There is no res judicata, estoppel, waiver or acquiescence against law, particularly one which casts a public duty on a statutory authority. Read the Argument notes by Nedumpara.

BEFORE THE HON’BLE HIGH COURT OF KERALA AT ERNAKULAM

W.P. (C) No. 42050 of 2025

M/s. Sark Spice Products Pvt. Ltd. & Anr. …Petitioners

V/s

Reserve Bank of India & Ors. …Respondents

ARGUMENT NOTES FILED BY THE COUNSEL FOR THE PETITIONERS

I. The case of the Petitioners

i. The Petitioner is an MSME (Small enterprise) registered under the MSMED Act. The notification dated 29.5.2015 mandates the Banks and financial institutions to constitute a committee and make an application to it at least when the bank notices a default in the account of an MSME, namely, where the principal and interest have not been serviced for a period of more than 31 days. Paragraph 5(4)(iii) of the notification prohibits any form of recovery except in the manner contemplated under the notification. The notification is statutory, and the duty is cast on the banks to identify incipient stress, constitute a committee and make an effort towards the resolution of stress. The Supreme Court in Paragraph 13 reaffirmed that banks are duty-bound to follow the procedure mandated by the notification by setting aside the judgment of the Bombay High Court in A. Navinchandra Steels Pvt. Ltd. & Anr v. Union of India & Ors. dated 11.1.2024.

ii. The Bank invoked SARFAESI and even took possession of the residential home while the application for injunction was part heard, in breach of the notification. The notification does not provide for any penal provision for non-compliance thereof. Therefore, the necessary civil consequence for breach of the notification is that whatever has been done in the purported exercise under the powers under the Act is null and void. A writ of certiorari, therefore, will lie as a matter of right, so too, prohibition. Since the MSMED Act and the notification does not provide for a forum for the enforcement of the provisions of the Act, the jurisdiction of the Civil Court is not ousted. An MSME aggrieved therefore can institute a suit or invoke Article 226 or both, namely, for reliefs such as certiorari, prohibition etc. under Article 226 and compensation in the suit.

II. The case of the Bank

i. The Bank does not dispute that the Petitioner is an MSME or is not entitled to the benefit of the notification. The only contention raised is that the Petitioner had invoked the jurisdiction of the DRT under Section 17 of the SARFAESI Act, so too, of the DRAT under Section 18 and of the Madras High Court for certain relief against the DRAT. The further case of the Respondent bank is that the Petitioner invoked the jurisdiction of this Hon’ble Court under Article 226 on several occasions and at every such instance obtained interim orders against forceful recovery on the condition of certain payments being remitted to the Bank. In one of the writ petitions, later in order, the Petitioner even filed an undertaking to deposit an amount of Rs. 2 crores but failed to make the payment of Rs. 2 crores. The bank contends that the Petitioner, therefore, is barred by the doctrine of res judicata and the petition is therefore not maintainable. Further, that the SA filed by the Petitioner in the DRT is still pending and therefore, the Petitioner shall be relegated to the alternative remedy (correct terminology being forum).

III. Further contentions of the Petitioner:

i. The definite plea of the Petitioner is that the DRT has no jurisdiction to adjudicate the dispute arising out of the inter se rights and obligations created by the MSMED Act and the notifications and therefore, the DRT under the SARFAESI Act has no jurisdiction whatsoever. The SA was instituted without noticing this fundamental question of law concerning jurisdiction. The fact that the Petitioner invoked the jurisdiction of the DRT and has not yet withdrawn the SA (though, only too willing to) is of no consequence because if the Parliament has not conferred jurisdiction on the DRT to adjudicate the inter se rights and obligations under the MSMED Act, even the Petitioner, the Respondent and the DRT all together cannot confer such jurisdiction. Nonetheless, the Petitioner wishes to reaffirm that he is willing to withdraw the SA in the DRT, nay, is taking steps to that effect.

ii. The only other contention raised by the Bank is that the Bank has given opportunity to the Petitioner post NPA/ Notice u/s. 13(2) for restructuring of the account/OTS. This contention does not even deserve a reply in law inasmuch as the constitution of a committee is mandatory the moment incipient stress is identified in the amount or at the least when a default is made. The committee is duty-bound to conduct an enquiry ex parte in case an MSME fails to respond. It is beyond preposterous for the bank, which did not identify incipient stress, classified the account as NPA, proceeded to invoke SARFAESI and failed to constitute a committee as mandated by law, to then state that it offered some opportunity for settlement or restructuring. The committee contemplated under the Act is a statutory judicial tribunal and not the Bank manager or a subordinate of the bank.

