M/S PRO KNITS versus THE BOARD OF DIRECTORS OF CANARA BANK & ORS.
[2024] 8 S.C.R. 140, Supreme Court of India, 2024
Outcome: Appeal(s) allowed (Granted)
Segment: Issues
[2024] 8 S.C.R. 140 : 2024 INSC 565
M/s Pro Knits
v.
The Board of Directors of Canara Bank & Ors.
(Civil Appeal No. 8332 of 2024)
01 August 2024
[Bela M. Trivedi* and R. Mahadevan, JJ.]
Issue for Consideration
Whether the Notification dated 29.05.2015 issued by the Central 
Government in exercise of the powers conferred under Section 
9 of the Micro, Small and Medium Enterprises Development Act, 
2006, containing Instructions for the “Framework for Revival and 
Rehabilitation of Micro, Small and Medium Enterprises” as revised 
from time to time, is mandatory or directory. 
Headnotes†
Micro, Small and Medium Enterprises Development Act, 2006 – 
ss.9, 10 – The Securitisation and Reconstruction of Financial 
Assets and Enforcement of Security Interest Act, 2002 – 
Banking Regulation Act, 1949 – ss.21, 35A – Loan accounts 
of the appellants-MSMEs were classified as Non-Performing 
Assets (NPA) by the respondents-Banks/Non-Banking Financial 
Companies (NBFCs) without following the procedure laid down 
in the Instructions for Framework for Revival and Rehabilitation 
of MSMEs issued vide Notification dated 29.05.2015 to provide 
a simpler and faster mechanism to address the stress in 
the accounts of MSMEs and to facilitate the promotion and 
development of MSMEs – Challenged by appellants – Writ 
petitions dismissed by High Court holding that the Banks/
NBFCs were not obliged to adopt the restructuring process 
contemplated in the aforesaid Notification on its own without 
there
being any application by the MSMEs – Correctness:
Held: Not correct – Instructions for the “Framework for Revival 
and Rehabilitation of MSMEs” as notified vide Notification dated 
29.05.2015 in exercise of the powers conferred u/s.9 of the MSMED 
Act, as revised by the RBI Notification dated 17.03.2016 and the 
Reserve Bank of India (Lending to Micro, Small and Medium 
Enterprises Sector) Directions, 2016, issued by RBI in exercise of 
the powers conferred by ss.21 and 35(A) of the Banking Regulation 
* Author
[2024] 8 S.C.R. 
141
M/s Pro Knits v. The Board of Directors of Canara Bank & Ors. 
Act, having statutory force, are mandatory in nature and binding 
on all Scheduled Commercial Banks, licensed to operate in India 
by RBI – Under the “Framework for Revival and Rehabilitation of 
MSMEs”, the banks or creditors are required to identify the incipient 
stress in the account of the MSMEs, before their accounts turn into 
non-performing assets, by creating three sub-categories under the 
“Special Mention Account” Category – Further, it is also incumbent 
on the part of the concerned MSME to produce authenticated and 
verifiable doucments/material for substantiating its claim of being 
MSME, before its account is classified as NPA – If that is not done, 
and once the account is classified as NPA, the banks-secured 
creditors would be entitled to take the recourse to Chapter III of 
the SARFAESI Act for the enforcement of the security interest – 
Impugned order set aside. [Paras 13, 16, 19]
The Securitisation and Reconstruction of Financial Assets 
and Enforcement of Security Interest Act, 2002 – Chapter III; 
ss.35, 13 – Enforcement of security interest created in favour 
of secured creditor – Process of initiation:
Held: Security interest created in favour of any Bank or secured 
creditor may be enforced by such creditor in accordance with the 
provisions contained in Chapter-III of the SARFAESI Act – As 
per s.35, the provisions of the SARFAESI Act have the effect,
notwithstanding anything inconsistent therewith contained in any 
other law for the time being in force or any instrument having effect 
by virtue of any such law – However, the process of enforcement 
of security interest as contained in Chapter III could be initiated 
only when the borrower makes any default in repayment of secured 
debt or any instalment thereof, and his account in respect of such 
debt is classified by the secured creditor as non-performing asset, 
in view of Section 13(2) of the said Act. [Para 14]
Banking Regulation Act, 1949 – ss.21, 35A – Directions issued 
under, mandatory:
Held: ss.21 and 35A empower the RBI to frame the policy and give 
directions to the banking companies in relation to the advances 
to be followed – Such directions supplement the provisions of 
the Banking Regulation Act and have statutory force and are 
mandatory. [Para 13]
Micro, Small and Medium Enterprises Development Act, 
2006 – Securitisation and Reconstruction of Financial Assets
142
[2024] 8 S.C.R.
