Misuse of Insolvency and Bankruptcy Code by loan defaulters has tendency to badly impact economy: HC

MUMBAI: (Mar 19) The Bombay High Court has deprecated the misuse of provisions of the Insolvency and Bankruptcy Code (IBC) by loan defaulters and guarantors to "wear a cloak of immunity" by triggering a moratorium, and said this practice has the tendency to adversely impact the country's economy.

A bench of Justices Manish Pitale and Shreeram Shirsat, in an order passed on Wednesday, said such strategies by loan defaulters frustrate the very objective of the IBC and paralyse the whole process of lawful steps taken by secured creditors, adding that the court cannot remain a mute spectator when misuse of legal provisions demonstrates failure of justice.

The court said it has noticed a "disturbing trend" in which chronic defaulters take resort to the provisions of the IBC to frustrate secured creditors and auction purchasers from proceeding under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act.