iii. When a statute mandates that the bank shall identify incipient stress, constitute a committee and shall not proceed to recover except in the manner permitted by the Committee in terms of Paragraph 5(4)(iii), anything done to the contrary is ultra vires the statute and rendered void ab initio. It is not merely a violation of the doctrine that if something is to be done in a particular manner, then it has to be done in that manner and not in any other. The Petitioner is referring to the above principle only because the bank made a most preposterous statement that its offer for restructuring post-NPA and 13(2) fulfilled the requirement of the statute.

iv. SARFAESI action is a Nullity:

The action taken under the SARFAESI Act is a Nullity because the Bank did not identify incipient stress, much less create an SMA account or constitute a committee or make a reference to it when it noticed a default and instead proceeded to classify the account as NPA and invoke SARFAESI/recovery action without the permission of the committee as contemplated under Paragraph 5(4)(iii). The said action of the Bank is in gross violation of the statutory provision. Sublato fundamento cadit opus – when the foundation is removed, the structure falls. It is a fundamental principle that whatever a statutory authority does in violation of an express statutory provision is one rendered void ab initio, still born, one which never ever existed in the eyes of law and is liable to be so declared and liable to be quashed and set aside.

Judgments – Kiran Singh & Ors. v. Chaman Paswan & Ors. (1954) 1 SCC 710, A.R. Anutlay v. R.S. Nayak & Anr (1988) 2 SCC 602 (Para 36, 37, 38, 39, 41, 42, 48, 53, 62) Ridge v. Baldwin (AC 40 – House of Lords), Mafatlal Industries Ltd. & Ors v. Union of India & Ors. (1997) 5 SCC 536.

v. Certiorari is a matter of right:

Where the action of a statutory authority is ultra vires or in violation of the principles of natural justice, etc., a writ of certiorari will lie as a matter of right. A party is not liable to be relegated to the ordinary remedy (forum) of a civil suit.

Judgments – A.K. Kraipak & Ors. v. UoI & Ors. (1969) 2 SCC 262. AV Venkateswaran v. Ramchand Sobhraj Wadhwani & Ors. AIR 1961 SC 1506, Antulay (1988) 2 SCC 602, Mafatlal (1997) 5 SCC 536, Whirlpool Corporation v. Registrar of Trademarks, Mumbai & Ors. (1998) 8 SCC 1, State of U.P v. Mohammed Nooh AIR 1958 SC 86. Smt. Ujjam Bai vs State Of Uttar Pradesh 1962 AIR 1621.

vi. The further contention of the Respondent Bank was that in Paragraph 17 of Pro knits judgement, the Supreme Court had observed that there is a duty on the part of the borrower to be vigilant and if the borrower has not made available to the bank authenticated documents in support of its claim as an MSME and by such default it has allowed the action under the SARFAESI Act to be taken, then it shall not be allowed to “thwart” such actions of the Bank by a belated claim. This contention required an objective and rational consideration. In the first place, the reference to Paragraph 17 as above by the Bank is nothing but picking out a word or sentence here or there forgetting the fundamental principle and building an argument upon it in violation of the fundamental principle that a judgment has to be read as a whole and that a word here or there shall not be picked up in isolation from the judgements. “The ratio decidendi of a judgment has to be found out only on reading the entire judgment. The ratio of the judgment is what is set out in the judgment itself. The answer to the question would necessarily have to be read in the context of what is set out in the judgment and not in isolation. In case of any doubt as regards any observations, reasons and principles, the other part of the judgment has to be looked into. By reading a line here and there from the judgment, one cannot find out the entire ratio decidendi of the judgment (Islamic Academy of Education v. State of Karnataka (2003 (6) SCC 697, Pg. 712, Para 2)).

vii. The expression used in paragraph 15 and 17 that a borrower shall give authenticated documents to the bank was made only in the context of the argument raised by the Respondent bank that the bank won’t be able to constitute a committee before the classification of the account unless it is aware that the borrower concerned is an MSME. In Pro knits, the facts of the individual cases were not taken up or discussed. The said observation therefore, was wholly unwarranted. All that the Court meant by the said observations was that the bank ought to know that the borrower is an MSME for it to extend the benefit (para 17), and therefore, the borrower has a duty to bring to the notice of the bank that it is an MSME. The said observation has no relevance to the facts of the case.

viii. MSMED Act is a preventive, remedial, welfare legislation, and it has to be construed liberally, purposively and read as a whole. The principle for interpretation is ‘ut res magis valeat quam pereat’ and ‘ex visceribus actus’.