Digital Supreme Court Reports
and Enforcement of Security Interest Act, 2002 – MSMEs 
obligated to substantiate their claim of being MSME and to 
show their eligibility to get the benefit of the Framework for 
Revival and Rehabilitation of MSMEs issued vide Notification 
dtd. 29.05.2015:
Held: It is mandatory or obligatory on the part of the Banks to follow 
the Instructions/Directions issued by the Central Government and 
the RBI with regard to the Framework for Revival and Rehabilitation 
of MSMEs – Thus, it is equally incumbent on the part of the 
concerned MSMEs to be vigilant enough to follow the process 
laid down under the said Framework, and bring to the notice of 
the concerned Banks, by producing authenticated and verifiable 
documents/material to show its eligibility to get the benefit of the 
said Framework. [Para 17]
List of Acts
Micro, Small and Medium Enterprises Development Act, 2006; 
The Securitisation and Reconstruction of Financial Assets and 
Enforcement of Security Interest Act, 2002; Banking Regulation 
Act, 1949.
List of Keywords
Micro, Small and Medium Enterprises; MSMEs; Framework for 
Revival, Rehabilitation of MSMEs; Promotion and development 
of MSMEs; Instructions/Directions/Guidelines issued by RBI; 
Guidelines/instructions pertaining to MSMEs; Loan accounts; 
Non-Performing Assets (NPA); Banks and Non-Banking Financial 
Companies (NBFCs); Restructuring process; Mandatory instructions; 
Mandatory; Directory; Incipient
stress; Secured creditors; Security 
interest; Enforcement of security interest; Reserve Bank of India 
(RBI); Defaulters-Borrowers; RBI Notification; Banking companies.
Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal No.8332 of 2024
From the Judgment and Order dated 11.01.2024 of the High Court of 
Judicature at Bombay in WPL No.20100 of 2023 
With
Civil Appeal Nos. 8333, 8334, 8335, 8336 and 8337 of 2024
[2024] 8 S.C.R. 
143
M/s Pro Knits v. The Board of Directors of Canara Bank & Ors. 
Appearances for Parties
Nikhil Goel, Sr. Adv., Nachiketa Vajpayee, Ms. Divyangna Malik, 
Sriram P., Mathews J. Nedumpara, Ms. Usha Nandini V., Ms. Maria 
Nedumpara, Ms. Hemali Kurne, Ms. Rohini Amin, Shameem Fayiz, 
Advs. for the Appellant.
Dinkar Singh, Deepak Goel, Ms. Alka Goyal, Ms. Rubi Kumari, 
Ms. Harshita Maheshwari, Rajesh Kumar Gautam, Anant Gautam, 
Dinesh Sharma, Ms. Shivani Sagar, R.P. Daida, Ms. Kavitoli G 
Yeptho, Kushagra Nilesh Sahay, Ajay Choudhary, Tikshta Modi, 
Sonia Munjal, Anshuman Gupta, Prashant Alai, Kunal Mimani, Advs. 
for the Respondents.
Judgment / Order of the Supreme Court
Judgment
Bela M. Trivedi, J.
1.	
Leave granted.
2.	
The Appellants in this batch of Appeals, who claim themselves to 
be the Micro, Small and Medium Enterprises (MSMEs) registered 
under the Micro, Small and Medium Enterprises Development Act, 
2006 (hereinafter referred to as the “MSMED Act”), have challenged 
the impugned common order dated 11.01.2024 passed by the High 
Court of Judicature at Bombay in Writ Petition (L) No. 20100 of 2023 
and Others, whereby the High Court has dismissed the said Writ 
Petitions by holding that the Banks/ Non-Banking Financial Companies 
(NBFCs) are not obliged to adopt the restructuring process as 
contemplated in the Notification dated 29th May, 2015 issued by the 
Ministry of Micro, Small and Medium Enterprises, on its own without 
there being any
application by the Petitioners/ MSMEs. The High Court 
without expressing any opinion on the merits or the factual aspects 
of the writ petitions granted leave to the Appellants -Writ Petitioners 
to agitate the other issues by adopting alternative remedies as may 
be available to them under the law. 
