The National Company Law Tribunal has ordered that mortgaged property of a guarantor be liquidated as part of the recovery of loans to a bankrupt company, boosting the lenders’ legal position before the dedicated insolvency mechanism.
In the liquidation of Vindhiya Vasini Industries, the personal property of one of its directors will now be sold to enhance the liquidation value. Punjab National BankNSE and Central Bank of India were the two lenders.
“To avoid such a high percentage of sacrifice, it is necessary to take a decision in favour of the financial creditor to initiate liquidation proceedings against a guarantor as well who had mortgaged the property, and on the guarantee the loan in question was granted,” MK Shrawat, a member judge of Mumbai NCLT, said in the court order.
This is, perhaps, for the first time that a dedicated bankruptcy court has directed liquidation of a mortgaged property under the Insolvency and Bankruptcy Code. The haircut or loan loss would be as much as 89% of the debt.
The property belonging to Saroj Singhania, one of the directors, was ‘mortgaged’ to the bank “under the same loan agreement on the basis of which the financial debt in question was sanctioned,” said the court.
“It is therefore, explained that since the property belonging to Singhania had already been mortgaged, therefore, to realise the debt amount the said property is also to be liquidated,” the judge said.
There are two sets of properties where the total realisable value is about ?17.58 crore. Under normal liquidation, creditors could realise only about ?4.68 crore against outstanding dues of ?41.38 crore.
Earlier in December, the committee of creditors unanimously decided to initiate liquidation of the company. The court appointed Sanjay Gupta, a resolution professional from AAA Insolvency Professionals, as the liquidator.
“This order will benefit creditors, who will be able to realise more money against bad loans,” said AAA’s Gupta. “It will set a precedent for future such cases.”