Deal Street

November 20, 2017

Navratna, first Indian company takes over management of debtor

Navratna Company

Under provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI), NAVRATNA enterprise; amid all the hype and popularity of taking over the management of the affairs of the Corporate Debtor under the Insolvency And Bankruptcy Code, 2016 (IBC); has become the first company in India to take over management of a debtor.

Rural Electrification Corporation Ltd. (REC), a NAVRATNA Central Public Sector Enterprise that evolved under the Ministry of Power of Government of India, has become the first company in India to take over management under the SARFAESI.

REC initiated action under Section 13(4)(b) of the SARFAESI, which allows the creditor to take over the management of the business of debtor “including the right to transfer by way of lease, assignment or sale for realising the secured asset”. Facor Power Limited (Facor) is the debtor company with a total debt due to the tune of approx. Rs. 780 Crores.

In September 2015, REC was classified Facor as a Non-Performing Asset (NPA), and a notice demanding repayment of the debt due was issued as is required under Section 13(2) of the SARFAESI; prior to taking over the management.

Later, REC took over the ownership of the secured assets of the Facor under Section 13(4) of the SARFAESI and finally started to take over the management. The company will be managed and run by REC now until its dues are cleared.

The difference between an action under IBC and SARFAESI is that the IBC provides for a collective action, which can be triggered by a financial or an operational creditor whereas the SARFAESI is an individual recovery action undertaken only by a secured creditor for enforcing a specific contract or foreclosing one or more specific security interest(s).

REC was advised and assisted by Dhir & Dhir Associates, who throughout provided all the legal support/assistance /advice for initiating the entire action under the SARFAESI Act.

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