3.	
The learned Counsels for the parties in the instant Appeals have 
also restricted their submissions only to the said issue decided by 
the High Court, without addressing other issues on the facts and 
merits involved in the writ petitions.
144
[2024] 8 S.C.R.
Digital Supreme Court Reports
4.	
The Appellants who were the Writ Petitioners before the High Court 
had basically challenged the actions of the Respondents Banks/ 
NBFCs taken by them against the appellants under the provisions 
contained in The Securitisation and Reconstruction of Financial 
Assets and Enforcement of Security Interest Act, 2002 (hereinafter 
referred to as the “SARFAESI Act”). The bone of contention raised 
by the learned Counsel Mr. Mathews Nedumpara appearing for the 
Appellants in all the Appeals is that the respondents-Banks could 
not have classified the loan accounts of the appellants who were 
the MSMEs, as Non-Performing Assets (NPA), without following the 
procedure laid down in the Instructions for Framework for Revival 
and Rehabilitation of MSMEs issued vide the Notification dated 
29th May, 2015 by the Ministry of MSME, in exercise of the powers 
conferred under Section 9 of the MSMED Act. According to him, it 
was incumbent on the part of the Respondents Banks/ NBFCs to 
identify incipient stress in the account by creating three sub categories 
as mentioned in the said Notification and to explore various options 
to resolve the stress in the account as contemplated in the said 
Notification. He further submitted that the said Notification and the 
subsequent Instructions/Directions issued by the Central Government 
and the Reserve Bank of India are for the purpose of facilitating the 
promotion and development and
enhancing the competitiveness of 
MSMEs and therefore it was mandatory on the part of the respondents 
to follow the same. Non-observance of the mandatory Instructions 
contained in the said Notification has rendered all the subsequent 
actions taken by the respondents under the SARFAESI Act, illegal 
and void ab initio. 
5.	
However, the learned Counsels appearing for the Respondents 
Banks/ NBFCs contended that the High Court has rightly not 
considered the process or procedure laid down in the Notification 
dated 29.05.2015 as mandatory, in as much as the provisions 
contained in the SARFAESI Act override the provisions of the other 
Acts including the MSME Act as per Section 35 of the said Act. In 
the instant cases, the concerned appellants had not applied to the 
Respondents Banks to avail the benefit of the said Notification at the 
relevant time and the Respondents Banks have already initiated and 
in certain cases concluded the proceedings undertaken under the 
SARFAESI Act after following the due process of law. They further 
submitted that the process of restructuring as contemplated in the
[2024] 8 S.C.R. 
145
M/s Pro Knits v. The Board of Directors of Canara Bank & Ors. 
said Notification and classification of borrower’s account as NPA are 
two independent subjects and therefore it can not be interpreted that 
unless the procedure under the said Notification for restructuring is 
adopted, the appellants accounts could not have been classified as 
NPAs. According to them, the Instructions issued under Section 9 of 
the MSMED Act are mere directory and not mandatory nor do they 
have any statutory force.
6.	
Before delving into the issue involved in the instant appeals as to 
whether the Notification dated 29.05.2015 issued by the Central 
Government in exercise of the powers conferred under Section 9 
of the MSMED Act, as revised from time to time, is mandatory or 
directory, let us have a glance over the relevant provisions of the 
MSMED Act. It may be noted that the very object and purpose 
of the MSMED Act is to provide for facilitating the promotion and 
development and enhancing the competitiveness of Micro, Small 
and Medium Enterprises and for matters connected therewith 
and incidental thereto. Section 9 thereof empowers the Central 
Government to take measures for the purpose of facilitating such 
promotion and development and enhancing competitiveness of 
MSMEs by specifying the programmes, guidelines or instructions 
as it may deem fit, by issuing Notifications. 
