Kerala HC: MSME Must Voluntarily Seek Rehabilitation Before Financial Stress Escalates

By CA Sandeep Kanoi Corporate Law Judiciary August 26, 2026

TaxGuru Citation: 2026 taxguru.in 11460
Case Name: Sree Matha Cosmetic Industries Vs Board of Directors (Kerala High Court)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Courts: All High Courts, Kerala High Court

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Sree Matha Cosmetic Industries Vs Board of Directors (Kerala High Court)

Summary: The Kerala High Court dismissed a writ appeal challenging the dismissal of a writ petition concerning classification of an M.S.E. cash credit account as NPA and subsequent proceedings under the SARFAESI Act. The appellant had availed an M.S.E. cash credit facility from UCO Bank, Kollam Branch, and the account was classified as NPA on 31.07.2024. The appellant contended that the Bank had failed to comply with the Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises notified on 29.05.2015, including identification of incipient stress and constitution of a committee for a corrective action plan. The Court, however, noted that while the Framework casts an obligation on the Bank to identify incipient stress, the enterprise is also required to voluntarily initiate proceedings where it apprehends failure of business or inability to pay debts and before accumulated losses equal half or more of its entire net worth. The appellant had neither approached the Bank with a rehabilitation package nor replied to the notice under Section 13(2) of the SARFAESI Act, and there was nothing on record showing that an application for rehabilitation had been filed. The Court also took note of pending proceedings before the Debts Recovery Tribunal, including S.A. No.762/2025 and an application under Section 17 of the Act, as well as a pending Review Petition. Relying upon M/s. Pro Knits, Shri Shri Swami Samarth Construction & Finance Solution and Irine Agro Spices (M/s.), the Court found no reason to interfere with the learned Single Judge’s order dated 05.03.2026. The Writ Appeal was dismissed.