MP HC Directs Axis Bank to Act under CGTMSE Scheme; Orders Police Inquiry into Coercive Recovery

In a significant judicial intervention reinforcing statutory safeguards for small businesses, the Madhya Pradesh High Court, Indore Bench, has issued an order directing Axis Bank to address an MSME's request for the invocation of the Credit Guarantee Fund Trust for Micro and Small Enterprises (CGTMSE) scheme and simultaneously issued orders to police authorities to investigate allegations of illegal, coercive recovery practices.

Justice Pranay Verma, presiding over the matter in Writ Petition No. 42644 of 2025 , delivered the ruling on the 10.11.2025.

The order emphasizes that banks performing public functions under Central schemes like CGTMSE are subject to public law accountability, and their failure to invoke the guarantee despite receiving the required premium can constitute a breach of public duty. It also reiterates that police cannot remain passive when faced with complaints disclosing cognizable offences arising from coercive recovery.

The petitioner was a registered MSME engaged in beverage distribution. The firm had availed a Rs. 1.99 crore business loan from Axis Bank (cited as Respondents No. 6 & 7). Crucially, this loan was granted under the CGTMSE scheme, for which the petitioner asserts the necessary premium had been duly paid. The enterprise faced massive losses and subsequently defaulted on the loan, primarily due to unforeseen external economic factors, including a drastic market collapse following international supply disruptions and a consumer boycott of cola products.

The core of the petitioner’s grievance was the Bank's alleged refusal to act as the "only competent authority" to invoke and process the Credit Guarantee under the CGTMSE/MSME Scheme. Instead of proceeding under the scheme, which is intended to shield genuine entrepreneurs from total collapse, the petitioner alleged that the Bank resorted to "illegal methods for recovery". This included the use of third-party recovery agents who reportedly engaged in intimidation and threats against the proprietor.

M/s Aaratrika Traders had submitted two key applications to the Bank dated 05.08.2025 and 27.05.2025. These applications were purportedly representations to have the Bank initiate the CGTMSE process. 

The High Court decisively addressed this lapse, directing the Bank (Respondents No. 6 & 7) to:

- Adhere to the Applications: Specifically advert to and consider the applications dated 05.08.2025 and 27.05.2025.

- Afford Opportunity of Hearing: Take appropriate action on the applications in accordance with law, but only after affording due opportunity of hearing to the petitioner.

- Timeline for Compliance: Complete this decision-making process within a stringent period of 30 days from the date of receipt of the certified copy of the Court's order.

- Mandate to Police: Preliminary Enquiry under BNSS and as per the Lalita Kumari case.

The second significant relief sought by the petitioner was the registration of an FIR based on a complaint dated 07.08.2025, against the alleged unlawful practices of the bank's agents. The Court noted with concern that the Police authorities were "sitting tight over the matter" and had failed to take a decision on the complaint.

Court invoked the established legal precedent set by the Apex Court in the case of Lalita Kumari Vs. State of U.P. and others, (2014) 2 SCC 1, which mandates the registration of an FIR if a cognizable offence is made out.

The Court further referenced the Bhartiya Nagrik Suraksha Sanhita, 2023 to guide the police action.

The police authorities were issued the following clear, two directions:

1. Conduct a preliminary enquiry, which "would mean to go through the complaint and find out whether any cognizable offence is made out or not". If a cognizable offence is made out, the FIR shall be registered.

2. If no cognizable offence is made out, the petitioner should be informed of the same.

The said decisive action must be taken and communicated within a period of 60 days from the date of receipt of the certified copy of the order.

The said ruling serves as a vital check on aggressive recovery tactics, ensuring that the police do not remain inactive when presented with credible complaints of offences arising from debt collection.

Appearance: Adv. Yamak Sharma, for the petitioner, Sunil Kumar Jain, Senior Advocate for the respondents, Kushagra Jain, Dy. Govt. Advocate for the respondents/State, Romesh Dave, Deputy Solicitor General for respondent No.1.

Case Title: M/S Aaratrika Traders v. Union of India

Bench: Justice Pranay Verma

Date of Order: 10.11.2025