7.	
Section 10 of the MSMED Act states that the policies and practices 
in respect of
the credit to the Micro, Small and Medium Enterprises 
shall be progressive and such as may be specified in the guidelines 
or instructions issued by the Reserve Bank, from time to time, to 
ensure timely and smooth flow of credit to such enterprises, minimize 
the incidence of sickness among and enhance the competitiveness 
of such enterprises.
8.	
At this juncture, it would also be apt to refer to the relevant provisions 
contained in the Banking Regulation Act, 1949. Section 21 of the 
said Act empowers the Reserve Bank of India to control advances by 
Banking companies. The said section inter alia provides that where 
the Reserve Bank is satisfied that it is necessary or expedient in the 
public interest or in the interest of the depositors or banking policy 
so to do, it may determine the policy in relation to advances to be 
followed by banking companies generally or by any company in 
particular and when the policy has been so determined, all banking 
companies or the banking company concerned, as the case may be,
146
[2024] 8 S.C.R.
Digital Supreme Court Reports
shall be bound to follow the policy as so determined. Sub-section (3) 
of Section 21 states that every banking company shall be bound to 
comply with any directions given to it under the said Section. Further, 
Section 35A of the said Banking Regulation Act reads as under: -
“35A. Power of the Reserve Bank to give directions. —
(1)	 Where the Reserve Bank is satisfied that-
(a)	 in the public interest; or
(aa) in the interest of banking policy; or
(b)	 to prevent the affairs of any banking company being 
conducted in a manner detrimental to the interests 
of the depositors or in a manner prejudicial to the 
interests of the banking company; or
(c) to secure the proper management of any banking 
company generally,
it is necessary to issue directions to banking companies 
generally or to any banking company in particular, it may, 
from time to time, issue such directions as it deems fit, 
and the banking companies or the banking company, as 
the case may be, shall be bound to comply with such 
directions.
(2) The Reserve Bank may, on representation made to it 
or on its own motion, modify or cancel any direction issued 
under sub-section (1), and in so modifying or cancelling 
any direction may impose such conditions as it thinks 
fit, subject to which the modification or cancellation shall 
have effect.”
9.	
Thus, Section 21 read with Section 35A makes it clear that the 
directions issued by the Reserve Bank of India to the
Banking 
companies are binding on them and they are bound to comply with 
such directions.
10.	 As stated earlier, the whole controversy in the instant appeals 
centers around the Notification dated 29.05.2015 issued by the 
Central Government in exercise of the powers conferred by Section 
9 of the MSMED Act. The said Notification contains the Instructions 
for the “Framework for Revival and Rehabilitation of MSMEs”. The
[2024] 8 S.C.R. 
147
M/s Pro Knits v. The Board of Directors of Canara Bank & Ors. 
relevant part thereof with regard to the identification of the incipient 
stress and the committees for stressed MSMEs being relevant are 
reproduced hereunder: -
“NOTIFICATION
S.O.(E). 1432 In exercise of the powers conferred in section 
9 of the Micro, Small and Medium Enterprises Development 
Act, 2006, the Central Government, for the purpose of 
facilitating the promotion and development of Micro, Small 
and Medium Enterprises, hereby notifies the instructions 
for the Framework for Revival and Rehabilitation of Micro, 
Small and Medium Enterprises (hereinafter referred to 
as the “Framework”), which shall come into force on the 
date of its publication in the official Gazette, namely the 
Framework for Revival and Rehabilitation of Micro, 
Small and Medium Enterprises.
1. Identification of incipient stress
(1)	 Identification by Banks or creditors - Before a loan 
account of a Micro, Small and Medium Enterprise 
turns into a Non-Performing Asset (NPA), banks or 
creditors are required to identify incipient stress in the 
account by creating three sub - categories under the 
Special Mention Account (SMA) category as given 
in the Table below:
 Special Mention 
Account
Sub-categories
Basis for
classification
(1)
(2)
SMA-0
Principal or interest payment 
not overdue for more than 30 
days but account showing 
signs of incipient stress
SMA-1
Principal or interest payment 
overdue between
31-60 days
SMA-2
Principal or interest payment 
overdue between 61-90 days
148
[2024] 8 S.C.R.
