Allowed

M/S Ashima Mushroom v. Uco Bank

DRT27 Mar 2026SA/300/2025

Case brief

AI extract

What is this about?

This is a Securitization Application challenging the respondent Bank's enforcement action under the SARFAESI Act. The Tribunal set aside the action and cancelled the fixed auction date because the Bank issued a Section 13(4) notice without first responding to the applicant's objections. The caveat preserves the Bank's right to issue a fresh notice after compliance.

What did the court decide?

The SARFAESI action was set aside and the auction fixed for 30.03.2026 was cancelled. The Bank is not barred from issuing a fresh Section 13(4) notice after responding to objections.

M/S Ashima Mushroom versus Uco Bank — Specific Performance | DRT (2026)

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SA No. 300 of 2025

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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SA No. 300 of 2025

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M/s Ashima Mushroom

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Versus UCO Bank

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Dated: 27.03.2026

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Item No. (Supplementary-1)

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Argued by: Mr.Ajay Thakur, Counsel for the Applicant (on VC).

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Mr.Kaveesh, Counsel for the Respondent Bank.

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M/s Ashima Mushroom (Applicant) has filed this Securitization Application under Section 17 of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act), against UCO Bank (Respondent).

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In brief, the case of the Applicant, as set-up in the Securitization Application is that it is a proprietorship firm and Mr.Anil Kumar is its proprietor. It is an MSME unit (Annexure A-1). Vide sanction letter dated 21.09.2019, Respondent had sanctioned three Term Loans of Rs. 57 lacs; Rs. 10 lacs and Rs. 7.25 lacs to the Applicant for expansion of its business of mushroom production unit (Annexure A-2). Ms.Kiran Thakur, wife of the Anil Kumar, had also raised a loan of Rs. 60 lacs on the same unit in December, 2022. Due to severe flooding/natural calamity in June 2023, in the State of Himachal Pradesh, mushroom farming was severely affected by Wet Bubble Disease, a highly infectious fungal disease dangerous to the crop. Accordingly, an expert team from ICAR-DMR, Solan inspected the site and recommended its closure for at least one year to break the pathogen’s life cycle. Copy of the report, dated 09.01.2025 is Annexure A-3. In these circumstances, Applicant was compelled to shut down the operations for one year. Applicant alleged that in the year 2024, his wife requested for an additional loan of Rs. 20 lacs for restructuring of damaged business infrastructure. The bank informed the Applicant, orally and in writing, that a moratorium had already been granted

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SA No. 300 of 2025

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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earlier due to the natural calamity in the state of Himachal Pradesh. Respondent Bank enhanced the CC Limit from Rs. 3 lacs to 10 lacs and gave additional loan of Rs. 7.25 lacs (Annexure A-6). On 21.02.2025, Applicant submitted a detailed representation requesting relief as per Government of India guidelines for stress MSME units (Annexure A-7). Despite the above, Bank declared the account NPA on 05.03.2025 and issued the notice under Section 13(2) of the SARFAESI Act on 01.05.2025. On 27.06.2025, Applicant filed the objections (Annexure A-8 & A-9). However, the Bank did respond to the same and issued the notice under Section 13(4) of the SARFAESI Act on 04.09.2025. Bank also filed OA No. 1192 of 2025 under Section 19 of the Recovery of Debts and Bankruptcy Act, 1993 against the Applicant (Annexure A-10).

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Applicant challenged the SARFAESI action and alleged that the value of the secured asset is around Rs. 4.5 crores, which is substantially higher than the sanctioned loan amount. He had no control over the unforeseen circumstances. It is an MSME unit. The bank declared the account illegally. The Bank did not follow the Government of India guidelines in respect of MSME unit, dated 29.05.2015. As per MSME Act, 2006 it is incumbent upon the Bank to identify incipient stress in MSME accounts and explore revival and restructuring options prior to declaring the account NPA. Accordingly, the action initiated by the Bank under Section 13(4) is illegal, null and void .

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On these facts, Applicant filed the present SA and prayed that the SARFAESI action be set aside; Bank be directed to restore the account as standard account; Bank be directed to restructure the account and grant additional loan of Rs. 35 lacs to the Applicant and the Bank be restrained from taking any coercive action in the matter etc.

