Karvy clients challenge IBC amendment on individual creditors2 min read . Updated: 08 Jan 2020, 02:29 PM IST
- The IBC amendments have imposed requirements of at least 100 creditors or 10% of a class of creditors in order for a petition to be filed
Clients of Karvy Private Wealth who saw defaults on their loans to builders introduced by Karvy have challenged recent amendments to the Insolvency and Bankruptcy Code (IBC), introduced by an Ordinance passed on 28th December. The IBC amendments have imposed requirements of at least 100 creditors or 10% of a class of creditors in order for a petition to be filed. According to the Karvy clients, this has placed unreasonable requirements on individual financial creditors.
A petition challenging the amendments was filed by the Association of Karvy Investors, a body representing various clients of Karvy Private Wealth on 7th January in the Supreme Court. Mint has seen a copy of the petition. “Individual investors of a Company are not necessarily localised and are spread out across the Country. Furthermore the contact details of the investors of the Company are not available publicly. Most of such investments are made through an intermediary, which itself is hand in gloves with the defaulting Corporate Debtor," the petition points out.
The petition also argues that the amendments discriminate between individual and corporate creditors by imposing the minimum thresholds on individuals but not on corporates, such as banks. “We have filed IBC petitions against the defaulting builders. However the amendments require the minimum number of creditor conditions to be met within 30 days of the amendment’s passage in all cases where orders have not been passed. This will cause the cases we have been fighting for a long time to fail," said a client of Karvy Private Wealth on condition of anonymity.
In addition to the class requirement, the Karvy clients have also challenged Section 10 of the Ordinance which says that the liability of a corporate debtor will cease to exist once a Resolution Plan is approved. According to the petition, this deprives creditors of remedies under other laws such as the Negotiable Instruments Act, 1881 (which governs cheque bouncing cases). “In several cases banks are the biggest lenders and constitute the majority of the Voting Share. Therefore they can easily outvote the smaller investors if the Resolution Plan is favouring them," the petition says.
Several Karvy clients had previously filed an FIR against Karvy Private Wealth for mis-selling the loans which Mint wrote about here.
“The Supreme Court may not strike down the amendment in toto as it was brought with a purpose. However the court may direct aggrieved creditors to approach the NCLT/NCLAT in cases where it is not practical to meet the minimum number of creditors requirement," said Babu Sivaprakasam, Partner, Economic Laws Practice.