The High Court ruled that banks could initiate proceedings under the SARFAESI Act if they were not a party to the resolution plan.
The Kerala High Court Single-Judge Bench of Justice Gopinath P. recently reviewed a petition and held that the approval of a resolution plan under Section 31 of the IBC binds only the corporate debtor and its stakeholders, not third parties like the petitioner. Since the respondent bank was not a party to the resolution plan and the mortgage existed independently, the bank’s right to enforce its security interest under the SARFAESI Act remained unaffected.
The petitioner had availed a loan from the respondent bank, which was secured by the mortgage of his property. Subsequently, the petitioner entered into an agreement with M/s. Heera Constructions Pvt. Ltd. for the joint development of the said property. M/s. Heera Constructions Pvt. Ltd. underwent insolvency proceedings under the Insolvency and Bankruptcy Code, and a resolution plan was approved. The petitioner contended that the joint venture with M/s. Heera Constructions Pvt. Ltd. was a part of the resolution plan and, therefore, the respondent bank could not proceed against his property under the SARFAESI Act.
The petitioner relied on the Supreme Court’s judgment in Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited through Director and others, REEDLAW 2021 SC 04534 to argue that, since the mortgaged property was included in the resolution plan, no proceedings could be initiated by
the bank outside the scope of the plan. However, the respondent bank argued that it was not a party to the resolution plan and that the plan had no bearing on its rights to recover the loan. The bank further submitted that even if the resolution plan referenced the development of the mortgaged property, it did not preclude the bank from enforcing its security interest under the SARFAESI Act, as the petitioner was a third party to the resolution plan.
The High Court, after hearing both parties, held that the petitioner was not entitled to any relief. It was observed that the judgment in Ghanashyam Mishra and Sons Private Limited through the Authorised Signatory v. Edelweiss Asset Reconstruction Company Limited through Director and others, REEDLAW 2021 SC 04534, applied only to claims against the corporate debtor and not to third parties like the petitioner, who merely had an agreement with the corporate debtor. Since the respondent bank was not a party to the resolution plan, its right to proceed against the mortgaged property remained unaffected. The Court found no merit in the petitioner’s contention that the resolution plan barred the bank from enforcing its rights under the SARFAESI Act and accordingly dismissed the writ petition.
However, considering the petitioner’s request for time to deposit the amount directed as a condition for a stay in the securitization appeal pending before the Debts Recovery Tribunal-II, Ernakulam, the Court granted an extension. The petitioner was directed to deposit Rs. 25 lakhs by 07-02-2025 and another Rs. 25 lakhs by 14-02-2025 to continue enjoying the benefit of the interim order. The writ petition was ordered accordingly.
Mr. V.K. Peermohamed Khan and Mr. Girish Kumar V.C. Advocates represented the Petitioner.
Mr. Binoy Vasudevan, S.C., appeared on behalf of the Respondent.
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