Dismissed

Anvardeen.K v. Union of India

Kerala HC24 Nov 2020WP(C)/22084/2020

Case brief

AI extract

What is this about?

The petitioner, a MSME proprietor, sought a loan under a Government Credit Guarantee Scheme. The Bank rejected the request, stating the account was not stressed as per scheme definitions. The Court held that the Bank acted with prudent banking judgment and refused to interfere, dismissing the petition.

What did the court decide?

Relief sought to direct the Bank to grant the loan benefit was denied.

Anvardeen.K Vs Union of India — Specific Performance | Kerala HC (2020)

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W.P(c).No.22084/2020-I

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IN THE HIGH COURT OF KERALA AT ERNAKULAM

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PRESENT

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THE HONOURABLE SMT. JUSTICE P.V.ASHA

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TUESDAY, THE 24TH DAY OF NOVEMBER 2020 / 3RD AGRAHAYANA, 1942

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WP(C).No.22084 OF 2020(I)

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PETITIONER:

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ANVARDEEN.K AGED 43 YEARS S/O.KAMARUDEEN, PROPRIETOR, GREEN VALLEY BIO TECH, TISSUE CULTURE LAB AND NURSERY, PYARI MANZIL, ERATTUPOTTA, POTHAMPADAM, MUTHALAMADA POST, CHITTUR TALUK, PALAKKAD DISTRICT 678 507.

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BY ADVS. SRI.SAJAN VARGHEESE K. SRI.LIJU. M.P SRI.JOPHY POTHEN KANDANKARY

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RESPONDENTS:

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1 UNION OF INDIA

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MINISTRY OF MICRO, SMALL AND MEDIUM ENTERPRISES, NEW DELHI 110 001, REPRESENTED BY THE SECRETARY.

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2 THE SMALL INDUSTRIES DEVELOPMENT BANK OF INDIA, IV FLOOR, ATMARAM HOSE, TOLSTOY MARG, NEW DELHI 110 001.

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3 THE INDIAN OVERSEAS BANK, REGIONAL OFFICE, VETTUKATTIL BUILDINGS, V FLOOR, JOSE JUNCTION, MG ROAD, ERNAKULAM 682 016, REPRESENTED BY THE MANAGER.

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4 INDIAN OVERSEAS BANK, GB ROAD, PALAKKAD 678 001 REPRESENTED BY THE SENIOR MANAGER.

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R3-4 BY ADV. SRI.SUNIL SHANKER

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ASGI.SRI.P.VIJAYAKUMAR

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THIS WRIT PETITION (CIVIL) HAVING BEEN FINALLY HEARD ON 18.11.2020, THE COURT ON 24.11.2020 DELIVERED THE FOLLOWING:

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W.P(c).No.22084/2020-I

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J U D G M E N T

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Dated this the 24^th day of November, 2020

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The proprietor of a Micro, Small and Medium Enterprise (MSME) running tissue culture lab and nursery, has filed this Writ Petition aggrieved by the rejection of its request for a loan under Ext.P5 scheme, by the respondent Bank as per Ext.P10 letter.

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The Central Government floated a Credit Guarantee Scheme for Subordinate Debt (CGSSD) in order to provide guarantee coverage for CGSSD to provide subdebt support for restructuring of MSMEs. 90% guarantee coverage would come from scheme/trust and remaining 10% from the concerned promoters. The aim of the scheme is to provide personal loan through banks to the promoters of stressed MSMEs for infusion as equity/quasi equity in the business eligible for restructuring, as per RBI guidelines for restructuring of stressed MSMEs. The credit product for which guarantee is provided under the scheme is named CGSSD. For the purpose of the scheme, a credit guarantee fund trust is set up by the Government of India and SIDBI for Micro and small enterprises for the purpose of guaranteeing credit facility extended by the member lending institutions to the eligible borrowers. Distressed assets fund is defined as a fund of Rs.4,000/- crore created by the Government of India for providing guarantee

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W.P(c).No.22084/2020-I

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coverage to the loans given/extended to the promoters of the eligible MSME under the scheme.

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As per Ext.P6 letter dt.9.7.2020, the petitioner had requested the Manager of IOB branch at Palakkad – the 4^th respondent, to grant a sum of Rs.15 lakhs including the financial credit guarantee when the firm continued to operate. It was stated in this letter that the company was unable to function after the lock down and that stock culture was decayed and contaminated. It was stated that funds are required for further operation of the company.

