29 June 2013
There are two Companies, Company X and Company Y two which Bank had sanctioned Cash Credit and other loans to the tune of Rs. 300000 and Rs. 200000 respectively against the mortgage of Land and Building and Hypothecation of Machinery. Company Y has also given Corporate Guarantee to Company X for availing the said loans. Both the company defaulted in repayment due to internal disputes between the directors. Some of the directors of Company Y are also the directors in company X.The Bank i.e. secured creditor classified both the company accounts NPA and initiated action under SARFAESI Act 2002.
Now the stage is as under:
Company Y: 1. The assets of the company are sold under public auction and Rs.500000/- are received by the Bank. 2. The Bank had set-off all the loans from the said amount received to the tune of Rs. 200000/- and balance Rs. 300000/- is kept in the company's Cash Credit account i.e now the Company's Cash Credit account is having the credit balance of Rs. 300000/-. The said amount is kept for the Corporate Guarantee given by the Company Y to Company X and also for the Statutory dues payment if any arises in the future.
Company X: 1. The assets of the said company were also put for public auction but no bid was received hence there is no auction sale of the said property.
Now there are following issues before the Bank? 1. Can Bank appropriate the said credit balance in company Y with the loan outstanding of company X under the corporate guarantee given by Company Y? 2. If appropriated what are the repercussions of that on the action initiated under SARFAESI Act 2002? 3. If only 80% of the amount outstanding gets settled of Company X, out of the Credit Balance of Company Y? then what the remedy available for the Bank to recover the Balance 20% dues of the Company X? 4.There is provision in the SARFAESI Act that if more than 80% amount is recovered then the Bank cannot initiate action under SARFAESI Act? What about that? 5. What is the situation if all the accounts are settled of Company X out of the credit balance in the Comapny Y account? 6. What is the situation if only 80% of the amounts get settled out of the credit balance in the Comapny Y account? 7. Any other issues which you think fit to discuss considering the whole gamut of situation?
30 June 2013
1. Yes, Bank has right to do so, provided Bank has raised the demand on the Corporate guarantee. 2. After full satisfaction of the loan, Bank should not proceed against X under SARFAESI Act or otherwise. 3. In such case Bank can proceed for balance 20%. 4. Bank may proceed alternatively. 5. If all the accounts settled from the proceeds from Company Y, Company y will enter into the shoes of the lender and can realize its payment from the Assets of X charged to the Bank. 6. Refer 3. 7. Nil
01 July 2013
1. The Bank can file an Original Application under Recovery of Debts Due to Bank & Financial Institution Act,1993 for recovering 100% dues of X Company from X Company &/or its guarantor,
2. After receiving the Recovery Certificate, the Bank can appropriater the amount lying with Y's account, being the Guarantor of X Company & the balance 20% (if only 80% could be realised from Y's account) can be realised from the remaining assets of X Company, if any.