MSME Registration Alone Does Not Halt SARFAESI Recovery: Karnataka HC

Additive 3D Vs ICICI Bank Limited (Karnataka High Court)

MSME Registration Is Not a Pause Button for Loan Recovery: Borrower Must Prove Viability and Cooperate with Revival Process

The Karnataka High Court has held that the protection available to a stressed MSME under the revival and rehabilitation framework cannot be invoked merely by producing an MSME registration certificate. A borrower seeking revival must actively cooperate with the bank, furnish the financial particulars called for and place a concrete and commercially workable revival proposal before it. The framework is intended to revive a viable enterprise and not to keep recovery proceedings indefinitely suspended where the unit has stopped functioning and the borrower has failed to supply the information necessary to examine its viability.

M/s Additive 3D was registered as a micro-enterprise and held an UDYAM registration dated 30 June 2021. It had obtained an overdraft facility of ₹530 lakh from ICICI Bank. The borrower claimed that it had submitted a representation dated 10 July 2025 requesting the bank to constitute a Stressed MSME Committee under the Government of India Notification dated 29 May 2015 and consider an appropriate corrective action plan for revival or restructuring.

According to the petitioner, once such a request had been made, the bank was bound to first exhaust the MSME revival mechanism before initiating coercive recovery. However, the bank classified the account as an NPA on 15 July 2025 and issued a demand notice under Section 13(2) of the SARFAESI Act on 15 September 2025, claiming an outstanding amount of ₹5,44,25,820.93 as on 2 September 2025. After considering and rejecting the borrower’s objections, the bank issued a symbolic possession notice under Section 13(4) on 6 January 2026.