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NCLT initiates bankruptcy proceedings against Kerala entrepreneur

The Rs 72 crore loan was tagged as NPA in 2017. Following this, banks moved debt recovery tribunal and ultimately NCLT seeking recovery.​

January 31, 2022 / 07:01 PM IST

The National Company Law Tribunal at Kochi has initiated insolvency proceedings against Sahadulla MI, the Chairman and Managing Director of KIMS Healthcare Management Ltd for standing as a personal guarantor to a loan of over Rs 72 crore that was given to Green Gateway Leisure Ltd. by a clutch of lenders including State Bank of India. The accounts of this company were declared as non-performing asset (NPA) in 2017. Banks classify a loan as NPA if there is no repayment of interest or principal for a period of 90-days. Banks need to set aside more money against potential losses from such loans called as provisions. High provisions impact the profitability of a bank.

While insolvency proceedings under the Insolvency and Bankruptcy Code had already been initiated against the company which is the corporate debtor, the lender also sought to hold Sahadulla responsible for the guarantee furnished by him for the defaulted amount exceeding Rs 72 crore. A guarantor is a person entity that promises to pay back the loan amount if the borrower fails to do so. In the event of a loan default, banks can hold the guarantor as a responsible party.

How does it work?

On initiation of insolvency proceedings, the resolution professional appointed by the insolvency court is required to issue public notices informing about the resolution process and a moratorium in terms of all debts is put in place for a stipulated period of time. No lenders can initiate any legal proceedings against Sahadulla in relation to any debt until the time such a moratorium is in place. Additionally, Sahadulla is barred from alienating or disposing of any of his assets and properties till the time such proceedings are underway. All the claimants will submit their debt claims to the resolution professional following which a repayment or resolution plan will have to be drawn up.