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In order to decide upon all the matters related to companies, banks, and financial institutions, the Central Government constituted a quasi-judicial adjudicating authority. The authority is National Company Law Tribunal (NCLT), under Section 408 of the Indian Companies Act, 2013. The composition of NCLT not only dispense with the issues related to the corporate sector. But it also encouraged to promote the interests of Banks, the financial sector institutions and stakeholders. Hence dealing with the crisis related to the Non-performing asset. In this blog, we would be discussing how NCLT helps in promoting the interests of banks and financial institution.
If Financial Debtor makes any default in making a payment or fails to repay financial debt, Financial Creditor i.e. Banks and Financial Institutions have the option to approach the National Company Law Tribunal. It will initiate the Corporate Insolvency Resolution Process under Section 7 of Insolvency and Bankruptcy Code, 2016.
Besides NCLT, Debt Recovery Tribunal (DRT) under Section 3(1) of Recovery of Debt due to Banks and Financial Institution Act, 1993, has also been assigned with some powers. It has to act as adjudicating authority for the purpose of resolving matters related to banks and financial institutions.
Corporate Insolvency[1] Resolution Process or liquidation of a corporate debtor can be initiated before NCLT having jurisdiction where the registered office of the corporate entity is presently situated.
Although adjudicating authority to settle matters pertaining to partnership firms and individuals is Debt Recovery Tribunal. NCLT is empowered to adjudicate matters related to the corporate entity. But in case of individuals who act as a personal guarantor of the corporate debtor, Insolvency Resolution Process need to be filed before NCLT. In such cases, NCLT shall be vested with powers of DRT to settle matters related to personal guarantors.
Under IBC ‘Default’ means failure to fulfill an obligation. Especially to repay the whole or part debt due to not only to applicant financial creditor but to others also.
Financial Debt is defined under Section 5(7) of the IBC which means Loan amount borrowed against interest to be paid by the borrower. It also includes loan sanctioned under credit facility and bonds, debentures, loan stock or other similar Instruments issued. Certain instances of financial debt are:
Read More: Complete Story Behind Non Banking Financial Institutions Registration across India.
When default has been made an Application to initiate Resolution Process under Section 7 of IBC can be filed either alone or jointly by:
There are certain conditions that the petitioner has to fulfill before filing a petition under Section 7 and 8 of IBC. They are not specifically defined under IBC but as per guidelines laid down by Hon’ble Tribunal certain procedure has to follow to avoid any slightest dispute between the parties.
Financial Creditor needs to dispatch the Demand Notice to Corporate Debtor. He needs to mention amount due and ask him to repay the amount within the prescribed limit of time. If Financial Creditor doesn’t receive a claim amount within 10 days, then he can initiate the insolvency process by filing an application under Section 7 of IBC. The NCLT within 14 days of application either accepts the application or reject the same. If the tribunal is satisfied with the facts of the case, notices will be sent to opposite parties. Further, an IRP will be appointed.
Earlier the obligation to initiate a resolution process lies with the Corporate Debtor, as Financial Creditor had the option to pursue difference recourse for redressal of its grievances such as Suit for recovery, security enforcement, Criminal Complaint, Complaint under NIA and debt restructuring. But now Code has made a significant departure from the existing resolution regimen. It is by shifting the responsibility on the financial creditor to initiate the insolvency resolution process against the corporate debtor.
IBC Code brings many benefits for the banks and financial institutions. Some of the benefits are as follows:
IBC by empowering NCLT to resolve matters related to banking and financial institution not only helped to resolve the NPA issue. Further, it helps to improve their performance and stability by realizing their assets. Unlike earlier proceedings which take a long time to recover the loan amount, IBC gave alternative and speedy recourse to resolve the dispute.
For more information, you can contact the team of experts at Enterslice.
Also, Read: How to Start a Small Finance Company in India?.
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