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As per Ext.P7 letter dt.28.7.2020, the 4^th respondent called for various documents from the petitioner. The petitioner had submitted the same along with Ext.P8 letter and requested for early action. The 4^th respondent thereafter issued Ext.P9 letter dt.15.09.2020 directing the petitioner to clear the arrears to the tune of Rs.2,28,036/- within 7 days of the receipt of the said notice stating that there is every likelihood of the loan availed by the petitioner being declared as a non performing asset. The petitioner thereupon remitted the amount demanded in Ext.P9. Thereafter, as per Ext.P10 letter dt.17.09.2020 the petitioner was informed as follows:

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“xxx In this regard, we wish to advice that there is no apparent stress on your account based on the audited financials as on 31.03.2019 and 31.03.2020 with the firm making consistent profits, adequate cash flows and solvency and liquidity ratios at acceptable levels.

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Being so, we advice you to please concentrate on improving your business and turn over in cash credit account and to make timely and prompt payments of loans. In this connection we request your attention to our oral reminders for clearing the overdue

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W.P(c).No.22084/2020-I

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portion which we observe as follows,

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xxxxx”

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Thereupon the petitioner again submitted a representation Ext.P11 stating that the tissue culture lab being run by him incurred a loss due to flood consequent to which the bank had sanctioned loan under the 2019 flood moratorium. It is stated that the lab did not operate for more than 2 months in connection with the Covid 19 lock down in March, 2020. The tissue in which it is involved is a perishable one. The mother culture stocks are required for production of plants. As the mother culture was destroyed due to the lock down, the petitioner had purchased it from outsources.

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According to the petitioner, the stand adopted by the bank in Ext.P10 is absolutely unjust and illegal because the request of the petitioner was for granting the benefit of the scheme evolved by the Government of India.

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The learned Standing Counsel has filed a statement on behalf of the respondent Bank, according to which, the petitioner would not come under the definition of eligible borrower under the scheme which can only be a promoter of MSME unit which is stressed namely SMA II and which has become NPA as on 30.04.2020 and which can become commercially viable as per the assessment of lending institutions. According to the Bank, the scheme is applicable only for the MSMEs whose accounts have been in regular operations, either as standard account or as NPA accounts during the financial year 2018-19 and 2019-20. It is further stated that the promoter of MSME unit shall be eligible for credit facility

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W.P(c).No.22084/2020-I

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equal to 15% or 75 lakhs whichever is lower as per the last audited balance sheet and the promoters are required to bring in 10% of sub debt amount as collateral which shall be kept under lien. It is stated that as per the last audited balance sheet in the case of the petitioner company, the capital funds of the proprietor is Rs.36,84,503/- and the proprietorship business achieved is 86.80 lakhs making a profit of 6.25 lakhs. At the same time, the outside liabilities are only 26.60 lakhs as against the proprietor contribution of Rs.36.84 lakhs. It is stated that the solvency and liquidity ratios in respect of the petitioner are comfortable as per the audited balance. According to the respondents, the purpose behind this CGSSD scheme is to provide assistance to needy accounts who are eligible for restructuring as per RBI guidelines. According to them, there is no stress in the account of the petitioner. It is further stated that the overdues in the loan account is only because of the non routing of sale transactions through the account with the respondent bank. The audited financial and business account would show that the petitioner is making consistent profit with adequate cash flows and the liquidity and solvency ratios are at acceptable levels. It is further stated that the request of the petitioner for restructuring the loans and to grant him a fresh loan to the tune of Rs.15 lakhs cannot be considered. In case a proposal is received from the petitioner for restructuring, the respondent bank would take appropriate decision in the matter.

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However, the learned counsel for the petitioner asserts that the

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petitioner is entitled to get the benefit of Ext.P5 and the bank cannot stand in the

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W.P(c).No.22084/2020-I

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way of that based on unreasonable contentions. Pointing out the definition of eligible borrower, stressed MSME unit, etc. it was argued that there is nothing in Ext.P5 scheme which stands in the way of the petitioner from enjoying the benefit of the scheme. It is also pointed out that the benefit is declared by the Government of India and that cannot be curtailed by any other agencies.

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Therefore, it is necessary to have a look at the definition of the relevant terms given in the scheme. From Clause 3 of the scheme it is clear that the objective of the scheme is to provide personal loan to promoters of stressed MSMEs eligible for restructuring as per RBI guidelines for restructuring. Under clause 5v eligible borrower' and under clause 5xix stressed MSME Unit' are defined as follows:

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“Clause 5v. “Eligible borrower” means the promoters of MSME units which are stressed , viz.SMA-2 and NPA accounts as on 30.04.2020 and can become commercially viable as per the assessment of the lending institutions. The scheme is applicable for other SMSEs whose accounts have been standard as on 31.03..2018 and have been in regular operations either as standard accounts, or as NPA accounts during the financial year 2019-20 . However fraud accounts and willful defaulters will not be considered under the proposed scheme. In cases where recovery proceedings are underway and banks assess that with the facilities provided under the scheme the account will be viable the banks shall withdraw the recovery proceedings before going ahead with restructuring, etc.”

