Banks Can Invoke SARFAESI If Not Party to Resolution Plan
The Kerala High Court, in a judgment by Justice Gopinath P., held that banks can invoke recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) if it was not a party to a resolution plan approved under the Insolvency and Bankruptcy Code, 2016 (IBC). The court clarified that restrictions under a resolution plan do not apply to third parties. This applies to ones merely associated with the corporate debtor through agreements like joint ventures.
Case Background
The petitioner had availed a loan from the respondent bank by mortgaging an immovable property. Later, the petitioner entered into a joint venture agreement with M/s. Heera Constructions Pvt. Ltd. for the development of the property. A Corporate Insolvency Resolution Process (CIRP) was initiated against Heera Constructions. A resolution plan was approved by the National Company Law Tribunal (NCLT). The joint venture, including the petitioner’s property, was part of this resolution plan. However, the respondent bank was neither a party to the joint venture nor involved in the CIRP.
Petitioner’s Argument
The petitioner argued that the joint venture was included in the resolution plan. The bank could not initiate SARFAESI proceedings against the mortgaged property. The petitioner claimed that all claims related to Heera Constructions, including those linked to the joint venture. They were settled under the resolution plan, and no further recovery action should be allowed.
Bank’s Stand
The bank contended that it was not a party to the resolution plan and, therefore, was not bound by its terms. The resolution plan only applied to creditors of Heera Constructions, and since the petitioner had availed the loan independently, the bank retained its right to recover outstanding dues under the SARFAESI Act.
Court’s Observations
The court ruled that the resolution plan’s restrictions only apply to claims against the corporate debtor, not to third parties linked through separate agreements. Since the bank was not involved in the CIRP, its right to recover dues remained unaffected. The court further held that the petitioner could not prevent the bank from proceeding against the mortgaged property under the SARFAESI Act.
Verdict
The High Court dismissed the petition, affirming the bank’s right to enforce its security interest under SARFAESI, independent of the resolution plan approved for Heera Constructions.
