Tag: Insolvency

SARFAESI Act vs EPF Act: Supreme Court Says Provident Fund Charge Prevails Over Bank
9Feb By The Legal ChamberNo Comments
Supreme Court

SARFAESI Act vs EPF Act: Supreme Court Says Provident Fund Charge Prevails Over Bank

This Supreme Court judgment interprets the interplay between the priority of secured creditors under Section 26E of the SARFAESI Act and the statutory first charge for provident fund dues under Section 11(2) of the EPF & MP Act. The Supreme Court held that the statutory first charge for provident fund contributions overrides the priority granted to secured creditors, even under a non-obstante clause in a later enactment. Facts Of The Case: The appellant, Jalgaon District Central Co-operative Bank Ltd., is a secured creditor which had advanced loans to a co-operative sugar society, secured by a mortgage and hypothecation of the society's assets. The sugar factory became defunct, leading to loan defaults. The bank initiated recovery under the SARFAESI Act, took possession o...
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Arbitrator’s Power on Interest Rates: Supreme Court Explains Key Legal Limits
6Feb By The Legal ChamberNo Comments
Supreme Court

Arbitrator’s Power on Interest Rates: Supreme Court Explains Key Legal Limits

This Supreme Court judgment clarifies the limited scope of judicial interference with arbitral awards under the Arbitration and Conciliation Act, 1996. The Supreme Court held that an arbitrator's discretion to award a contractual interest rate of 24% is not per se usurious or against public policy. It reaffirmed that courts cannot reappreciate evidence and may only set aside an award on the narrow, specified grounds under Section 34 of the Act, which were not met in this case. Facts Of The Case: The appellants, M/s Sri Lakshmi Hotels Pvt. Limited and its Managing Director, availed two loans totaling ₹1.57 Crore from the respondent Non-Banking Financial Company (NBFC) in 2006. The loan agreements stipulated an interest rate of 24% per annum. After making partial repayments until April 200...
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Investment vs. Debt: Supreme Court Explains Why Preference Shares Don’t Trigger IBC
13Jan By The Legal ChamberNo Comments
Supreme Court

Investment vs. Debt: Supreme Court Explains Why Preference Shares Don’t Trigger IBC

The Supreme Court held that Cumulative Redeemable Preference Shares (CRPS) represent an equity investment, not a financial debt under the IBC. Preference shareholders are not creditors, and redemption is contingent upon company profits under the Companies Act. Therefore, they cannot initiate insolvency proceedings under Section 7 of the IBC for non-redemption. Facts Of The Case: EPC Constructions India Limited (EPCC) held outstanding receivables from Matix Fertilizers and Chemicals Limited for construction work. In 2015, to help Matix meet lender-mandated debt-equity ratios, the parties agreed to convert ₹400 crores of dues into 8% Cumulative Redeemable Preference Shares (CRPS). Matix subsequently allotted CRPS worth ₹250 crores to EPCC. When the shares matured after three years, M...
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No Redemption After Auction Notice: Supreme Court Major Ruling on Bank Loan Recovery
10Nov By The Legal ChamberNo Comments
Supreme Court

No Redemption After Auction Notice: Supreme Court Major Ruling on Bank Loan Recovery

This Supreme Court judgment clarifies that the right of redemption of a mortgagor under Section 13(8) of the SARFAESI Act is extinguished upon the publication of the notice of sale, as per the 2016 amendment. The Court held that this amended provision is retrospective in operation and overrides the general right of redemption under the Transfer of Property Act, 1882. The ruling emphasizes that only a single composite notice of sale is required under the SARFAESI Rules, irrespective of the mode of transfer adopted by the secured creditor. Facts Of The Case: The borrowers, M/s KPK Oils and Proteins India Pvt. Ltd. and its guarantors, availed credit facilities from the respondent Bank in January 2016, creating an equitable mortgage over various properties. After the loan account was classif...
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SBI Wins Case: Supreme Court Rules OTS Application Invalid Without Upfront Payment
5Nov By The Legal ChamberNo Comments
Supreme Court

SBI Wins Case: Supreme Court Rules OTS Application Invalid Without Upfront Payment

The Supreme Court held that a borrower's failure to comply with the mandatory upfront payment requirement under a One-Time Settlement (OTS) scheme renders the application incomplete and not entitled to processing. The Court further ruled that, in judicial review, an administrative order of rejection can be upheld on an alternative legal ground apparent from the record, provided the affected party is granted a fair opportunity to respond. Facts Of The Case: The respondent, Tanya Energy Enterprises, availed credit facilities from the State Bank of India (SBI) by mortgaging seven properties but subsequently defaulted on its repayment obligations. After its account was classified as a non-performing asset, SBI initiated recovery proceedings under the SARFAESI Act. A prior One-Time Settlement...
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Who Gets Paid First? Supreme Court Reopens Case on Priority Between Employee Provident Fund and Secured Lenders
30Sep By The Legal ChamberNo Comments
Supreme Court

Who Gets Paid First? Supreme Court Reopens Case on Priority Between Employee Provident Fund and Secured Lenders

The Supreme Court remanded the matter to the High Court to determine the priority of charges between the EPFO, under Section 11(2) of the Employees' Provident Fund Act, 1952, and secured creditors, including Axis Bank, under Section 35 of the SARFAESI Act, 2002. The core legal issue for fresh adjudication is the conflict between the statutory first charge of EPFO dues and the primacy claimed by secured creditors. Facts Of The Case: M/s Acropetal Technologies Pvt. Ltd. defaulted on its Employees' Provident Fund (EPF) dues from July 2013. The EPFO determined a liability and, upon learning the company's properties were to be auctioned by various banks, invoked its priority under the EPF Act. The EPFO specifically asserted a first charge over the 'Attibele property' being auctioned by Axis B...
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Supreme Court: Company Balance Sheets Can Reset Limitation Clock for Creditors Under IBC
26Aug By The Legal ChamberNo Comments
Supreme Court

Supreme Court: Company Balance Sheets Can Reset Limitation Clock for Creditors Under IBC

The Supreme Court held that entries in a company’s balance sheet, when read in the context of surrounding circumstances and previous financial statements, can constitute a valid acknowledgment of debt under Section 18 of the Limitation Act, 1963, thereby extending the limitation period for filing an application under Section 7 of the IBC. The Court clarified that the exclusion period under its COVID-19 limitation order applied from 15.03.2020 to 28.02.2022, making the application timely. Facts Of The Case: The appellant, IL & FS Financial Services Ltd., extended a term loan of ₹30 crores to the respondent, Adhunik Meghalaya Steels Pvt. Ltd., on 27.02.2015, secured by a pledge of shares. The respondent's account was declared a Non-Performing Asset (NPA) on 01.03.2018. The appellant fi...
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