If promoters have pledged their personal property and the CoC sells off property, the guarantor can lay claim to the company to the extent of the value of the property sold, NCLT ruled
It may be difficult for banks to dispose of personal properties given as a collateral for a loan when the company is referred to the National Company Law Tribunal (NCLT). The Chennai bench of NCLT ruled that if promoters or directors of a company have pledged their personal property and the committee of creditors (CoC) sells off the property, then the guarantor can lay claim to the company to the extent of the value of the property disposed of.
The case was between V Ramakrishnan, managing director and promoter of Veesons Energy Systems Pvt Ltd, and State Bank of India (SBI). Ramakrishnan had given a personal guarantee for a loan secured by his company. The promoter's contention was that since the corporate insolvency resolution process was underway, the personal assets sold by the financial creditor should give him equal rights as that of the creditors and automatically create a right on the property of the corporate which is under the insolvency process.
The court, which ruled in favour of Ramakrishnan, said in the event of the guarantor fulfilling his obligations for the payment of outstanding debt of the corporate debtor, he has every right to the assets of the corporate debtor to the extent that he has paid the outstanding debt to the creditors and cleared the dues of the company.
SBI refused to comment on the issue saying that the case is sub judice, and that they were examining the court verdict.
Sameer Kakar, an insolvency professional registered with the Insolvency and Bankruptcy Board of India and partner of News Insolvency Professionals LLP, said, "Under this judgement, the bankers will refrain from selling personal assets of the guarantor otherwise this will create charge of the guarantor on the assets of the company which is prohibited under the corporate resolution process. The restriction exists during the resolution process only."
Chennai NCLT had approved for corporate insolvency resolution on August 4, and a moratorium was also declared. Subsequently, SBI had also issued an auction notice on July 12 under the Sarfaesi Act to sell the personal property of the company's promoter Ramakrishnan, according to the petition.
The court further observed that it is clear that if the financial creditor, which is SBI, during the corporate insolvency resolution process and declaration of the moratorium is permitted to proceed against the personal guarantor of the corporate debtor for recovery of the outstanding debt, then the guarantor, in this case Ramakrishnan, can also stake a claim to the company to the extent of the value of his personal guarantee.
...& ANALYSIS
- If promoters have pledged their personal property and the CoC sells off property, the guarantor can lay claim to the company to the extent of the value of the property sold, NCLT ruled
- The case was between V Ramakrishnan, MD and promoter of Veesons Energy Systems Pvt Ltd, and SBI, where Ramakrishnan had given a personal guarantee for a loan secured by his company
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