Digital Supreme Court Reports
(2)	 Identification by the Enterprise - Any Micro, Small 
or Medium Enterprise may voluntarily initiate 
proceedings under this Framework if enterprise 
reasonably apprehends failure or its business or its 
inability or likely inability to pay debts and before 
the accumulated losses of the enterprise equals to 
half or more of its entire net worth.
(3)	 The application for initiation of the proceedings under 
this Framework shall be verified by an affidavit of 
authorised person.
(4)	 When such a request is received by lender, the 
account should be processed as SMA-0 and the 
Committee under this Framework should be formed 
immediately.
2. Committees for Stressed Micro, Small and Medium 
Enterprises.
(1)	 Subject to any regulations prescribed by the Reserve 
Bank of India for this Framework, all banks shall 
constitute one or more Committees at such locations 
as may be considered necessary by the board 
of directors of such bank to provide reasonable 
access, to all eligible Micro, Small and Medium 
enterprises which have availed of credit facilities 
from such bank.
(2)	 Subject to inclusion in categories referred to in 
paragraph 1, stressed Micro, Small and Medium 
Enterprises shall have access to the Committee for 
stressed Micro, Small and Medium Enterprises for 
deciding on a corrective action plan and determining 
the terms thereof in accordance with regulations 
prescribed in this Framework
Provided that where the
Committee decides that recovery 
is to be made as part of the corrective action plan, the 
manner and method of recovery shall be in accordance 
with the existing policies approved by the board of directors 
of the bank which has extended credit facilities to the
[2024] 8 S.C.R. 
149
M/s Pro Knits v. The Board of Directors of Canara Bank & Ors. 
enterprise, subject to any regulations prescribed by the 
Reserve Bank of India.
3-16 ...….”
11.	 The RBI in order to make the said Framework contained in the 
Notification dated 29.05.2015 compatible with the existing regulatory 
guidelines on “Income Recognition, Asset Classification and 
provisioning pertaining to Advances” issued to the banks by the RBI, 
had made certain changes in the said Framework, in consultation 
with the Central Government and issued revised Framework along 
with the operating Instructions vide the Communication dated 17th 
March, 2016, addressed to all the Scheduled Commercial Banks. 
12.	 It is pertinent to note that in exercise of the powers conferred by 
Section 21 and 35A of the Banking Regulation Act, 1949, the Reserve 
Bank of India, after having being satisfied that it was necessary and 
expedient in the public interest to do so, had issued the Master 
Direction, called the “Reserve Bank of India [Lending to Micro, Small 
and Medium Enterprises (MSME) Sector] Directions, 2016,” vide the 
Notification dated 21st July, 2016. The said Directions have been 
made applicable to every Scheduled Commercial Bank excluding 
Regional Rural Banks (RRBs) licensed to operate in India by the 
Reserve Bank of India. Amongst the other Directions, the Direction 4 
contained in Chapter IV thereof, pertained to the common guidelines/
instructions for lending to MSME Sector.
While advising all the 
Scheduled Commercial Banks to follow the guidelines/ instructions 
pertaining to MSMEs, it was directed in the Direction 4.8 as under: -
“4.8 Framework for Revival and Rehabilitation of MSMEs.
The Ministry of Micro, Small and Medium Enterprises, 
Government of India, vide their Gazette Notification dated 
May 29, 2015 had notified a ‘Framework for Revival and 
Rehabilitation of Micro, Small and Medium Enterprises’ 
to provide a simpler and faster mechanism to address 
the stress in the accounts of MSMEs and to facilitate the 
promotion and development of MSMEs. The Reserve 
Bank was advised to issue necessary instructions to 
banks for effective implementation and monitoring of the 
said Framework. After carrying out certain changes in the 
captioned Framework in consultation with the Government
150
[2024] 8 S.C.R.
