Authority: National Company Law Appellate Tribunal, Chennai (Justice N. Seshasayee, Member (Judicial) and Jatindranath Swain, Member (Technical))

Order Date: 07.10.2026

Case Overview

This appeal (Company Appeal (AT) (CH) (Ins) No. 291/2026) was filed by GV Krishna Reddy, Suspended Director of Kallam Textiles Ltd., against Union Bank of India and another respondent. The appeal challenges insolvency proceedings initiated against the company. The appellant's case primarily relies on the applicability of the ratio from the Supreme Court's judgment in Pro Knits v. Board of Directors of Canara Bank [(2024) 10 SCC 292], which deals with the Framework for Revival and Rehabilitation of Micro, Small and Medium Enterprises (MSMEs).

The respondent bank, represented by senior counsel, argued that the Central Government's notification S.O. (E) 1432 (Framework for Revival and Rehabilitation of MSMEs) is intended to operate before a loan is classified as a Non-Performing Asset (NPA). The notification requires banks to identify incipient stress by creating three sub-categories under Special Mention Accounts (SMA): SMA-0 (principal/interest payment not overdue for more than 30 days but showing signs of stress), SMA-1 (overdue 31-60 days), and SMA-2 (overdue 61-90 days). MSMEs can also voluntarily initiate proceedings if they apprehend business failure before accumulated losses equal half or more of net worth.

The bank emphasized that the Supreme Court in Pro Knits and subsequently in Shri Shri Swami Samarth Construction and Finance Solution and Another Vs Board of Directors of NKGSB Co-op. Bank Ltd. and others (2025 SCC OnLine SC 1566) underscored that while banks must follow the Framework, it is equally incumbent on MSMEs to be vigilant and produce authenticated documents to prove their eligibility for the Framework's benefits. The Court cautioned against enterprises misusing the process by raising the MSME plea at a belated stage after enforcement actions are complete or challenged unsuccessfully.

In this specific case, the lender classified the loan to Kallam Textiles as NPA on 29.06.2023, but the corporate debtor registered as an MSME only on 01.08.2025—over two years later. After the Section 7 insolvency petition was instituted on 29.12.2025, the bank granted repeated opportunities for settlement, all of which failed. The appellant's current proposal involves a repayment plan spanning 13-14 years. Additionally, the RBI circular dated 17.03.2026 indicates that the MSME Framework notification applies only to loans up to ₹25 crores, whereas the exposure in this case exceeds ₹200 crores.

Final Outcome

The NCLAT adjourned the appeal and listed it for final hearing on 19.11.2026 at 12 pm. The bench noted that the solitary point of the appellant's case—the applicability of the Pro Knits ratio—has been captured in their previous order dated 30.09.2026.

Topics: MSME Framework, Insolvency Appeal, NPA Classification