Judgments – Delhi Gymkhana Club Limited (2015) 1 SCC 142, National Insurance Co. Ltd. v. Swaran singh and ors., (2004) 3 SCC 297, U.P. Drugs & pharmaceuticals co. Ltd. v. Ramanuj yadav and ors. (2003) 8 SCC 334, Pathumma & ors. v. State of Kerala & ors. (1978) 2 SCC 1

ix. No judgment can be read as a statute or in substitution of a statute, and that if there is a conflict between statute and a judgement, the statute will prevail.

“The judgments rendered by a court are not to be read as statutes. Observations of courts are neither to be read as Euclid’s theorems nor provisions of the statute and that too taken out of their context. The observations must be read in the context in which they appear to have been stated. To interpret words, phrases and provisions of a statute, it may become necessary for Judges to embark into lengthy discussions but the discussion is meant to explain and not to define. Judges interpret statutes, they do not interpret judgments.” (Union of India v. Amrit Lal Manchanda (2004) 3 SCC 75, Para 15).

Judgments – Union of India v Dhanwanti Devi ((1996) 6 SCC 44, Paragraph 9, 10), Arasmeta Captive Power Co. Pvt. Ltd & An vs Lafarge India P. Ltd ((2013) 15 SCC 414, Paragraph 31-39, 41), Oriental Insurance v. Smt raj Kumari (AIR 2008 SC 403, Paragraph 12, 13).

x. The practice to be followed where a judgment is contrary to a statute or in conflict with the well settled principles of law or where the judgments of the Supreme Court are in conflict with each other:

a. If the judgments of the Supreme Court are in conflict with each other and if it arises for consideration in the Supreme Court, the practice in vogue is to refer the matter to a larger bench. What is considered relevant is the strength of the bench though when it comes to precedent, what matters is the principle and not the strength of the bench (Paragraph 44 of Antulay)

“44. The principle in England that the size of the Bench does not matter, is clearly brought out in the decision of Evershed M.R. in the case of Morelle v. Wakeling (supra). The law laid down by this Court is somewhat different. There is a hierarchy within the Court itself here, where larger Benches overrule smaller Benches. See the observations of this Court in Mattulal v. Radhe Lal, [1975] 1 SCR 127, Union of India & Anr. v. K.S. Subramanian, [1977] 1 SCR 87 at page 92 and State of U.P. v. Ram Chandra Trivedi, [1977] 1 SCR 462 at 473. This is the practice followed by this Court and now it is a crystallised rule of law. See in this connection, as mentioned hereinbefore, the observations of the State of Orissa v. Titagarh Paper Mills (supra) and also Union of India and others v. Godfrey Philips India Ltd., [1985] Suppl 3 SCR 123 at 145.”

b. Where judgments of the of the Supreme Court are in conflict with each other or is contrary to express statutory provisions and thereby rendered per incuriam or without noticing express statutory provisions and thereby rendered sub silentio, the High Court or subordinate courts before which such per incuriam or sub silentio judgments are cited cannot refer the matter to Supreme Court. It has to itself decide. The Court therefore has to follow the fundamental principle that no judgment can be treated as statute or in substitution of the statute and that the Court is not bound to follow a judgment which is rendered per incuriam or sub silentio, and between conflicting judgments the Court will follow what it considers to be the correct exposition of law. The Court can treat a judgment which is contrary to statute as nullity. (A.R. Antulay (1988) 2 SCC 602, Para 36, 37, 38, 39, 41, 42, 48, 62). In the instant case there is no need to invoke the concept that a judgment which is per incuriam and sub silentio no Court is bound to follow because the Supreme Court in Pro knits has only held in unmistakable terms that the notification dated 29.5.2015 is statutory and binding and that the bank ought to extend the benefit of the notification on its own. The only mischief is that certain observations in the judgment, particularly, in Paragraph 17 is in conflict with the rest of the judgment. The job of the Court is to discern the ratio of the judgment reading the judgment in its entirety and not to cull out words or phrases from it and treat it as though a statute, gospel truth. To repeat, all that Pro Knits says is that to cast the burden on the bank to constitute a committee, the bank ought to be aware of the borrower concerned is an MSME and therefore a corresponding obligation on the borrower to furnish authenticated and verified proof. In the instant case, the loan itself was an MSME loan, sanctioned after all requisite documents such as the MSME registration certificate were submitted before the bank as demanded by the bank. Therefore, Pro Knits, even if it is read literally, treating the inconsistencies therein as gospel truth, does not offer any difficulty to the Petitioner.

