Latest news with #SarfaesiAct
Mint
4 days ago
- Business
- Mint
IBC amendments seek to boost assets available for distressed company revival
Creditors to bankrupt firms could get their hands on a wider pool of valuable assets and claw back money from more shady promoter transactions, once latest changes to India's insolvency rules take effect. While the Insolvency and Bankruptcy Code (IBC) remains the primary mode for bankruptcy resolution, lenders often seize assets of defaulting companies under various other laws; however, such assets stay with the individual banks themselves. The amended law will aid in bringing such assets—also seized from the defaulter's personal or corporate guarantors, essentially, its promoters, corporate parent, or an associate company—within the pool of assets for resolution. Experts said this increases flexibility in rescuing businesses and fetches better value for the business, rather than selling assets by individual lenders in a fragmented way. However, the process is not automatic, and must be blessed by the committee of creditors supervising the resolution. On Tuesday, the Lok Sabha referred the Insolvency and Bankruptcy Code (Amendment) Bill 2025 to a select committee of the Parliament. Before the debut of IBC in 2016, lenders used the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Sarfaesi Act) of 2002 to seize assets from defaulters. In some cases, lenders still resort to Sarfaesi Act that allows secured creditors to seize assets of borrowers who fail to repay dues within 60 days of demanding repayment. Separately, the new bill extends the timeline to tag dubious pre-bankruptcy transactions of sick companies as avoidance transactions that can be reversed by tribunals. While the stipulated time for admitting a case to bankruptcy court is 14 days, the average time is 434 days. The lengthy window enables unethical promoters to siphon off money via wrongful transactions once the bankruptcy petition is filed. Avoidance transactions may be undervalued, preferential, fraudulent or extortionate. Currently, transactions done up to two years prior to admission can be cancelled in the case of related party transactions, and up to one year in the case of other transactions. The bill seeks to expand this 'look back' period to two-year preceding initiation of bankruptcy proceedings all the way up to the date of its admission in NCLT in the cases of related party transactions. In the case of an unrelated parties, this period starts from one year prior to bankruptcy petition filing to its admission date. 'We have seen in many insolvency cases that considerable time—on an average one to two years—is taken in admission of the insolvency after the initiation of the insolvency process by the creditors and most of the defaulting entities would have engaged in avoidance transactions either during this period or even much earlier than this," said Surendra Raj, partner, Grant Thornton Bharat. 'Amending the look-back period for reporting such transactions undertaken during the two years (for related parties) and one year (for unrelated parties) from the initiation date (that is, the date when first application is filed for initiation of insolvency) would bring in many more such avoidance transactions in the purview of being classified as avoidance transaction. While this is certainly a welcome step to bring back public money to victims, one needs to be very careful that genuine business transactions don't get reported in this category resulting in over work for already burdened NCLTs," said Raj. 'Hence, very careful analysis would be required to be done by the resolution professional or the liquidator and professional advisors before reporting these transactions," said Raj. Soumitra Majumdar, partner, JSA Advocates & Solicitors said the proposed amendments provide the much-needed clarity on treatment of avoidance transactions and the resultant assets. 'The statutory aim appears to be to build in certainty of recovery, and flexibility in disposal methods of assets—both at the corporate debtor level and at those of the guarantors, subject to certain conditions. Ability to efficiently monetise assets will enhance creditor and stakeholder recoveries," said Majumdar. 'On the demand side, buyers will naturally be encouraged to offer price commensurate with the economic value of assets, without having to account for legal and regulatory risks associated with such acquisitions," said Majumdar. The government should also introduce dedicated NCLT benches to adjudicate on these transactions because many applications to annul these transactions, having approximately exposure of ₹3.89 trillion already in the last eight years are pending for adjudication at different stages, said Raj of Grant Thornton Bharat. The bill also clarifies that recovery proceedings from avoidance transactions or fraudulent trading will not affect the debt resolution process and these will continue independently even after completion of debt resolution or even liquidation of the company.
