Non-Performing Asset

Fresh Start: Balance Sheet Entries Read With Supporting Records Constitute Debt Aknowledgement, Resets Limitation

Summary: The Supreme Court has held that entries in a corporate debtor’s balance sheet, when read alongside corroborative materials including cash flow statements, constitute a valid acknowledgement of debt under Section 18 of the Limitation Act, 1963, thereby resetting the period of limitation for creditors to initiate insolvency proceedings. This ruling strengthens the position of creditors under the Insolvency and Bankruptcy Code, 2016, ensuring that procedural technicalities do not frustrate their rights to take recourse through insolvency proceedings. It also places greater responsibility on auditors and accountants, as financial statements may now carry significant consequences for both debtors and creditors by operating as binding acknowledgements of liability.Continue Reading Fresh Start: Balance Sheet Entries Read With Supporting Records Constitute Debt Acknowledgement, Resets Limitation

When Does the Door Close? Understanding The Right of Redemption of Borrowers Under SARFAESI Act

Summary: The SC has laid down the law on the right of redemption under the SARFAESI Act and clarified that (a) once a bank publishes an auction notice under the SARFAESI Act, the borrower permanently loses the right to redeem the mortgage; (b) the amendment to Section 13(8) of the SARFAESI Act in 2016 applies to all the loans declared as non-performing assets after September 1, 2016, regardless of when the loan was availed; and (c) the term “publication” in Section 13(8) refers to a single composite notice that encompasses all modes including service of notice, newspaper publication, affixation, and uploading on the website, rather than merely newspaper advertisements.Continue Reading When Does the Door Close? Understanding The Right of Redemption of Borrowers Under SARFAESI Act

Harshness of Consequences not a Ground to Read-Down a Provision: Supreme Court

Introduction:

The Hon’ble Supreme Court in Authorised Officer, Central Bank of India v. Shanmugavelu[1]adjudicated, inter alia, upon (i) whether the forfeiture of the earnest-money deposit under Rule 9(5)[2] of the SARFAESI Security Interest (Enforcement) Rules (“SARFAESI Rules”) can be only to the extent of loss or damages incurred by the Bank/secured creditor, in consonance with the underlying ethos of Sections 73 and 74 of the Indian Contract Act, 1872 (“Contract Act”)? In other words, whether, the forfeiture of the entire earnest money deposit under the SARFAESI Rules amounts to unjust enrichment?; and (ii) whether the principle of “reading down” of a provision should be employed even in situations where the provision, in its plain meaning, is unambiguous and valid, but results in an allegedly ‘harsh’ consequence.Continue Reading Harshness of Consequences not a Ground to Read-Down a Provision: Supreme Court

Introduction:

A division bench of the Hon’ble Supreme Court, comprising Hon’ble Chief Justice D.Y. Chandrachud and Justice J. B. Pardiwala in Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. and Ors[1] on September 21, 2023, held that a borrower only has right of mortgage redemption till the publication of auction notice under Section 13(8) of Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (“SARFAESI Act”). The Hon’ble Supreme Court analysed orders passed by various Hon’ble High Courts in interpreting the provisions of Section 13(8) of the SARFEASI Act, post the amendment in 2016 (“Amendment”) and the intent of the Amendment.Continue Reading Section 13(8) of SARFAESI Act: SC settles conundrum on right of redemption of borrower