Home / Business and Economy / Court Slams Loan Default Immunity Tactic
Court Slams Loan Default Immunity Tactic
19 Mar
Summary
- Defaulters use IBC to gain 'cloak of immunity' via moratorium.
- Such tactics frustrate creditors and harm national economy.
- Court criticized misuse of legal provisions in a property auction case.
The Bombay High Court has sharply criticized the strategic misuse of the Insolvency and Bankruptcy Code (IBC) by loan defaulters and guarantors. The court stated that these individuals often use the IBC to trigger a moratorium, effectively granting themselves a "cloak of immunity" and frustrating the efforts of secured creditors.
This practice, the court noted, paralyses lawful recovery processes and is detrimental to the country's economy and financial health. A disturbing trend observed involves chronic defaulters waiting until property auctions are imminent before initiating IBC proceedings at the National Company Law Tribunal (NCLT) to stall recovery.
The court's remarks were made while addressing a petition concerning the auction of a south Mumbai property. The Debt Recovery Tribunal (DRT) had initially halted the sale registration due to IBC proceedings, but the High Court quashed this order, stating the sale certificate was issued prior to the IBC filing.
The bench emphasized that the court cannot be a silent spectator when such misuse of legal provisions leads to a failure of justice. The objective of the IBC is to resolve insolvency in a time-bound manner, not to provide a shield for defaulters against legitimate recovery actions.
