The Calcutta High Court has ruled that banks must first decide an MSME borrower’s restructuring request before continuing recovery under the SARFAESI Act.
The court said that if a Bank starts recovery process under SARFAESI and MSME borrower raises a restructuring claim while replying to a SARFAESI demand notice, the bank cannot continue recovery without following the RBI’s MSME revival framework.
Justice Krishna Rao said this duty of the bank is mandatory. He explained that when a borrower claims the benefit of the MSME framework with proper reasons and an affidavit, the bank must examine the claim. Until then, further action under SARFAESI must be kept on hold.
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The case involved Bizitza Retail Ventures Private Limited, a registered MSME. The company had taken cash credit facilities of ₹4.95 crore from Central Bank of India.
On June 24, 2025, the bank informed Bizitza that its account had been classified as SMA-2 due to non-payment of interest. The bank warned that the account would become a non-performing asset the next day if dues were not cleared.
On June 26, the bank issued a demand notice under the SARFAESI Act, seeking recovery of ₹51.26 lakh.
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In August, Bizitza replied to the notice. The company said the bank had violated the Reserve Bank of India’s Framework for Revival and Rehabilitation of MSMEs. It also relied on the Supreme Court’s ruling in Pro Knits v. Canara Bank, which held that banks must follow the MSME revival framework before classifying an MSME account as an NPA.
Despite this reply, the bank withdrew the June notice and issued a fresh demand notice on September 6 for ₹5.22 crore. The bank argued that the borrower had never made a formal request for restructuring or a Corrective Action Plan.
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The bank also relied on a later Supreme Court judgment in Shri Shri Swami Samarth Construction. It claimed it had no clear knowledge of the borrower’s MSME status and that no affidavit-backed restructuring claim had been filed.
The High Court rejected this argument. Justice Rao said that even though the borrower did not use the exact words “restructuring request,” it had clearly pointed out the violation of the MSME framework in its reply.
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The court also noted that the bank had admitted Bizitza was an MSME. It observed that the bank raised the defence of “no restructuring request” only after the Supreme Court clarified the law in July 2025.
Based on this, the High Court directed the borrower to file a formal restructuring claim with an affidavit within one week. The bank was ordered to examine the claim under the MSME framework.
This is an important Court order for banks and bank employees are requested to take note of it and start recovery process as per RBI guidelines.
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