NCLT JUDGEMENT ON SECTION 33, 60(5), 60(5)(C) OF THE COMPANIES ACT, 2103 AND SECTION 128, 134 OF THE INDIAN CONTRACT ACT, 1872


Siripuram Developers Private Limited And Ors Vs. Andhra Bank (Now Merged With Union Bank Of India) And Ors., (2020) 08 NCLT CK 0031

NCLT allowed the application filed by the applicants under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, inter- alia to set aside the impugned possession notice dated 11.03.2020 and direct the Respondent No. 1 Bank to not take any coercive steps as against the Applicant companies till the closure of liquidation proceedings. While allowing the application NCLT held that though it is a settled position of Law that the liabilities of a surety is coextensive with that of principal debtor and further in view of the Law settled by the Hon'ble NCLAT and Hon'ble Supreme Court that a Financial Creditor can proceed to enforce the guarantees against the guarantors. Thus the settled position of Law, that there should not be any restraints on a Financial Creditor to proceed against the Guarantor even after the initiation of CIRP, approval of Resolution Plan or liquidation proceedings being commenced or closed. However, in the instant case, it is not the question of the right of the Financial Creditor to enforce the guarantee against the guarantor, but the point for consideration is whether the Respondent No.1 Bank can proceed with the enforcement of security interest and sell the properties owned by guarantor companies within Applicant No.1 to 4, which also would certainly result in diminishing the value of the Corporate Debtor, which would impact the sale of the Corporate Debtor as a going concern. As long as the act of the Respondent No.1 Bank in enforcing the security interest against the applicant companies does not concern or adversely affect the value of the assets of the Corporate Debtor, the Respondent No.1 bank is at liberty and will have no restraints to proceed with the sale of the mortgaged properties of the Applicant companies, the moment such coercive steps adversely impact the value of the Assets of the Corporate Debtor, the same would be against and contrary to the stated objectives of the Code. In view of the above observations, This Adjudicating Authority feels it proper to direct Respondent No.1 bank not to take any coercive steps such as sale of the properties mortgaged by the Applicant companies in favor of Respondent No.1 bank till the completion of Liquidation proceedings of the Corporate Debtor.

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