Supreme Court permits Securitisation Remedial Action despite 'clean slate' argument, allowing creditors to defend claims arising from same contract.
The Supreme Court has ruled that a secured creditor may proceed under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest (SARFAESI) Act even after a corporate debtor undergoes resolution under the IBC, rejecting the 'clean slate' principle in cases where the debt remains unpaid. The court held that wiping off liabilities post-resolution cannot result in grave inequity to creditors who were not adequately compensated.
The judgment clarified that while the IBC resolution plan may restructure debts, it does not automatically extinguish enforcement rights under SARFAESI unless explicitly stated. The court observed that
"to bar a creditor from raising a defence or enforcement action on the exact same contractual obligation would create grave inequity, particularly where the resolution process failed to fully satisfy the dues."
This decision strengthens creditor protection in post-IBC scenarios. Legal professionals must now evaluate whether resolution plans conclusively settle debts before initiating SARFAESI proceedings. The ruling is expected to influence future drafting of resolution plans and enforcement strategies by financial institutions.
Citations
- Securitisation Act, 2002
- Insolvency and Bankruptcy Code, 2016
