Paritosh Pandey:
Forwarded as received
Query 1. What will happen to the loans given by the Banks as the company doesn’t exist legally.
Answer:
The banks and FI’s are generally the secured creditors who have certain charge on the properties of the Company. After the appointment of the Interim Resolution professional (Section 18), a Committee of Creditors u/w 21 of IBC will be formed. Thereunder, the Financial Creditors of the Company shall meet u/s 24 and discuss the financial standing of the Company and how to revive the same. The said committee of creditors will attempt to revive the company by forming an Insolvency Resolution Plan (Section 30). The said resolution plan shall include the following:
introduction of strategic investor by the Company to infuse funds into the Company and pay off the debts of the Company
One time Settlement offer by the Financial creditors.
The Resolution plan shall be submitted by the committee of creditors to the NCLT who shall see if the said resolution is viable and agreeable to all the financial creditors. If not, then only the liquidation process of the Company starts under Section 33 of the IBC.
Please note that the commencement of the Insolvency resolution process does not mean the end of the Company. The so called end of the Company happens only when the Insolvency Resolution process fails and the liquidation of the company is done. If such a stage comes, then a debt distribution (proportionate to the loan disbursed by the bank) would be done out of the proceeds of disposal of the surviving assets of the Company (since the actual assets on which charge was created never came into existence).
Question 2.
What will happen to the existent residents of wish town?
Answer 2: As stated in the previous answer, the Company will try and bring a strategic investor to infuse funds or a proposal can come from other company to take over all the debts of the Company. This shall revive the Company and the whole process shall be executed under the guidance of the Committee of creditors. If no strategic investor comes up or no resolution takes place, then the residents of the said locality can approach the Courts by way of a Writ Petition or an IA before the NCLT seeking the takeover of management of the Flats by a Government Entity by way of infusion of funds. A collective approach by all the residents can be taken to join the list of creditors in the liquidation process and get a fair amount of maintenance charges as a creditor of the Company. In any case, once the matter proceeds to liquidation, the supervisory role of the company with respect to the allotted flats would have to be handed over to the Residents' Association which would be a registered co-operative society.
Question 3.
What will happen to the semi Built towers as they are on land owned by the Company and since the company does not exist legally what will happen to quadrilateral agreements?
Answer 3. Please see the answer to Question 1. The Company will not cease to exist once the IRP is appointed and it will not cease to exist unless and until its assets are liquidated after failiure of the whole procedure of Insolvency Resolution. If the resolution plan fails, the liquidation process will start and the said process shall take care of all the agreements and all the legal charges of the banks and FI’s. It must be understood that if there has been any sale of apartment/shop/unit in a semi built tower, the same would not be without a proportionate sale of land rights to the buyers. Consequently, these units and their accompanying land rights, cease to be 'assets' of the company. The liquidation process shall not treat these as the Company's Assets and only the remaining/surviving rights of the Company in the unsold portions of these towers will be treated as disposable assets. Once such portion is disposed, alongwith other surviving assets of the Company, the proportionate share of the banks would be disbursed. Please note that merely because the item of bank's specific charge has ceased to exi
st, there is no bar to giving a share of the proceeds of liquidation of some other asset to the bank in settlement of its loan. The contents of the quadrilateral agreement would have to be examined to give any further opinions. We need to understand that the above arrangement can be twisted and modified to protect the interests of the existing buyers on one hand and getting the maximum out of the company's surviving assets on the other.
Question 4.
Fully built towers in which people are living shall also face the same fate as the quadrilateral agreement will become infructous.
Answer 4. Same as above. The nature of the quadrilateral agreement is to be seen. Once the company goes into liquidation, the liquidator shall take the place of the Company in all the agreements and all the obligations arising under the agreement, shall be discharged using the sale proceeds of the other surviving assets of the company. The question as to what happens to the Banks' specific charge on these assets would have to be answered after having a look at the agreement- if the buyers have the secondary responsibility of paying the EMI when the Company fails, then the buyers have to adhere to the same and pay EMI to the banks. Any losses caused to the buyers because of the same shall constitute an actionable debt which can be met by a proportionate disbursement of the sale proceeds arising out of the sale of other assets.
Question 5.
Lot many banks have given loans to different flat owners of the same tower. How will the bank execute the loan agreements when the company cease to exist.
Answer 5: The Company does not cease to exist till the time it is wound up. Till that time the banks and FI’s shall have an active charge on the properties of the Company. These banks and FI’s will be part of the committee of creditors who will help the Company to revive by giving OTS proposals and formulate a rehabilitation scheme for the Company. All the banks who have given loan to the Company and the buyers shall have charge over the properties of the company as financial creditor and all of them will be part of the committee of creditors. Even in the liquidation process, these banks will ensure that they get their due proportionate to the loan advanced, when the disposal proceeds of other existing assets reach the liquidator.
Regards,
Krishnamohan K Menon |
Advocate-on-Record, Supreme Court of India
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