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Kerala High Court Rejects Writ Petition for Rejection of Loan Application

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Case: Anvardeen. K v. Union of India.

Coram: Justice P.V. Asha

On 24th November 2020, The Kerala High Court involving a single bench judge of the Honourable Smt. Justice P.V. Asha heard the case of Anvardeen.K v. Union of India.


The proprietor of a Micro, Small and Medium Enterprise (MSME) running tissue culture lab and nursery, has filed this Writ Petition aggrieved by the rejection of its request for a loan under scheme, by the respondent Bank. The Central Government floated a Credit Guarantee Scheme for Subordinate Debt (CGSSD) to provide guaranteed coverage for CGSSD to provide sub-debt support for the restructuring of MSMEs. 90% guarantee coverage would come from scheme/trust and the remaining 10% from the concerned promoters. The scheme aims to provide personal loans through banks to the promoters of stressed MSMEs for infusion as equity/quasi-equity in the business eligible for restructuring, as per RBI guidelines for the restructuring of stressed MSMEs. The credit product for which guarantee is provided under the scheme is named CGSSD. For the scheme, a credit guarantee fund trust is set up by the Government of India and SIDBI for Micro and small enterprises to guarantee credit facility extended by the member lending institutions to the eligible borrowers. Distressed assets fund is defined as a fund of Rs.4, 000/- crore created by the Government of India for providing guarantee coverage to the loans given/extended to the promoters of the eligible MSME under the scheme. In a letter the petitioner had requested the Manager of the IOB branch at Palakkad – the 4th respondent, to grant a sum of Rs.15 lakhs including the financial credit guarantee when the firm continued to operate. It was stated in the letter that the company was unable to function after the lockdown and that stock culture was decayed and contaminated. It was stated that funds are required for further operation of the company.


The petitioner argued that the stand adopted by the bank is unjust and illegal because the request of the petitioner was for granting the benefit of the scheme evolved by the Government of India. They argued that they are entitled to get the benefit of and the bank cannot stand in the way of that based on unreasonable contentions. Pointing out the definition of the eligible borrower, stressed MSME unit, etc. It was argued that there is nothing in the scheme that stands in the way of the petitioner from enjoying the benefit of the scheme. They also pointed out that the benefit is declared by the Government of India and that cannot be curtailed by any other agencies.


The respondents argued that the purpose behind this CGSSD scheme is to assist with needy accounts that are eligible for restructuring as per RBI guidelines. According to them, there is no stress in the account of the petitioner. They stated that the over dues in the loan account is only because of the non-routing of sale transactions through the account with the respondent bank. The audited financial and business account would show that the petitioner is making a consistent profit with adequate cash flows and the liquidity and solvency ratios are at acceptable levels. They also stated that the request of the petitioner for restructuring the loans and to grant him a fresh loan to the tune of Rs.15 lakhs cannot be considered. In case a proposal is received from the petitioner for restructuring, the respondent bank would take an appropriate decision in the matter.


The court observed that to be eligible for the benefit of the scheme, the applicant has to comply with the provisions of the scheme. Also observed opponents’ claims about the applicant’s eligibility on the one hand and the bank’s eligibility on the other. The interpretation of the terms alone is not sufficient to determine the eligibility of a bank. The court also observed in clauses 3 and 5 (v, xix) of the Credit Guarantee Scheme for Subordinate Debt (CGSSD).


The court dismissed the Writ petition. The court said that the petitioner cannot have any right to insist on any direction to the bank to allow his request or to grant the benefit of the scheme to him when the competent authorities have found that he is not eligible for the same. Hence the petitioner cannot be granted any relief in this Writ Petition.

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