REGULATORY · INDIA
Bombay High Court deprecates IBC moratorium misuse
Change
The Bombay High Court issued an order deprecating loan defaulters' and guarantors' use of Insolvency and Bankruptcy Code moratoriums to evade enforcement.
Why it matters
A bench of Justices Manish Pitale and Shreeram Shirsat passed an order deprecating misuse of IBC provisions by loan defaulters and guarantors. The bench identified a trend of chronic defaulters using moratoriums to frustrate secured creditors and auction purchasers and to paralyse enforcement under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act. The court found borrowers and guarantors often remain inactive while secured creditors proceed and auctions reach culmination. The court stated it cannot remain a mute spectator when such invocation of legal provisions demonstrates a failure of justice.
Implications
- · Secured creditors' enforcement actions under the Securitisation Act will face heightened judicial scrutiny when debtors invoke IBC moratoriums.
- · Auction purchasers' acquisition processes are identified as being obstructed by moratorium invocations and inaction by borrowers or guarantors.
- · Borrowers and guarantors who trigger moratoriums while remaining passive face judicial condemnation as engaging in abusive conduct.
Who is affected
- · Secured creditors
- · Borrowers and guarantors
- · Auction purchasers
- · Insolvency and legal professionals
Source
Topics
Law & Public Safety Court Rulings Regulatory Actions Finance & Banking Banking Regulation