Mathews J. Nedumpara
29th July, 2024
98205 35428.
Reason for millions of MSMEs to rejoice
1. MSMEs are the backbone of the economy in terms of employment and wealth creation, it has as great a role as that of large corporations. It has been the legislative policy since independence to bring in mechanisms to promote MSMEs and to prevent them from falling sick. The MSMED Act and the notification dated 29.5.2015 is one of the most significant steps in that direction.
2. However, the entire legislative policy was put to jeopardy by the judgment of the High Court of Bombay dated 11.1.2024 holding that the benefit of the scheme can be made available only to those MSMEs who have applied for the resolution of stress. RBI’s own studies establish that financial illiteracy among MSMEs is as high as 94 percent. That is precisely why a duty is cast upon the banks and financial institutions to identify incipient stress and extend the benefit of the notification to MSMEs under stress.
3.MSMEs are not aware of the scheme and did not therefore make any application at all. The banks and financial institutions invoked recovery steps without extending to them the benefit of the notification and as a result thereof thousands of MSMEs who had offered their very residential homes were thrown out of their homes, their business units being taken possession of by their Banks and sold for a song. Thousands of MSMEs were denied justice.
4. The judgment of the Bombay High Court was contrary to the plain letter of the notification which castes a duty upon banks and financial institutions to identify incipient stress. It was not in dispute that where an MSME is in default, banks are mandatorily required to constitute a committee and make a reference for resolution of stress. The judgment of the Bombay High Court was challenged before the Supreme Court. However, the bench headed by Justice Khanna, dismissed the petition without offering any reason. Thereafter a review petition was filed before the Bombay High Court and the same was dismissed. From the said order a leave to appeal was preferred in the Supreme Court and much to the relief of MSMEs, the bench headed by Justice Suryakant by order dated 8.7.2024 remanded the matter back to the Bombay High Court for fresh consideration.
5. The said review petition was listed before the bench of Justice Colabawala and Justice Sathaye and their lordships were gracious enough to admit the review petition and order notice to the banks and financial institutions and the Union government. With today’s order, the judgment of the Bombay High Court which denied justice to the MSMEs has been put to question.
6. Relying on the said judgment of the Bombay high Court (A. Navinchandra), High Courts and DRTs have denied relief to MSMEs. With today’s order, wherever a question of MSME has been raised, the same has to be considered afresh, giving effect to the legislative intent and the letter of the notification. It is a matter of great gratification that today’s victory has not been an easy one. This victory would not have been possible if not for the grit, faith and perseverance of Mrs. Manisha Mehta, Promoter of Perfect Infraengineers Ltd.
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