Summary: Ray Projects Pvt. Ltd. took Canara Bank to court over a loan dispute, claiming the bank didn't follow MSME guidelines. The court dismissed their petition, siding with the bank.
Ray Projects Pvt. Ltd., a small manufacturing company, had been working with Canara Bank for a long time. However, their loan account was labeled as a problem account multiple times. Each time, they managed to fix the issues, but the bank eventually decided to take action to recover its money under a law that allows banks to do so.
Ray Projects argued that the bank ignored the MSME Notification from May 2015. This rule requires banks to spot problems in small business accounts early and offer a plan to fix them before calling them problem accounts. The company claimed the bank skipped this step.
"The bank has intentionally ignored the MSME Notification," argued Mr. Nedumpara, the lawyer for Ray Projects.
The court, led by Judges R.I. Chagla and Farhan P. Dubash, found that Ray Projects didn't provide the necessary documents to prove they were a small business before their account was labeled as a problem. The bank was allowed to proceed under the law.
"The small business must be careful enough to follow the process," the judges noted, referencing the Supreme Court's decision in a similar case.
The court mentioned previous cases, including those of M/s. Pro Knits and Perfect Infraengineers, which stressed the need for small businesses to clearly tell banks about their status. Ray Projects failed to do this on time.
The court dismissed Ray Projects' petition, noting that their lawyer, Mr. Nedumpara, had brought up similar issues in other cases. The bank's actions under the law were considered legitimate.
"The honesty of the current Petitioners is questionable," the court concluded.
This case highlights the importance for small businesses to actively communicate with banks and provide necessary paperwork early. Waiting too long can limit their options and lead to unfavorable outcomes.