Digital Supreme Court Reports
of India, Ministry of MSME so as to make it compatible with 
the existing regulatory guidelines on ‘Income Recognition, 
Asset Classification and provisioning pertaining to 
Advances’ issued to banks by RBI, the guidelines on the 
captioned Framework along with operating instructions 
were issued to banks on March 17, 2016. The revival and 
rehabilitation of MSME units having loan limits up to Rs.25 
crore would be undertaken under this Framework. Banks 
were required to put in place their own Board approved 
policy to operationalize the Framework not later than June 
30, 2016. The revised Framework supersedes our earlier 
Guidelines on Rehabilitation of Sick Micro and Small 
Enterprises issued vide our circular RPCD. CO. MSME 
& NFS.BC.40/06.02.31/2012-2013 dated November 1, 
2012, except those relating to Reliefs and Concessions 
for Rehabilitation of Potentially Viable Units and One Time 
Settlement, mentioned in the said circular.
The salient features of the Framework are as under:
i)	
Before a loan account of an MSME turns into a Non-
Performing Asset (NPA), banks or creditors should 
identify incipient stress in the account by creating 
three sub-categories under the Special Mention 
Account (SMA) category as given in the Framework.
ii)	
Any MSME borrower may also voluntarily initiate 
proceedings under this Framework.
iii)	
Committee approach to be adopted for deciding 
corrective action plan.
iv)	
Time lines have
been fixed for taking various decisions 
under the Framework.” 
13.	 In view of the above, it is absolutely clear that the Instructions for 
the Framework for Revival and Rehabilitation of Micro, Small and 
Medium Enterprises as notified by the Central Government vide 
the Notification dated 29th May, 2015 in exercise of the powers 
conferred under Section 9 of the MSMED Act, as revised by the 
RBI Notification dated 17th March, 2016, and the Master Directions 
i.e. the Reserve Bank of India (Lending to Micro, Small and Medium 
Enterprises Sector) Directions, 2016, issued by the Reserve Bank of
[2024] 8 S.C.R. 
151
M/s Pro Knits v. The Board of Directors of Canara Bank & Ors. 
India in exercise of the powers conferred by Section 21 and 35(A) 
of the Banking Regulation Act, having statutory force, are binding 
to all Scheduled Commercial Banks, licensed to operate in India by 
the Reserve Bank of India, as stated in the said Directions. It cannot 
be gainsaid that the Banking Regulation Act 1949 basically seeks to 
regulate banking business and mandates a statutory comprehensive 
and formal structure of banking regulation and supervision in India. 
Section 21 and Section 35A of the said Act empower the Reserve 
Bank of India to frame the policy and give directions to the banking 
companies in relation to the advances to be followed by the banking 
companies. Such directions have got to be read as supplement to 
the provisions of the Banking Regulation Act and accordingly are 
required to be construed as having statutory force and mandatory.
14.	 As transpiring from the said Instructions/Directions, the entire exercise 
as contained in the “Framework for Revival and Rehabilitation of 
MSMEs” is required to be carried out by the banking companies 
before the accounts of MSMEs turn into Non-Performing Asset. It 
is true that the security interest created in favour of any Bank or 
secured creditor may be enforced by such creditor in accordance 
with the provisions contained in Chapter-III of the SARFAESI Act, 
and that as per Section 35 of the SARFAESI Act, the
provisions of 
the said Act have the effect, notwithstanding anything inconsistent 
therewith contained in any other law for the time being in force or 
any instrument having effect by virtue of any such law. However, 
pertinently the whole process of enforcement of security interest as 
contained in Chapter III of the SARFAESI Act, could be initiated only 
when the borrower makes any default in repayment of secured debt 
or any instalment thereof, and his account in respect of such debt is 
classified by the secured creditor as non-performing asset, in view 
of Section 13(2) of the said Act.
15.	 What is contemplated in the “Framework for Revival and Rehabilitation 
of MSMEs” contained in the Instructions/ Directions stated 
hereinabove, is required to be followed prior to the classification of 
the borrower’s account, (in the instant case MSMEs loan account), 
as Non-Performing Assets. The said Instructions contained in the 
Notification dated 29.05.2015 as part of measures taken for facilitating 
the promotion and development of MSMEs issued by the Central 
Government in exercise of powers conferred under Section 9 of the 
MSMED Act, followed by the Directions issued by the RBI in exercise
152
[2024] 8 S.C.R.
