view of the above discussion, the present application succeeds.

¶88

ORDER

¶89

The application SA 150 of 2023 is allowed. SARFAESI Action under challenge against the applicants, is hereby set aside with costs. The respondent will also not be entitled for the expenses and the recovery or any other charges for the Action under challenge.

¶90

[KaushaLendraYadav]

¶91

Presiding Officer Debts Recovery Tribunal, Patna

¶92

Judgment signed, sealed, dated and pronounced in the open court on this 07" Day of September, 2026. /%+ a\a/”N"’

¶93

[KaushalendraYadav]

¶94

Presiding Officer Debts Recovery Tribunal, Patna

Ms Milan Enterprises and Others v. State Bank of India

Case brief

What is this about?

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Ms Milan Enterprises and Others v. State Bank of India

Case brief

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