MSME Protection Under SARFAESI Proceedings: Kerala High Court Rejects Belated Plea in Irine Agro Spices Case

Background and Context

The Kerala High Court's Division Bench recently delivered a significant ruling in Irine Agro Spices Vs Board of Directors of Axis Bank Ltd., addressing a critical question that arises frequently in banking litigation: can an enterprise invoke its MSME status at a late stage of SARFAESI enforcement proceedings to bring those proceedings to a halt? The Court's answer was an unambiguous no, and the reasoning behind that conclusion carries substantial implications for both lenders and MSME borrowers across the country.

The case arose from a writ petition that had been dismissed by a Single Judge, who directed the appellants to approach the Debts Recovery Tribunal under Section 17 of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the SARFAESI Act). Dissatisfied with that outcome, the appellants moved the Division Bench by way of a writ appeal, setting the stage for the present ruling.

Material Facts of the Case

The first appellant — Irine Agro Spices — claimed to be a Micro, Small and Medium Enterprise engaged in the manufacture of food products. The enterprise had availed credit facilities from multiple respondent banks. When repayment obligations were not met, the banks classified the loan accounts as Non-Performing Assets (NPAs) and initiated enforcement action under the SARFAESI Act.

Axis Bank issued a demand notice under Section 13(2) of the SARFAESI Act on 25th June, 2025, followed by symbolic possession notices dated 12th September, 2025 and 19th September, 2025. The second appellant was separately served a demand notice under Section 13(2) in respect of a home loan account.

The credit facilities extended to the first appellant had grown substantially over time:

  • An initial Working Capital Credit Facility of ₹6.50 Crores was sanctioned on 04.05.2022 by way of takeover from another bank.
  • This was enhanced to ₹10.00 Crores vide Sanction Letter dated 14.06.2023.
  • An additional Export Packing Credit Foreign Currency Scheme (EPCFS) facility of ₹15.00 Crores was sanctioned on 30.03.2024, taking aggregate facilities to ₹25.00 Crores.
  • An Ad hoc Working Capital Facility of ₹1.00 Crore was further sanctioned on 24.03.2025.

As on the date of NPA classification — 22.06.2025 — the aggregate principal outstanding across both loan accounts stood at ₹26,43,19,320.37, with accrued interest of ₹11,25,042.07, bringing the total to ₹26,54,44,362.44.

The Division Bench was called upon to address the following core questions:

  1. Whether the banks were legally entitled to proceed under the SARFAESI Act despite the appellant's assertion of MSME status.
  2. Whether the writ petition was maintainable given the availability of a statutory remedy before the DRT under Section 17 of the SARFAESI Act.
  3. Whether the appellants could validly challenge the Reserve Bank of India notification dated 17.03.2016 concerning the Framework for Revival and Rehabilitation of MSMEs.
  4. Whether the Supreme Court decisions relied upon by the Single Judge were rendered per incuriam or sub silentio and hence non-binding.

Statutory Framework: Key Provisions

The Court examined the interplay among several legislative instruments:

  • Articles 141 and 226 of the Constitution of India
  • Section 13(2), Section 13(3A), Section 14, and Section 17 of the SARFAESI Act, 2002
  • Sections 7, 8, and 9 of the Micro, Small and Medium Enterprises Development Act, 2006 (MSMED Act)
  • Clause 3 and Clause 4 of the Framework for Revival and Rehabilitation of MSMEs
  • RBI notification dated 17.03.2016
  • Central Government notification dated 29.05.2015 (SO No. 1432E dated 29.03.2015)

Submissions of the Appellants

The appellants built their case around the following contentions: