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FISME welcomes NCLT’s decision to not let Guarantors’ assets be liquidated under IBC

Updated: Mar 08, 2018 09:48:50am
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FISME welcomes NCLT’s decision to not let Guarantors’ assets be liquidated under IBC

New Delhi, Mar 8 (KNN) The National Company Law Appellate Tribunal (NCLAT) has ruled that personal assets of guarantors, who in most cases are promoters, cannot be liquidated in companies facing corporate insolvency resolution process under Insolvency and Bankruptcy Code (IBC).

The Tribunal, in a landmark judgement, said, “the ‘Moratorium’ will not only be applicable to the property of the ‘Corporate Debtor’ but also on the ‘Personal Guarantor’ under IBC.”

The move comes as a big relief for the personal assets of promoters.

Welcoming the decision, V.K. Agarwal, Chairman (Policy Committee) and Past -President of industry body FISME said the Appellate body has righted the wrong by declining permission to proceed against the guarantor pending period of moratorium.

“In a particular case, while the corporate debtor had filed for bankruptcy and was protected from recovery for the statutory period of moratorium, the personal guarantor was not given benefit of the moratorium and the lender straight away proceeded against the guarantor under SARAFESI Act and therefore the action of the lender was in breach of the spirit of IBC if not of its words,” he added.

Earlier, the National Company Law Board’s (NCLT’s) Mumbai bench held that the promoter cannot escape the liquidation of personal assets by simply filing for bankruptcy.

NCLT-Mumbai had ordered lenders to go after the personal properties of Schweitzer Systemtek India in July 2017, though the company brought voluntary bankruptcy proceedings.

The NCLAT said, “From the IBC provisions, it is clear that resolution plan, if approved by the committee of 1 requirements as referred to in sub-section (2) of Section 30 and once approved by the adjudicating authority, is not only binding on the corporate debtor, but also on its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan, including the personal guarantor.”

“In view of the provisions, we hold that the ‘moratorium’ (on sale of assets) will not only be applicable to the property of the corporate debtor but also on the personal guarantor,” the NCLAT ruled in an appeal filed by SBI against V Ramakrishnan, a director in the Tiruchi-based Veesons Energy Systems and who is the personal guarantor for the company.

SBI invoked its right under SARFAESI (Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) Act, 2002 against the personal guarantor in August 2015 for recovery of Rs 61.1 crore.

The notice was challenged by the corporate debtor (Veesons Energy) in the Madras high court, which was dismissed with costs in November 2016. Following this, SBI issued a possession notice and took symbolic possession of the secured assets. The personal guarantor filed an application in NCLT-Chennai for stay of proceedings under the SARFAESI Act, 2002, including the auction notice dated July 12, 2017. The tribunal restrained SBI from proceeding against the personal guarantor till the moratorium period is over.

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