Judgements- CIT v. Sun Engineering Works (P) Ltd., (1992) 4 SCC 363, Union of India v. Azadi Bachao Andolan, (2004) 10 SCC 1,

A judgment is not a self-contained code- Bharat Petroleum Corp. Ltd. v. N.R. Vairamani, (2004) 8 SCC 579,

Avoid cherry-picking lines from judgments- State of Orissa v. Sudhansu Sekhar Misra, AIR 1968 SC 647,

Statutes override judicial interpretation in case of conflict- Goodyear India Ltd. v. State of Haryana, (1990) 2 SCC 71,

Primacy of statutory text/Court cannot rewrite law- State of Gujarat v. Utility Users’ Welfare Assn., (2018) 6 SCC 21,

Judgments interpret statutes, not replace them- LIC of India v. D.J. Bahadur, (1981) 1 SCC 315,

xi. There is no estoppel against law- The previous judgments constitute no res judicata.

The doctrine of Res judicata is a technical principle. It permits even an unjust, oppressive, erroneous decision to prevail, untruth over truth, primarily for the reason that there shall be finality to litigation. The doctrine res judicata facit ex albo nigrum, ex nigro album, ex curvo rectum, ex recto curvum – judicial decision can what was white, black; what was black, white; what was crooked straight; what was straight, crooked – therefore has to be construed very strictly. The burden is on the person who pleads estoppel/res judicata to establish it. For the doctrine of res judicata to apply, at least the following four conditions ought to be satisfied.

a) the court or authority ought to have jurisdiction

b) the controversy should have been decided finally on its merits, either actually or constructively

c) the principles of natural justice ought to have been observed

d) the decision ought not be in violation of express statutory provision or fundamental principles of law

Judgment – A.R. Anutlay v. R.S. Nayak & Anr (1988) 2 SCC 602), Paragraph 41 to 51.

xii. In the instant case, the classification of the account of the Petitioner is in violation of the notification, which prohibited the banks from doing so and which mandated it to extend the benefit of nursing and care. Therefore, the SARFAESI proceedings is one rendered void ab initio, still born, one which never existed in the eyes of law. The SARFAESI action, which was a nullity, remains so in perpetuity. No court or tribunal, even the Supreme Court, by an erroneous decision can render valid such an action which is void ab initio. This is because there is no estoppel against law. The judgement of this Court in WP (C) No. 30885 of 2024 (Exhibit P15) was contrary to the statute and therefore, a nullity.

xiii. Actus curiae neminem gravabit and ex debito justitiae

No litigant shall be prejudiced by the mistake of a court. The courts are duty bound to undo injustice arising out of its own mistake that is what he maxim ex debito justitiae as expounded by the Supreme Court in A R Antualy contemplates (Para 49, 57, 75, 76, 79, 82). The error on the part of the court in the judgment dated 22.11.2024 passed in WP (C) No. 30885 of 2024 is a pure error of law and not of a question of fact. The court committed the error because it misunderstood the judgment in Pro Knit and P.K. Krishnakumar and read the same in substitution of the statute/notification dated 29.5.2015. Such an error is liable to be rectified or challenged in direct proceedings, namely, appeal, or in collateral proceedings, as in the instant writ petition and suit.

• (Paragraph 81 of Antulay)

“It has been said long time ago that “Actus Curiae Neminem Gravabit”-an act of the Court shall prejudice no man. This maxim is founded upon justice and good sense and affords a safe and certain guide for the administration of the law.”

• (Paragraph 83 of Antulay)

“The basic fundamentals of the administration of justice are simple. No man should suffer because of the mistake of the Court. No man should suffer a wrong by technical procedure of irregularities. Rules or procedures are the hand-maids of justice and not the mistress of the justice. Ex debite justitiae, we must do justice to him. If a man has been wronged so long as it lies within the human machinery of administration of justice that wrong must be remedied.”

• (Para 6 of Kiran Singh & Ors. v. Chaman Paswan & Ors. (1954) 1 SCC 710)

“It is a fundamental principle well established that a decree passed by a Court without jurisdiction is a nullity, and that its invalidity could be set up whenever and wherever it is sought to be enforced or relied upon, even at the stage of execution and even in collateral proceedings. A defect of jurisdiction, whether it is pecuniary or territorial, or whether it is in respect of the subject-matter of the action, strikes at the very authority of the Court to pass any decree, and such a defect cannot be cured even by consent of parties.”