The Supreme Court has ruled that a secured creditor may pursue recovery of dues after a successful SRA, rejecting a strict application of the 'clean slate' principle under the IBC.
'Clean Slate' Not Absolute: SC Permits Secured Creditor Recovery Post-SRA
The Supreme Court has clarified that the 'clean slate' principle—under which a successful resolution applicant assumes a restructured entity free of pre-CIRP liabilities—does not bar a secured creditor from enforcing dues through separate recovery mechanisms if the debt was excluded from the resolution plan.
The Court held that allowing the principle to bar all defences would create a grave inequity when the creditor had not consented to the release of its claim. The judgment emphasized that only those liabilities expressly extinguished or compromised in a court-approved resolution plan stand discharged.
This ruling provides clarity to banks and financial institutions: a clean balance sheet post-resolution does not extinguish non-participating secured creditors’ rights. Practitioners should ensure that resolution plans explicitly address all secured claims and consider parallel recovery actions under the SARFAESI Act, 2002 where applicable.
Citations
- Insolvency and Bankruptcy Code, 2016
- Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
