Supreme Court permits Securitisation and Reconstruction of Financial Assets (SRA) proceedings over IBC's 'clean slate' principle, citing creditor rights.
SRA Proceedings Not Barred by IBC's 'Clean Slate' Doctrine
The Supreme Court has held that the initiation of proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI) is permissible even after a borrower has undergone the Corporate Insolvency Resolution Process (CIRP), rejecting the argument that the 'clean slate' principle bars enforcement.
The court reasoned that the 'clean slate' benefits the corporate debtor only upon successful completion and implementation of a resolution plan. Where the plan fails or the dues remain unpaid, creditors retain remedies under SRA. It noted that
'grave inequity would arise if a secured creditor were barred from enforcing security over the same property despite non-realization of dues'.
The ruling restores balance between creditor protection and debtor rehabilitation. Legal practitioners must now evaluate post-CIRP enforcement strategies under SARFAESI more assertively, especially in cases where resolution plans collapse or default recurs.
Citations
- Securitisation Act, 2002, s 13
- Insolvency and Bankruptcy Code, 2016, s 31