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SA No. 300 of 2025

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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Bank, in reply to the application, has denied the case of the Applicant. It is stated that vide loan application dated 18.07.2019, Applicant had applied for a loan of Rs. 57 lacs; CC Limit of Rs. 10 lacs and another Term Loan of Rs. 7.25 lacs. Vide sanction letter dated 16.09.2019 and 21.09.2019 and process note dated 20.09.2019, these facilities were granted to the Applicant. Applicant had created security interest in respect of its property, in favour of the Bank. The Bank has got the charge registered with the revenue authorities as well as CERSAI. Applicant had also executed all the relevant documents, in favour of the Bank. Bank had also obtained guarantee. Bank issued a memorandum for review of limit dated 13.10.2020. Since, Applicant did adhere to the financial discipline and did not make the repayment of the loan, the Bank declared the account NPA. On 01.05.2025, Bank issued the notice under Section 13(2) of the SARFAESI Act and served the notices upon the Applicant and guarantor. Accordingly, it is stated that Applicant is not entitled to any relief.

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I have heard Mr.Ajay Thakur, counsel for the Applicant and Mr.Kaveesh, counsel for the Respondent Bank.

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Drawing my attention to the pleadings of the parties, Mr.Thakur, counsel for the Applicant has argued that the Bank had issued the notice under Section 13(2) on 01.05.2025. Applicant had filed objections to the same on 27.06.2025. However, without responding to the objections, Bank issued the notice under Section 13(4) on 04.09.2025. As per law, it could not be done. Further, before declaring the account NPA, on 21.02.2025, Applicant had written a letter to the Bank (Annexure A-7) stating that his unit is financially viable. His business was non-functional due to natural calamity and it will take some time to revive its production. He stated that his request be considered again. He had stated that it is an MSME unit and as per RBI guidelines, the Bank should have put the matter before the Designated Committee. Mr.Ajay

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SA No. 300 of 2025

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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Thakur placed reliance upon the judgment passed by the Hon’ble Supreme Court in M/s Pro knit case and submitted that the Bank has fixed up the auction for 30.03.2026 and the same be stayed. Accordingly, the SARFAESI action initiated by the Bank be stayed.

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Per contra , Mr.Kaveesh, counsel for the Respondent Bank submitted that Applicant had earlier made a request for restructuring on 21.01.2025. The Bank had responded to the same vide letter dated 24.01.2025, wherein it was stated that the Applicant had already been granted restructuring and in these circumstances, it cannot be granted further restructuring in that loan account. Mr.Kaveesh submitted that there is no merit in the present SA and the same be dismissed.

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I have considered the rival contentions.

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It is admitted on the record that initially in the year 2019, Respondent had sanctioned a Term Loan of Rs. 57 lacs; CC Limit of Rs. 10 lacs and another Term Loan of Rs. 7.25 lacs to the Applicant. It is also admitted on the record that in the year 2024, Applicant had written to the Bank alongwith Udhyam Certificate stating that it is an MSME unit. On 21.01.2025, Applicant had requested for restructuring. However, vide letter dated 24.01.2025, Bank declined the same on the ground that earlier the account had already been restructured.

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Be that as it may, on 01.05.2025, Bank issued the notice under Section 13(2) of the SARFAESI Act. Applicant responded to the same by filing detailed representation dated 27.06.2025. Bank has not produced on the record any material to show that it had responded to the objections filed by the Applicant. Under the law, the Bank was under obligation to respond to the objections before issuing the notice under Section 13(4) of the SARFAESI

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SA No. 300 of 2025

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DEBTS RECOVERY TRIBUNAL-I, CHANDIGARH

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Act. In view of this, the SARFAESI action is hereby set aside. The auction fixed up for 30.03.2026 is hereby cancelled.

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However, it is made clear that this order will not debar the Bank from issuing fresh notice under Section 13(4) of the SARFAESI Act, after responding to the objections filed by the Applicant.

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In view of the above, the present SA is allowed . All the pending IAs, if any, are also disposed of, accordingly.

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Registrar is directed to send a copy of this order to all the parties, as per rule. Thereafter, file be consigned to record room after due compliance.

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Pronounced in open court Dated: 27.03.2026 Manoj

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(A S Narang) Presiding Officer DRT-I, Chandigarh

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M/S Ashima Mushroom v. Uco Bank

Case brief

What is this about?

What did the court decide?

M/S Ashima Mushroom v. Uco Bank

Case brief

What is this about?

What did the court decide?

What the court decided

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