Digital Supreme Court Reports
of the powers conferred under Section 21 and 35A of the Banking 
Regulation Act, the Banking companies though may be ‘secured 
creditors’ as per the definition contained in Section 2 (zd) of the 
SARFAESI Act, are bound to follow the same, before classifying the 
loan account of MSME as NPA. 
16.	 We may hasten to add that under the “Framework for Revival and 
Rehabilitation of MSMEs”, the banks or creditors are required to 
identify the incipient stress in the account of the Micro, Small and 
Medium Enterprises, before their accounts turn into non-performing 
assets, by creating three sub-categories under the “Special Mention 
Account” Category, however, while creating such sub-categories, 
the Banks must have some authenticated and verifiable material 
with them as produced by the concerned MSME to show that loan 
account is of a Micro, Small and Medium Enterprise, classified and 
registered as such under the MSMED Act. The said Framework also 
enables the Micro, Small or Medium Enterprise to voluntarily initiate 
the proceedings under the said Framework, by filing an application 
along with the affidavit of an authorized person. Therefore, the stage 
of identification of incipient stress in the loan account of MSMEs and 
categorization under the Special Mention Account category, before 
the loan account of MSME turns into NPA is a very crucial stage, and 
therefore it would be incumbent on the part of the concerned MSME
also to produce authenticated and verifiable doucments/material for 
substantiating its claim of being MSME, before its account is classified 
as NPA. If that is not done, and once the account is classified as 
NPA, the banks i.e. secured creditors would be entitled to take the 
recourse to Chapter III of the SARFAESI Act for the enforcement of 
the security interest. 
17.	 It is also pertinent to note that sufficient safeguards have been 
provided under the said Chapter for safeguarding the interest of the 
Defaulters-Borrowers for giving them opportunities to discharge their 
debt. However, if at the stage of classification of the loan account 
of the borrower as NPA, the borrower does not bring to the notice 
of the concerned bank/creditor that it is a Micro, Small or Medium 
Enterprise under the MSMED Act and if such an Enterprise allows 
the entire process for enforcement of security interest under the 
SARFAESI Act to be over, or it having challenged such action of the 
concerned bank/creditor in the court of law/tribunal and having failed, 
such an Enterprise could not be permitted to misuse the process
[2024] 8 S.C.R. 
153
M/s Pro Knits v. The Board of Directors of Canara Bank & Ors. 
of law for thwarting the actions taken under the SARFAESI Act by 
raising the plea of being an MSME at a belated stage. Suffice it to 
say, when it is mandatory or obligatory on the part of the Banks to 
follow the Instructions/Directions issued by the Central Government 
and the Reserve Bank of India with regard to the Framework for 
Revival and Rehabilitation of MSMEs, it would be equally incumbent 
on the part of the concerned MSMEs to be vigilant enough to follow 
the process laid down under the said Framework, and bring to the 
notice of the concerned Banks, by producing authenticated and 
verifiable documents/material to show its eligibility to get the benefit 
of the said Framework.
18.	 In that view of the matter, we are of the opinion that the findings 
recorded by the High Court in the impugned order that the Banks 
are not obliged to adopt the restructuring process on its own or that 
the Framework contained in the Notification dated 29.05.2015, as 
revised from time to time could not be said to be mandatory in nature, 
are highly erroneous and cannot be countenanced. The Instructions/
Directions issued by the Central Government under Section 9 of 
the MSMED Act and by the RBI under Section 21 and Section 35A 
have statutory force and are binding to all the Banking companies.
19.	 The impugned order therefore is set aside. Since, it has been 
submitted by the Learned Counsels for
the Respondents-banks 
that in all the cases, the proceedings under the SARFAESI Act 
have already been concluded and the possession of the respective 
premises of the petitioners has already been taken over, we do not 
propose to remand the matters to the High Court for deciding the Writ 
Petitions afresh. However, since the High Court has not dealt with 
the other issues based on the factual aspects of the writ petitions, 
we clarify that it would be open for the appellants to take recourse 
to any remedy as may be legally available to them for agitating the 
issues not decided by the High Court in the impugned order. All the 
appeals stand allowed to the aforesaid extent.
Result of the case: Appeals allowed.
†Headnotes prepared by: Divya Pandey