RBI 2016 MSME Framework Not Absolute Bar To SARFAESI Action Against MSME Borrower: Calcutta High Court
Kirit Singhania
13 Feb 2026 10:47 AM IST
The Calcutta High Court has recently observed that banks are required to examine and keep SARFAESI proceedings in abeyance only if an MSME borrower raises a specific objection with supporting materials and an affidavit asserting its MSME status.
The court clarified that the 2016 RBI 'Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises' does not create an absolute bar on classifying an MSME loan account as NPA or initiating action under the SARFAESI Act.
Justice Aniruddha Roy made the observation while dealing with a challenge to a loan recall notice dated December 6, 2023, issued by the State Bank of India (SBI). The court observed:
“Inasmuch as 2016 guideline/framework does not create an absolute bar or prohibition on the bank to classify the loan account of an MSME enterprise as NPA or to take steps under SARFAESI Act, if an MSME enterprise raises objection with all supporting materials to establish that it is an MSME enterprise citing reasons supported by an affidavit, the bank only then would be mandatorily bound to look into such claim keeping further action under the SARFAESI Act in abeyance.”
Dooars Jute Textiles Pvt. Ltd, engaged in the manufacture of jute products was recognized as an MSME from February 20, 2019. Credit facilities were sanctioned on February 12, 2020 and subsequently enhanced, aggregating to Rs.12.02 crore. SBI had declared the loan account as NPA on November 29, 2023. A demand notice dated December 6, 2023 claimed Rs.11.38 crore as principal, aggregating to about Rs.11.94 crore with interest.
The company argued that before declaring the account as NPA, the bank was mandatorily required to follow the 2016 RBI framework for revival and rehabilitation of MSMEs.
Rejecting the company's arguments at the interim stage, the high court relied on Supreme Court decision Shri Shri Swami Samarth Construction (2025) to hold that while the 2016 framework has statutory force, it casts reciprocal obligations.
The court noted in the present case no objection was raised under the SARFAESI Act and the petitioners did not invoke the framework before NPA classification. The court held that in such circumstances, the bank was entitled to proceed under SARFAESI.
The earlier unconditional injunction was modified. The court directed the petitioners to deposit Rs.11.38 crore within four weeks to continue interim protection, failing which the bank would be free to proceed in accordance with law.
For Petitioner: Senior Advocate Abhrajit Mitra with Advocates Aritra Basu, Adv. Miss. Sonia Sharma
For Respondent: Advocates Deblina Lahiri, Debasish Sarkar, Mrinmoy Chatterjee