Effect Of Takeover Of Management

The takeover of assets, has following effect:

• Shareholders cannot appoint directors - After the takeover of assets, shareholders of company cannot appoint or nominate any director of the company.
• No resolution without consent of secured creditors - Any resolution passed by shareholders will be effective only if approved by secured creditors.
• No proceeding for winding up - No proceeding for winding up of such company or appointment of receiver shall lie in any court, without the consent of secured creditor.
• No compensation for loss of office - Any Managing Director or Director of the borrower shall not be entitled to any compensation for loss of office or for premature termination of any contract of agreement with the borrower. However, the MD or director or manager shall be entitled to any other money receivable, other than compensation.

Appeal To Debt Recovery Tribunal (DRT)

Any person aggrieved by any measure taken by secured creditor or his authorised officer may file an appeal to Debts Recovery Tribunal, within 45 days from date on which such measure was taken. i.e. action of taking possession of asset, takeover of management of business of borrower, appointing person to manage secured asset etc. is taken by the creditor.

When a borrower files an appeal, the appeal cannot be entertained unless; the borrower deposits 75% of the amount claimed in the notice by secured creditor. The DRT can waive or reduce the amount required to be deposited. The amount is not required to be deposited at the time of filing appeal, but appeal will not be heard till the amount is deposited. The borrower while filing the appeal should also file an application requesting the Debt Recovery Tribunal to admit the appeal without deposit of any amount. It the DRT orders partial deposit of the amount and the same is not deposited, appeal can be dismissed.

The 75% deposit is only required if the appeal is filed by the borrower. If some other aggrieved person (e.g. guarantor, shareholder) files it the deposit is not required.

Debt Recovery Appelate Tribunal

If a person is aggrieved by the order of the DRT, it can file an appeal to the Appellate Tribunal within 30 days from date of receipt of the DRT order.

If the DRT or Appellate Tribunal holds that possession of assets by the secured creditor was wrongful and directs the secured creditor to return asset to concerned borrower, the borrower shall be entitled to compensation and costs as may be determined by DRT or Appellate tribunal.

The Tribunal can also direct return of asset, if the secured creditor had already sold or transferred the asset to a third party.