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      Question

      Section 15(4) of the SARFAESI Act provides that after

      taking over management, the secured creditor shall restore the management of the borrower's business upon realisation of debt in full. However, there is a proviso to Section 15(4). What does this proviso state?
      A The secured creditor may retain management for a further period of two years Correct Answer Incorrect Answer
      B Management restoration is subject to approval by the RBI Correct Answer Incorrect Answer
      C Management need not be restored if the borrower has committed fraud Correct Answer Incorrect Answer
      D If the secured creditor (or ARC/FI) has converted part of its debt into shares and thereby acquired controlling interest, it is not liable to restore management Correct Answer Incorrect Answer
      E Restoration of management is mandatory within 30 days of realisation Correct Answer Incorrect Answer

      Solution

      Section 15(4) ordinarily requires the secured creditor to restore the management of the borrower's business to the borrower upon full realisation of the secured debt. However, the proviso (inserted by the 2016 Amendment Act) carves out an exception: if any secured creditor jointly with other secured creditors, or any ARC, financial institution, or assignee, has converted part of its debt into shares of the borrower company and thereby acquired controlling interest in the borrower company, such secured creditors shall not be liable to restore management to the borrower. This exception recognises that debt-to-equity conversion fundamentally changes the legal and commercial relationship.

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