Isabella Mariam

The High Court of Judicature at Bombay Division Bench of Justice M.S. Karnik and Justice N.R. Borkar dismissed a writ petition challenging the classification of a borrower's account as a Non-Performing Asset (NPA) and the subsequent recovery proceedings initiated under various banking laws. The court concluded that the petition lacked merit and statutory standing, noting that the petitioner was no longer legally authorized to act on behalf of the corporate debtor undergoing liquidation under the Insolvency and Bankruptcy Code (IBC). The court dismissed the plea, terming it as "only an attempt to stall the recovery proceedings."

In its directive, the court stated that the petitioner had already availed of alternate statutory remedies and that the proper legal channels for challenging the bank's recovery actions were available under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (SARFAESI) and the IBC. Accordingly, the High Court declined to entertain the writ petition and refused interim relief. The decision came in light of an imminent auction scheduled for 21 June 2025 concerning the secured asset. The judgment concluded that the petitioner lacked statutory authority post-liquidation and dismissed the petition with no order as to costs.

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The petitioner, a Director of Ritu Automobiles Pvt. Ltd., moved the Bombay High Court seeking urgent relief in light of an e-auction of immovable property scheduled for 21 June 2025. The petition sought several declarations and directives, notably requesting the enforcement of the MSMED Notification dated 29 May 2015 and challenging recovery proceedings initiated under the SARFAESI Act, RDB Act, IBC, NI Act, and other laws.

The petitioner contended that the Central Government and the Reserve Bank of India failed in their statutory duty to implement the MSMED notification, which mandates that banks constitute a committee for stressed MSMEs before classifying an account as an NPA. It was argued that the respondents did not adhere to the corrective action procedures set out in the notification, including resolution plans and committee-led restructuring efforts.

The petition also sought to declare Sections 13 of the SARFAESI Act, 19 of the RDB Act, and various sections of the IBC as unconstitutional, asserting that these laws are skewed in favor of financial institutions and deny borrowers an equal right to seek remedies. Further, the petitioner contested the bank’s move to declare the company as a willful defaulter and sought compensation for alleged breach of trust and tortious actions by the bank.

Respondents included Reserve Bank of India, HDFC Bank, Union of India, and several others. Multiple senior advocates appeared on behalf of the respondents, submitting affidavits in opposition and asserting that the petitioner lacked standing to bring the action due to the ongoing liquidation of the company under IBC. The petitioner’s account had been classified as an NPA on 21 October 2019, followed by a demand notice issued under Section 13(2) of the SARFAESI Act on 16 January 2020.

The court noted that "the petitioner has no statutory authority to institute or pursue this Petition," referencing that the National Company Law Tribunal had already admitted the corporate debtor into the Corporate Insolvency Resolution Process (CIRP) and subsequently ordered liquidation. Citing Section 17 of the IBC, the court stated that "the powers of the board of directors, including the petitioner, stand suspended and the management of the company vests exclusively with the Insolvency Resolution Professional (IRP) and Liquidator."

It was further recorded that the "burden to initiate proceedings for relief under the MSME framework primarily rests upon the borrower." The court found no evidence that the petitioner had approached the bank for corrective action or stress resolution before the account was declared NPA.

Respondent-bank submitted that the classification of the NPA and recovery steps were taken strictly in accordance with applicable RBI norms. The court noted the decision in Pro Knits vs. Canara Bank, stating that "the MSME framework is not a substitute for statutory recovery mechanisms under SARFAESI or IBC." Moreover, the petitioner failed to establish that the bank acted in violation of its duties under the 2015 MSMED notification.

The RBI clarified that the 2016 Circular limited the restructuring framework to loan exposures up to Rs. 25 crores, and loans exceeding this amount would fall under the Corporate Debt Restructuring (CDR) and Joint Lenders’ Forum (JLF) mechanism. The court found that the petitioner’s dues exceeded Rs. 30 crores, rendering the 2015 notification inapplicable.

The court also recorded that the petitioner had approached the NCLT and later the NCLAT in related proceedings and that the present writ petition appeared to be a parallel attempt to delay recovery. It was noted that the petitioner had moved an amendment application on the same day as the hearing, which the court found to be a delaying tactic.

"We are satisfied that this petition and the application is only an attempt to stall the recovery proceedings," the bench recorded.

The court dismissed the writ petition, concluding that the petitioner lacked legal standing due to the liquidation order issued by the NCLT. "The petitioner has already availed of alternate statutory remedies and the petitioner has adequate remedies in law to challenge the action of the bank," the court stated.

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Refusing to entertain the application for interim relief or allow amendments, the bench held that "this petition is only an attempt on the part of the petitioner to stall the auction of the immovable properties." The petitioner's grievances were deemed subject to proceedings before competent tribunals.

In conclusion, the court noted that its observations were "prima facie" and would not bind the adjudicating authorities or tribunals where the matter was concurrently pending. "The writ petition is dismissed with no order as to costs," the judgment concluded.

Advocates Representing the Parties:

For the Petitioners: Mr. Mathews Nedumpara, Ms. Hemali Kurne, Ms. Maira Nedumpara, Ms. Shameen Fayiz, Mr. Akhilesh Satsang, Ms. Sweta i/b. Nedumpara & Nedumpara

For the Respondents: Mr. Y.R. Mishra, Mr. Upendra Lokegaonkar, Mr. Sachidanand T. Singh for UOI; Ms. P.H. Kantharia, Mr. Vikrant Parshurami for State R12; Ms. Bijal Gogri i/b. Mr. O.M. Gujar Law Chambers for Respondent No.6; Mr. Dhaval Patil i/b. K. Ashar & Co. for Respondent No.1; Mr. Kevic Setalwad, Senior Advocate, Mr. Narpat Singh, Ms. Malvika Sachin i/b. India Law LLP for Respondent No.4 HDFC; Mr. Amir Arsiwala for Res. No.13

Case Title: Manoj Lalwani v. Reserve Bank of India & Ors.

Neutral Citation: 2025: BHC-OS:9098-DB

Case Number: WPL 31676 of 2024

Bench: Justice M.S. Karnik and Justice N.R. Borkar