The fledgling National Company Law Tribunal has rejected insolvency proceedings sought by Leo Duct Engineers & Consultants that facilitates the continuation of banks’ recovery under the SARFAESI Act which was the law of choice before Insolvency and Bankruptcy Code came up.
The move will help lenders Standard Chartered Bank and Canara BankBSE 0.43 % to recover their dues under the SARFAESI Act which provides for lenders to sell pledged securities to recover loans. The company, which owes about Rs 41 crore loans to its financial creditors voluntarily filed for insolvency.
“It appears that the corporate debtor is eager to sound its own death knell, presumably to scuttle the proceedings before SARFAESI as the consequential moratorium imposed…would automatically stay/stall the proceedings vide which the personal properties of the guarantors offered as securities are not enforced,” Ina Malhotra, member (Judicial) said in an order.
Under the SARFAESI provisions, guarantees can be invoked as the liability towards the financial creditors would be joint and several which allows lenders to go after defaulters’ assets beyond what is pledged as collateral, lawyers say.
“The admission of the petition would have a serious impact on the financial creditors who have already set the wheel in motion to secure their debts,” said Malhotra. “The apprehension of taking away the physical possession of their valuable properties and being disposed appears to be the motivation for the corporate debtor to approach this Tribunal under the Code.”
