# In the matter of Pro Knits vs. The Board of Directors of Canara Bank and Ors.

> SC judgment dated 2024-08-01. Citation: TCN-2024-SC-00047. This case involves a batch of appeals by Micro, Small, and Medium Enterprises (MSMEs) challenging a…

- **Court:** SC
- **Order date:** 1 Aug 2024
- **Citation:** TCN-2024-SC-00047
- **Category:** IBC
- **Source page:** https://caseease.in/cases/ibc/supreme-court-of-india/pro-knits-vs-the-board-of-directors-of-canara-bank-and-ors-3594c641

## Summary

### Background

This case involves a batch of appeals by Micro, Small, and Medium Enterprises (MSMEs) challenging a common order passed by the High Court of Judicature at Bombay. The High Court dismissed writ petitions, holding that Banks/Non-Banking Financial Companies (NBFCs) are not obliged to adopt the restructuring process as contemplated in a notification issued by the Ministry of Micro, Small and Medium Enterprises without an application from the MSMEs. The appellants argue that the respondent banks could not have classified their loan accounts 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.

## Facts

Several appeals were filed by MSMEs challenging a common order of the High Court of Judicature at Bombay. The High Court had dismissed writ petitions, stating that banks and NBFCs were not obligated to adopt a restructuring process for MSMEs without an application from the MSMEs themselves. The MSMEs argued that banks could not classify their loan accounts as NPAs without following the procedure outlined in the Notification dated 29th May, 2015, issued by the Ministry of MSME. This notification provides a framework for the revival and rehabilitation of MSMEs. The appellants contended that banks were required to identify incipient stress in their accounts before classifying them as NPAs. The banks, on the other hand, argued that the SARFAESI Act overrides the provisions

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## Issues and analysis

### Issue 1: Whether the Instructions/Directions issued by the Central Government under Section 9 of the MSMED …

**Ratio:** The Instructions/Directions issued by the Central Government under Section 9 of the MSMED

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**Reasoning:** Section 21 read with Section 35A of the Banking Regulation Act makes it clear that the

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**Interpretation:** This means that banks must adhere to the guidelines and instructions issued by

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**Application:** The court applied this principle to the case, stating that the banks were

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## Parties

- **Judges:** BELA M. T…; R. MAHA…
- **Appellants:** M/S. PRO…
- **Respondents:** THE BOARD OF…
- **Other parties:** Over Tu…

## Timeline

- **2024-01-11 — High Court…**: The High Court of Judicature at Bombay passed a common order dismissing writ petitions…
- **2015-05-29 — MSME Notifi…**: The Ministry of Micro, Small and Medium Enterprises issued a notification regarding the…

## Legal provisions

- [Insolvency and Bankruptcy Code, 2016, Section 2(zd) — Application](https://caseease.in/legal-provisions/insolvency-and-bankruptcy-code-2016/section-2)

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