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Ahmedabad Rules Consortium Creditors Cannot Unilaterally Release Charges Without Co-lender Consent
In a significant ruling concerning the integrity of structures, the (), Ahmedabad Bench, has affirmed that a lead creditor cannot unilaterally release a without the consent of other charge holders. The decision, delivered by a Bench comprising Judicial Member Chitra Hankare and Technical Member Dr. Velamur G Venkata Chalapathy, addresses the fraudulent transfer of assets by the suspended management of during the .
The Genesis of the Dispute
Baid Industries, a yarn manufacturer, had availed financial facilities exceeding ₹54 crore under a consortium led by the (SBI), with (now assigned to ) as a participant. The industrial land located in the (GIDC) Panoli estate was mortgaged to both lenders under a charge arrangement.
Following defaults, (MARC) initiated insolvency proceedings in . However, while these proceedings were pending, SBI entered into an independent with the company. Upon receiving ₹16 crore, SBI issued a and released its charge over 37,104 square meters of the land. Exploiting this, the suspended directors subdivided the plot and transferred portions to various entities in , effectively bypassing the interests of the remaining co-creditor, MARC.
Contentions of the Parties
The liquidator argued that the unilateral release by SBI did not extinguish the held by MARC. It was contended that the mortgaged property remained encumbered by the subsistence of the charge, and that the suspended management, in collusion with the purchasers, engaged in fraudulent transactions to siphon off assets.
Conversely, the respondents, including the suspended directors, argued that SBI, as the lead bank, had the authority to issue the NOC under the OTS agreement. GIDC maintained that its approval for sub-plotting was based on the clearance provided by the lead bank.
Legal Analysis and Observations
The Tribunal sharply criticized the lapses in credit discipline. It noted that the creation of joint titles and charges imposes an obligation of transparency and mutual consent. The Bench found that GIDC’s reliance solely on the NOC from one creditor, ignoring the existence of a joint charge, was a procedural failure.
Key observations from the judgment include:
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"Ceding of charge without consent/information of other lender is not in the proper course and cannot be considered admissible under any law and practice."
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"As per IBC provisions, there is a responsibility of the co lender under paripassu or under consortium lender to realise the property as per the agreement."
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"This clearly is done during the at the cost of the other creditor, namely MARC, which was already before this Tribunal."
Final Order and Implications
Recognizing that the property had already been sold to third parties, the declined to reverse the transfers. Instead, it invoked its powers under Rule 11 of the Rules, 2016 to ensure equitable recovery.
The Bench ordered the suspended directors of Baid Industries to restore ₹5,14,24,288—the valuation of the prejudice caused—along with 12% simple interest, to the liquidator. This amount will be adjusted among the rightful claimants. The ruling serves as a stern reminder to banks and regulatory bodies that individual settlements within a consortium cannot supersede the collective rights of co-creditors under an established security framework.
