Skip to main content

Pledged assets can be auctioned by insolvency professionals: NCLT

A recent National Company Law Tribunal (NCLT) order has sent corporate lawyers and promoters intoatizzy. The NCLT´s Mumbai Bench has asked for the personal properties of promoters to be auctioned off even when the process of insolvency is pending before the insolvency professional.
The petition was filed by Schweitzer Systemtek India, invoking the Insolvency and Bankruptcy Code (IBC) with the NCLT, after it defaulted onaloan of Rs 4.5 crore given by Dhanlaxmi Bank.
The suit was initiated by the promoter himself against the asset reconstruction company (ARC) after Dhanlaxmi Bank sold the loan to Phoenix ARC.
The NCLT Mumbai Bench said the promoters cannot be granted any relaxation under the IBC and appointed an insolvency professional to go ahead with the auction of the property.
“This Code of 2016 has prescribed certain limitations, which are inbuilt and must not be over looked.
The ´moratorium´ indeed is an effective tool, sometimes being used by the corporate debtor to thwart or frustrate the recovery proceedings, as is the case here,” said the order of July 3. “Going by the strict interpretation of the relevant provisions, no fault can be found with the order of the NCLT, but the material question that remains lingering is whether the prayer could have been granted in the interest of justice and equity,” saidRSLoona, managing partner, Dhaval Vussonji Alliance.
If any viable restructuring is worked out, the creditor will recover his dues without enforcement of any security.
Else, the creditor will be entitled to stand outside liquidation proceedings and realise his dues by enforcement of all security, including collateral ones.
Another lawyer said the onus is now on the company to approach the NCLT tribunal and getastay against this order.
“This case will have farreaching impact on other similar cases being taken up by the NCLT Bench, which is set to hear 500 nonperforming asset cases in the years to come,” said a lawyer.
According to the IBC,acompany gets 270 days to resolve the debt in which an insolvency professional is appointed by the NCLT and the present board of directors is suspended.
After 270 days, if the debt is not resolved, the professional can sell the company´s assets to recover the loan.
But according to the NCLT´s order in Schweitzer Systemtek India suit, instead of waiting for the sixmonth waiting period, the insolvency professional can now go ahead and sell the promoter´s personal property, which was pledged with the banks.
The NCLT Bench, in its examination of the balance sheet of the company, found its assets were significantly insufficient even as the liability was approximately Rs 5.3 crore.
The Business Standard, New Delhi, 20th July 2017


Popular posts from this blog

RBI minutes show MPC members flagged upside risks to inflation

RBI minutes show MPC members flagged upside risks to inflation Concerns about economic growth and easing inflation prompted five of the six monetary policy committee (MPC) members to call for a cut in the repo rate, but most warned that prices could start accelerating, show the minutes of the panel’s last meeting, released on Wednesday. The comments reflected a tone of caution and flagged upside risks to inflation from farm loan waivers, rise in food prices, especially vegetables, price revisions withheld ahead of the goods and services tax, implementation of house rent allowance under the 7th pay commission and fading of favourable base effect, among others. On 2 August, the panel chose to cut the repurchase rate—the rate at which the central bank infuses liquidity in the banking system—by 25 basis points to 6%. One basis point is one-hundredth of a percentage point. Pami Dua, professor at the Delhi School of Economics, wrote that her analysis showed “a fading economic growth outlook, as …

Shrinking footprints of foreign banks in India

Shrinking footprints of foreign banks in India Foreign banks are increasingly shrinking their presence in India and are also becoming more conservative than private and public sector counterparts. While many of them have sold some of their businesses in India as part of their global strategy, some are trying to keep their core expertise intact. Others are branching out to newer areas to continue business momentum.For example, HSBC and Barclays Bank in India have got out of the retail business, whereas corporate-focused Standard Chartered Bank is now trying to increase its focus on retail “Building a retail franchise is a huge exercise and takes a long time. You cannot afford to lose it,” said Shashank Joshi, Bank of Tokyo-Mitsubishi UFJ’s India head.According to the Reserve Bank of India (RBI) data, foreign banks’ combined loan book shrunk nearly 10 per cent from Rs 3.78 trillion in fiscal 2015-16 to Rs 3.42 trillion last financial year. The banking industry, which includes foreign banks…

Differential Tax Levy under GST: Food Firms May De-Register Trademarks

Differential Tax Levy under GST:Food Firms May De-Register Trademarks The government’s decision to charge an enhanced tax rate on trademark food brands is leading several rice, wheat and cereal manufacturers to consider de-registering their product trademarks. Irked by the June 28 central government notification fixing a 5 per cent goods and services tax (GST) rate on food items packaged in unit containers and bearing registered brand names, the industry has made several representations to the government to reconsider the differential tax levy, which these players say is creating an unlevel playing field within these highly-competitive and low-margin industries. Sources say that the move has affected the packaged rice industry the hardest and allowed the un-registered market leaders, India Gate and Daawat, to gain advantage as compared to other registered brands such as Kohinoor and Lal Qilla. Smaller players are even more worried with this enhanced rate of tax (against the otherwise …