New Indian Express
02-08-2025
- Business
- New Indian Express
In a first, oldest asset reconstruction company Arcil files for Rs 1,500-crore IPO
MUMBAI: In a first in the struggling asset reconstruction companies space, the oldest such entity, Arcil or Asset Reconstruction Company India, has filed the draft papers with Sebi for a primary issue seeking to mop up Rs 1,500 crore. All the ARCs have been struggling after the insolvency and bankruptcy code became popular with lenders since July 2016. Since lenders are choosing the IBC route for large debt resolution, ARCs are now left with only retail assets, which typically do not go to the NCLTs for resolution. ARCs operate mostly with corporate loans and SME loans but the mainstay is retail loans. They earn revenue from management fees, recovery fees, investments, and write-backs. Founded in 2002, Arcil, promoted by Avenue India Resurgence, which is an affiliate of Avenue Capital Group, and State Bank of India, which are identified as sponsors of the company under the Sarfaesi Act, is the country's first asset reconstruction company and is currently among the largest private ARCs. Though the press release did not specify the IPO size, i-banking sources told TNIE that the issue, which will be a pure offer for sale, will be in excess of Rs 1,500 crore. Through the OFS, the selling shareholder will offer up to 10.5 crore shares with a face value of Rs 10 each. The main selling shareholders are Avenue India Resurgence, which is an affiliate of Avenue Capital Group, offering up to 6.87 crore shares; State Bank of India selling up to 1.94 crore shares; Lathe Investment selling up to 1.62 crore shares and Federal Bank offering up to 10.35 lakh shares, according to the offer document. According to recent data, Arcil has assets under management of Rs 15,230 crore and a net worth of Rs 2,462 crore, making it the second-largest by both metrics in the private ARC space. It completed its first stressed asset acquisition in December 2003. As of March 2025, it had taken up 652 assets worth Rs 72,657.31 crore (at a cost of Rs 38,155.63 crore or 52.51% of the total principal debt) and made recoveries of Rs 28,459.7 crore from 199 cases, with 453 still open.
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Business Standard
18-07-2025
- Business
- Business Standard
No Sarfaesi protection for tenants without proof of tenancy before mortgage
The Supreme Court (SC) has ruled that tenants cannot invoke protection under the Sarfaesi Act unless they can establish that their tenancy existed before the property was mortgaged. This decision, reported by LiveLaw, marks a significant clarification in the legal landscape governing the conflict between tenancy rights and the enforcement powers of lenders. This ruling came in a case where PNB Housing Finance took over a property after the borrower defaulted. A man claimed he'd been living there since 1987, but failed to prove his claim of occupancy before the mortgage was created. An earlier Calcutta High Court verdict had restored possession of the home to the man. A bench comprising Justices PS Narasimha and Joymalya Bagchi reversed the High Court's decision after PNB Housing Finance contested its ruling. Background of the case The respondent in the case claimed he had been residing in the disputed property since 1987, based on an unregistered five-year lease. However, the property later came under the ownership of a borrower who mortgaged it to PNB Housing in 2017. When the borrower defaulted on the loan, the lender invoked its rights under Section 13(4) of the Sarfaesi Act, 2002, taking possession of the property—first symbolically, then physically. The respondent challenged the possession move, citing protections under the West Bengal Premises Tenancy Act, 1997, and the High Court initially sided with him. But the apex court took a different view. What's the Sarfaesi Act? The Sarfaesi Act (short for Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest) is a law from 2002 that helps banks and financial institutions recover loans quickly and reduce bad debts (known as non-performing assets or NPAs). The lender doesn't need to go to court to do this. They can auction or sell the property to recover the unpaid loan. The Act also supports the restructuring of distressed loans and allows banks to bundle and sell bad loans (called securitisation) to asset reconstruction companies. SC reaffirms 2019 precedent on tenant obligations The bench referred to the precedent set in Bajarang Shyamsunder Agarwal v Central Bank of India (2019), which made it clear that a tenant must furnish documentary evidence such as rent receipts, utility or property tax bills to claim protection under tenancy laws when a property is subject to mortgage. The court also said that verbal agreements or unregistered leases do not offer long-term protection, especially after the bank issues a notice under the Sarfaesi Act.
