The National Company Law Appellate Tribunal (NCLAT) has reserved its judgment on whether a secured financial creditor can sell the assets of a corporate debtor back to the promoter if there are no resolution plans and the firm has to be liquidated.
The judgment is likely to have a big impact on the insolvency process and will decide if errant promoters have one last shot at regaining control of their company and its assets, experts said.
Sanaa Syntex, a Mumbai-based fabric trading company, was admitted for insolvency proceedings in August 2017. The company, however, found no takers, following which the Mumbai Bench of the National Company Law Tribunal (NCLT) ordered its liquidation.
Subsequently, the liquidator moved to sell the company’s assets and distribute the realised amounts to the creditors under the rules of the Insolvency and Bankruptcy Code (IBC). The State Bank of India (SBI), a financial creditor to the company, however, took “custody of the immovable mortgaged assets” of the company by “locking the premises of two units of factory situated in Gujarat”.
The bank said it wanted to opt out of the liquidation process and realise its dues on its own. The bank had then said it wanted to sell the assets of the company back to the erstwhile promoters as the process was no longer under the IBC.
The Mumbai Bench of the NCLT had, while allowing SBI to opt out of the liquidation process, barred the bank from selling the assets to the promoters or any other persons ineligible under Section 29 (A) of the IBC.
Section 29A of the IBC bars non-performing asset (NPA) holders, including promoters, from taking part in the resolution process.
The bank then approached the NCLAT with a plea that it should be allowed to sell the assets out of the liquidation process and keep the amount realised. The liquidator of the company, however, opposed the bid of the bank and said that allowing such a move would “shake entire dynamics of the claims of other stakeholders”.
“It is to be understood that if secured creditor is allowed to realise the secured interests through channels of promoters who are barred under the IBC, the same will corrupt the very purpose of the Code,” the liquidator said in a written submission to the NCLAT.