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“Clause 5xix. Stressed MSME unit means MSME units which are stressed viz.SMA-2 and NPA accounts as on 30.04.2020 as on 30.04.2020 as per the guidelines issued by the Reserve Bank of India from time to time. “

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Though under clause 8.1, the scheme is applicable for those MSMEs whose accounts are standard as on 31.03.2018 and have been in regular operations either

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W.P(c).No.22084/2020-I

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as standard accounts as on or as NPA during the financial year 2018-19 and 201920, sub clause iv therein states that the scheme is valid for MSME units which are stressed viz. SMA-2 and NPA accounts as on 30.04.2020 who are eligible for restructuring as per RBI guidelines on the books of the lending institutions. Apart from that in clause 19, the scheme provides for the responsibilities of the lending institutions under the scheme, according to which sub clause (ii) provides “the lending institutions shall evaluate applications by using prudent banking judgment and shall use business discretion/due diligence in selecting commercially viable proposals and conduct accounts of the borrowers with normal banking prudence.

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Though the learned counsel for the petitioner vehemently argued that the eligibility of the petitioner is purely a matter in tune with the Ext.P5 scheme and the bank cannot deny the benefit of the same, I am of the view that in order to become eligible for the benefit of the scheme, the petitioner has to fulfil the conditions in the said scheme. There are rival claims as to the eligibility by the petitioner on one hand and the bank on the other side. Mere interpretation of the provisions alone is not sufficient to determine the eligibility of the bank. When the respondent bank, after referring to the objective of the scheme and the provisions contained in the scheme, considered the request of the petitioner with reference to the audited balance sheet of the relevant financial years and the accounts of the petitioner maintained by it found that the petitioner is not a stressed SMSE and is

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not eligible for the benefit, after evaluating the request in accordance with their prudent banking judgment and business discretion, this Court which is not

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W.P(c).No.22084/2020-I

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equipped with any such prudence in banking would not be in a position to either declare the eligibility of the petitioner or direct the Bank to allow the request of the petitioner, under Article 226 of the Constitution of India. The respondents have stated that if the petitioner makes any proposal for restructuring they will take appropriate decision in accordance with the applicable schemes. The petitioner would be free to avail the same.

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In this view of the matter, the petitioner cannot have any right to insist for any direction to the bank to allow his request or to grant the benefit of the scheme to him when the competent authorities have found that he is not eligible for the same. Hence the petitioner cannot be granted any relief in this Writ Petition.

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The Writ Petition is accordingly dismissed.

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Sd/- (P.V.ASHA, JUDGE)

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rtr/

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W.P(c).No.22084/2020-I

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APPENDIX

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PETITIONER'S EXHIBITS:

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EXHIBIT P1	TRUE COPY OF THE ACKNOWLEDGEMENT (PART 1), ISSUED BY THE DISTRICT INDUSTRIES CENTRE, PALAKKAD SHOWING THE REGISTRATION OF THE UNIT DATED 27/1/14.
EXHIBIT P2	TRUE COPY OF THE ACKNOWLEDGEMENT (PART 1I), ISSUED BY THE DISTRICT INDUSTRIES CENTRE, PALAKKAD SHOWING THE REGISTRATION OF THE UNIT DATED 23/3/15.
EXHIBIT P3	TRUE COPY OF THE PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31.03.2019 DATED 25/8/20.
EXHIBIT P4	TRUE COPY OF THE PROJECTED PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDING 31.03.2021.
EXHIBIT P5	TRUE COPY OF THE CREDIT GUARANTEE SCHEME FOR SUBORDINATE DEBTS.
EXHIBIT P6	TRUE COPY OF THE LETTER DATED 09.07.2020 ADDRESSING THE 4TH RESPONDENT.
EXHIBIT P7	TRUE COPY OF THE COMMUNICATION DATED 28.07.2020 ISSUED BY THE 4TH RESPONDENT.
EXHIBIT P8	TRUE COPY OF THE FURTHER REQUEST MADE BY THE PETITIONER BEFORE THE 4TH RESPONDENT DATED 7/8/2020.
EXHIBIT P9	TRUE COPY OF THE COMMUNICATION MADE BY THE 4TH RESPONDENT ON 15.09.2020.
EXHIBIT P10	TRUE COPY OF THE LETTER DATED 17.09.2020 ISSUED BY THE 4TH RESPONDENT TO THE PETITIONER.
EXHIBIT P11	TRUE COPY OF THE REQUEST DATED 19.09.2020 SUBMITTED BY THE PETITIONER.
EXHIBIT P12	TRUE COPY OF A PAMPHLET ISSUED ON EXHIBIT P5 SCHEME.

Anvardeen.K v. Union of India

Case brief

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Anvardeen.K v. Union of India

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