By Sangita Mehta ET
MUMBAI: An order passed by a bankruptcy court set a precedent by ruling that a promoter cannot escape the liquidation of personal assets by simply filing for bankruptcy that indemnified the firm against all legal proceedings will have rich promoters worried.
The court has ordered lenders to go after the personal properties of M/s Schweitzer Systemtek India though the company brought in voluntary bankruptcy proceedings.
The court has ordered lenders to go after the personal properties of M/s Schweitzer Systemtek India though the company brought in voluntary bankruptcy proceedings to protect the promoter’s private property from liquidation.
While admitting the case under the Insolvency and Bankruptcy Code (IBC), the court observed that personal assets of the promoters were pledged with the borrower and were not part of the corporate debt and hence outside the ambit of a moratorium.
Under IBC, once a company is admitted, all legal proceeding against the company under various jurisdiction and courts come to a standstill until a resolution process is completed by maximum 270 days.
The ruling set a precedent for many rich borrowers who may resort to IBC to prevent the liquidation of their personal wealth pledged with lenders. The judge, MK Shrawat observed, "Sarfaesi Act (Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act) may come within the ambits of 'moratorium' if an action is to foreclose or to recover or to create any interest in respect of the property that belonged to or was owned by a corporate debtor, otherwise 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 bankruptcy, which was opposed by Phoenix ARC fearing that if the case is admitted a moratorium, it could thwart the action taken so far for recovery of the outstanding loans which includes selling personal properties of the promoters which were in an advanced stage.
The ARC has also got a ruling in its favour to sell the residential property under Sarfaesi Act.
“The attempt to salvage personal property by seeking shelter under IBC has backfired. This shows that defaulting promoters who have provided to lenders personal property for loans will not be spared,” said Sameer Kakar, insolvency professional.
While admitting the company to IBC, the court observed that there is a huge contrast in the balance sheet and thus a professional is needed to streamline the debt.
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