Effect on other assets of promoter under IBC,2016
5 years ago
Will the other assets of the promoter other than the guaranteed assets to the corporate debtor under Insolvency and bankruptcy code 2016 be affected and can the lenders initiate suit on the other assets or properties of the promoter who is a guarantor to the corporate debtor ?
A.Personal Liability of the promoter when the Moratorium has been issued
Recently in the case of Schweitzer Systemtek vs. Phoenix ARC Limited3, the Mumbai bench of the NCLT was asked to adjudicate on the issue that whether the personal properties of the promoters which have been given as security to the bank/creditor come under the purview of the moratorium as envisaged under Section 14 of the Code or not. In this case, Dhanlaxmi Bank had lent Rs 4.5 crore to the company wherein the promoter had pledged personal properties. The bank sold the loan along with security to Phoenix ARC. M/s Schweitzer Systemtek had filed for the initiation of CIRP under Section 10 (3) which was opposed by Phoenix ARC fearing that if the case is admitted, a moratorium under Section 14 of the Code will be issued, which could thwart the action taken so far for recovery of the outstanding loans which included selling personal properties of the promoters which were in an advanced stage.
The Tribunal perused the facts and came to the conclusion that the admitted position of the debtor is that the personal properties have been given as a "Security" to the banks which clearly implies that the properties are currently not under the ownership of the Corporate Debtor. In that regard, to ascertain that whether the properties which are not owned by a Corporate Debtor will come within the ambits of the Moratorium or not, the Tribunal examined Section 14 (c) of the Code and observed that the canon of interpretation is a very important tool for gauging the intention of the legislature and language of the Statute is such that no word can be added, or substituted or deleted from the enacted Code, thereby the term "its" in the aforementioned section becomes very important because on a plain reading of the section it is understood that on the commencement of the Insolvency Process, the Moratorium shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of its property, the usage of the word "its" clearly makes a distinction between the property owned by the Corporate Debtor and other properties, which means that the Moratorium will have no application on the properties beyond the ownership of the Corporate Debtor. In this case, since the property in question was given as security to the bank, the moratorium would not apply on the personal properties.
This issue was also discussed in the case of "Alpha & Omega Diagnostics (India) Ltd v/s Asset Reconstruction of India & Ors4" before the Mumbai bench of the NCLT, where the tribunal took a similar stand and held that the personal properties of the promoters which have been given as security will not be affected by the Moratorium issued under Section 14 since the wordings of the section are very clear in their meaning that that the Moratorium applies only to the properties of the corporate debtor and therefore the personal properties of the promoters which have already been given as a security to the lending bank will remain unaffected by the Moratorium in effect, this reasoning was then challenged before the NCLAT5, wherein it dismissed the appeal by affirming the order of the NCLT Mumbai bench.
Recently in the case of Schweitzer Systemtek vs. Phoenix ARC Limited3, the Mumbai bench of the NCLT was asked to adjudicate on the issue that whether the personal properties of the promoters which have been given as security to the bank/creditor come under the purview of the moratorium as envisaged under Section 14 of the Code or not. In this case, Dhanlaxmi Bank had lent Rs 4.5 crore to the company wherein the promoter had pledged personal properties. The bank sold the loan along with security to Phoenix ARC. M/s Schweitzer Systemtek had filed for the initiation of CIRP under Section 10 (3) which was opposed by Phoenix ARC fearing that if the case is admitted, a moratorium under Section 14 of the Code will be issued, which could thwart the action taken so far for recovery of the outstanding loans which included selling personal properties of the promoters which were in an advanced stage.
The Tribunal perused the facts and came to the conclusion that the admitted position of the debtor is that the personal properties have been given as a "Security" to the banks which clearly implies that the properties are currently not under the ownership of the Corporate Debtor. In that regard, to ascertain that whether the properties which are not owned by a Corporate Debtor will come within the ambits of the Moratorium or not, the Tribunal examined Section 14 (c) of the Code and observed that the canon of interpretation is a very important tool for gauging the intention of the legislature and language of the Statute is such that no word can be added, or substituted or deleted from the enacted Code, thereby the term "its" in the aforementioned section becomes very important because on a plain reading of the section it is understood that on the commencement of the Insolvency Process, the Moratorium shall be declared for prohibiting any action to recover or enforce any security interest created by the Corporate Debtor in respect of its property, the usage of the word "its" clearly makes a distinction between the property owned by the Corporate Debtor and other properties, which means that the Moratorium will have no application on the properties beyond the ownership of the Corporate Debtor. In this case, since the property in question was given as security to the bank, the moratorium would not apply on the personal properties.
This issue was also discussed in the case of "Alpha & Omega Diagnostics (India) Ltd v/s Asset Reconstruction of India & Ors4" before the Mumbai bench of the NCLT, where the tribunal took a similar stand and held that the personal properties of the promoters which have been given as security will not be affected by the Moratorium issued under Section 14 since the wordings of the section are very clear in their meaning that that the Moratorium applies only to the properties of the corporate debtor and therefore the personal properties of the promoters which have already been given as a security to the lending bank will remain unaffected by the Moratorium in effect, this reasoning was then challenged before the NCLAT5, wherein it dismissed the appeal by affirming the order of the NCLT Mumbai bench.
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Anonymous
Replied 5 years ago
So the unguaranteed assets of the promoter is free and no suit can be brought against it?
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