Banks Can Initiate Proceedings Under SARFAESI Act To Recover Loan If It Wasn't Party To Resolution Plan: Kerala High Court
Tazeen Ahmed
2 March 2025 10:30 AM
The Kerala High Court bench of Justice Gopinath P. has held that a bank can initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to recover outstanding dues if it was not a party to the resolution plan approved under the Insolvency and Bankruptcy Code, 2016. The Court clarified that the bar...
The Kerala High Court bench of Justice Gopinath P. has held that a bank can initiate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) to recover outstanding dues if it was not a party to the resolution plan approved under the Insolvency and Bankruptcy Code, 2016. The Court clarified that the bar against claims outside a resolution plan does not extend to third parties merely associated with the corporate debtor through agreements such as joint ventures.
Brief Facts
The petitioner availed a loan from the respondent bank by mortgaging an immovable property belonging to the petitioner. Thereafter, the petitioner entered into an agreement with M/s. Heera Constructions Pvt. Ltd. for joint development of the said property. Subsequently, Corporate Insolvency Resolution Process (CIRP) was initiated against M/s. Heera Constructions Pvt. Ltd. before the NCLT and a resolution plan was approved. The joint venture of Heera Constructions with the Petitioner was also part of the resolution plan. The Respondent bank, however, was neither a party to the JV nor the CIRP.
Contentions
The Petitioner contended that the joint venture with the Petitioner was also part of the resolution plan and, therefore, the Respondent bank could not proceed against the Petitioner's property under the provisions of the SARFAESI Act. It was submitted that since the property mortgaged with the Respondent bank was included in the resolution plan, no proceedings could be initiated by the Respondent bank outside the scope of the resolution plan sanctioned in respect of Heera Constructions.
The Respondent bank contended that it was not a party to the resolution plan and that the resolution plan sanctioned in respect of Heera Constructions was not binding and did not affect the proceedings initiated by the bank to recover the amounts due under the loan availed by the Petitioner.
Observations
The court observed that the petitioner cannot contend that the property cannot be proceeded against by the bank under the provisions of the SARFAESI Act. It held that the bar against any claim outside the resolution plan would apply only to a claim vis-a-vis the Corporate debtor and not to a person who claims that he is in agreement with the Corporate debtor.
The court further held that the right of the respondent bank to proceed against the property which the petitioner had mortgaged was not affected in any manner by the resolution plan, especially when the respondent bank was not even a party to the proceedings before the NCLT or the resolution plan.
The court dismissed the petition.
Case Title: ASHOK HARRY POTHEN Vs. THE AUTHORISED OFFICER, M/S. INDIAN BANK
Citation: 2025 LiveLaw (Ker) 148
Case Number: W.P (C) No.4147/2025
Date of Judgment: 4.02.2025