Can anyone imagine of a greater injustice than the refusal of the courts and tribunals to extend the benefits of the notification dated 29.5.2015 of the Central Government under Section 9 of the MSMED Act, to the MSMEs?

Can anyone imagine of a greater injustice than the refusal of the courts and tribunals to extend the benefits of the notification dated 29.5.2015 of the Central Government under Section 9 of the MSMED Act, to the MSMEs?

Mathews J Nedumpara
26th November 23

The notification was issued in the larger interest of the nation, the Banks and Financial institutions, millions of small entrepreneurs and traders who make the economy of the country sail smoothly, so too millions of workers employed by the MSMEs.

MSMEs contribute to the nation building in no mean way. They manufacture goods and provide for services, nay create the assets and wealth of the nation. The Parliament enacted MSMED Act acknowledging this indisputable truth.

The RBI was mandated to enforce the Act and the notification. However, the RBI neglected and failed in its duty as a regulator to enforce the notification. It allowed the Banks and NBFC’s to flout the mandate of the law with impunity.

It was the duty of the courts and Tribunals to give effect to the MSMED Act and the notification when MSMEs knocked its door for reliefs. The courts and Tribunals, however, have been far from enthusiastic in extending the benefits to the MSMEs. On the contrary, the courts and Tribunals have mostly shut its doors to them, is an undeniable truth.

It is difficult to fathom why courts and tribunals which are duty bound to give effect to the ordain of the Parliament, shy away from doing its duty, namely granting reliefs to the MSMEs. The ‘courts are more executive than even the executive’, said Lord Wolf. I refrain from elaborating.

The notification does not in any way deprive the rights of the Banks and NBFCs to recover the amounts due to them. It only mandates that an opportunity be afforded to an MSME facing incipient stress to come out of the crisis. All that the notification provides for is the nursing and care of an MSME falling sick. And if the efforts for resolution of stress fails and the unit is not revivable, then the notification permits even coercive recovery proceedings.

The scheme is in the best interest of all concerned and, in particular, of the banks and financial institutions in as much as a robust MSME sector is sine qua non for a robust banking sector. If MSMEs are allowed to die, Banks and financial institutions will certainly be adversely affected, so too the economy of the country.

One must remember that it is the small borrower who services his account with promptitude and it is the big corporations, the Anil Ambanis, Bhushans, Nirav Modis and Mallyas who plunder the banks, the public money.

Before parting with, I must add that there is a ray of hope. The Bench of Justice OKA of the Supreme Court has admitted and even granted a stay in an SLP instituted in challenge of the judgment of a DB of the Bombay High Court declining protection from recovery of arrears of rent by SIMENS, an NBFC, who had leased machinery to my client, which in reality was a loan in disguise. The Bombay High Court declined protection under the MSMED Act on the premise that the protection under the notification does not extend to lease while acceding by implication that had it been undoubtedly a credit facility, then the benefit under the MSMED notification couldn’t have been denied.

The Division Bench of Justice Colabawala of the BOMBAY High Court had heard a bunch of petitions seeking protection under the notification in July /August and adjourned it for pronouncement of orders on 9th of August 23. However, the judgment is yet to be pronounced.

A Division Bench of the Kerala High Court has also heard an appeal arising from a judgement of a single judge which had unjustly denied the reliefs under the MSMED Act and the notification.

A Division Bench of the Madras High Court has granted protection to a client of mine (MSME) from being dispossessed in execution of an order of the Magistrate under Section 14 of the SARFAESI ACT.

A single Bench of the Karnataka HC was pleased to even order restoration of possession of an MSME forcefully dispossessed of her residential home.

I will be too miserly to truth if I don’t acknowledge that the DBs of Justices Nitin Jamdar and Colabawala have also granted protection to many an MSMEs represented by me. However, the undeniable truth remains to be that the Courts and Tribunals by and large have failed to do give effect mandate of the law and do justice to MSMEs, a weaker section of the society.

I repeat, it is the duty of the Courts and Tribunals to enforce what the Parliament has ordained, no matter right or wrong in their perception.

There was a query to me in the social media, namely, Are not the High Courts bound by the orders of DB of Justice OKA of the Supreme Court granting protection to Satiate Engineering, an MSME? As a proposition of law, the High Courts are not bound by the interim orders of the Supreme Court. But as a matter of practice, when the Supreme Court has admitted a case involving the very same legal issues and has granted stay as in the Satiate Engineering’s case, the High Courts would follow suit. 🙏