The Kerala High Court ruled that if a bank was not a party to the resolution plan authorized under the Insolvency and Bankruptcy Code, 2016, it may still pursue recovery of unpaid debts under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).
The petitioner, Ashok Harry Pothen, obtained a loan from the respondent bank by taking out a mortgage on one of his real estate holdings. After then, the petitioner and M/s. Heera Constructions Pvt. Ltd. signed a contract for the joint development of the aforementioned land. A resolution plan was then authorized after the NCLT launched the Corporate Insolvency Resolution Process (CIRP) against M/s. Heera Constructions Pvt. Ltd. The resolution plan also included Heera Constructions’ joint venture with the petitioner. However, the Respondent bank did not participate in either the CIRP or the JV.
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The Petitioner argued that the Respondent bank could not pursue the Petitioner’s property under the SARFAESI Act because the joint venture with the Petitioner was also included in the settlement plan. It was argued that the Respondent bank could not start any legal action against Heera Constructions outside of the parameters of the resolution plan that was approved because the property that was mortgaged to the Respondent bank was covered by it.
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The Respondent bank argued that it was not a party to the resolution plan and that the resolution plan approved for Heera Constructions was not legally binding and had no bearing on the actions the bank had taken to recoup the money owed under the Petitioner’s loan.
As per the ruling of Justice Gopinath P‘s single bench, the petitioner cannot argue that the bank cannot pursue the property in accordance with the SARFAESI Act’s provisions. According to the ruling, the prohibition against making any claims outside of the resolution plan would only apply to claims made against the corporate debtor and not to someone claiming to agree with the corporate debtor.
The court dismissed the petition, ruling that the resolution plan had no bearing whatsoever on the respondent bank’s ability to pursue the property that the petitioner had mortgaged, particularly since the respondent bank was not even involved in the NCLT proceedings or the resolution plan.
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