Supreme Court permits a Securitisation Recovery Application after CIRP, rejecting 'clean slate' doctrine as a bar to dues arising from same contract.
SC Permits Post-CIRP SRA Despite 'Clean Slate' Claim
The Supreme Court has ruled that the 'clean slate' principle under Section 31 of the Insolvency and Bankruptcy Code does not bar a secured creditor from initiating enforcement proceedings under the SARFAESI Act for residual dues after conclusion of Corporate Insolvency Resolution Process (CIRP).
The Court distinguished between the corporate debtor’s release from personal liability and the continuing enforceability of security interests.
"To hold otherwise would create grave inequity by barring the creditor from raising a defence on the exact same contract,"stated the bench. The ruling allows banks and financial institutions to pursue recovery for outstanding amounts not covered under the resolution plan.
This clarifies the interplay between IBC and SARFAESI, affirming that secured creditors retain enforcement rights over collateral even after successful CIRP. Legal teams must now structure recovery strategies considering both forums, ensuring documentation remains intact post-insolvency.
Citations
- Insolvency and Bankruptcy Code, 2016, s 31
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
