The subject is dealt with under Section 15 titled -"Manner and effect of take over of management". The initial step, i.e. publication of a notice in newspapers initiating the procedure for take over is specified in Section 15(1)(a) and (b), which read as under:

1. When the management of business of a borrower is taken over by the secured creditor, the secured creditor may, by publishing a notice in a newspaper published in English language and in a newspaper published in an Indian language in circulation in the place where the principal office of the borrower is situated, appoint as many persons as it thinks fit-

   1. in a case in which the borrower is a company as defined in the Companies Act, 1956, to be the directors of that borrower in accordance with the provisions of that Act; or

   2. in any other case, to be the administrator of the business of the borrower."

The responsibilities of the existing directors/administrators of the borrowing concern, consequent to the publication of the notice as above, are specified in Section 15(2)(a) and (b) as under-

2. On publication of a notice under sub section (1),--

   1. in any case where the borrower is a company as defined in the Companies Act, 1956, all persons holding office as directors of the company and in any other case, all persons holding any office having power of superintendence, direction and control of the business of the borrower immediately before the publication of the notice under sub-section (1), shall be deemed to have vacated their offices as such;

   2. any contract of management between the borrower and any director or manager thereof holding office as such immediately before publication of the notice under sub-section (1), shall be deemed to be terminated;"

   The action to be initiated by the newly appointed directors/administrator is specified in Section 15(2)(c) of the Ordinance as under-

   3. the directors or the administrators appointed under this section shall take such steps as may be necessary to take into their custody or under their control all the property, effects and actionable claims to which the business of the borrower is, or appears to be, entitled and all the property and effects of the business of the borrower shall be deemed to be in the custody of the directors or administrators, as the case may be, as from the date of the publication of the notice;

   4. the directors appointed under this section shall, for all purposes, be the directors of the company of the borrower and such directors or as the case may be, the administrators appointed under this section, shall alone be entitled to exercise all the powers of the directors or as the case may be, of the persons exercising powers of superintendence, direction and control, of the business of the borrower whether such powers are derived from the memorandum or articles of association of the company of the borrower or from any other source whatsoever."

Section 16 of the Ordinance titled "No compensation to directors for loss of office." also relate to the existing Directors/Officers and read as

1. Notwithstanding anything to the contrary contained in any contract or in any other law for the time being in force, no managing director or any other director or a manager or any person in charge of management of the business of the borrower shall be entitled to any compensation for the loss of office or for the premature termination under this Ordinance of any contract of management entered into by him with the borrower.

2. Nothing contained in sub-section (1) shall affect the right of any such managing director or any other director or manager or any such person in charge of management to recover from the business of the borrower, moneys recoverable otherwise than by way of such compensation.

The Ordinance further prohibits the shareholders of the Company in acting in any manner prejudicial to the take over of the management. Section 15(3) specifies as under-

3. Where the management of the business of a borrower, being a company as defined in the Companies Act, 1956, is taken over by the secured creditor, then, notwithstanding anything contained in the said Act or in the memorandum or articles of association of such borrower,--

   1. it shall not be lawful for the shareholders of such company or any other person to nominate or appoint any person to be a director of the company;

   2. no resolution passed at any meeting of the shareholders of such company shall be given effect to unless approved by the secured creditor;

   3. no proceeding for the winding up of such company or for the appointment of a receiver in respect thereof shall lie in any court, except with the consent of the secured creditor.

It is clear that the secured creditor will initiate steps for take over the management of the borrower's business/Company. But a bank or financial institution may not be competent to directly manage or carry on such business (a non-banking venture) departmentally and it is but logical that the management is handed over to the ARC/SC, along with the secured assets for securitisation & reconstruction of the assets. It is also obvious that once the ARC/SC enters into a firm agreement to take over of the assets, the bank/FI cannot control management of the borrower's enterprise and per se has to hand over to the ARC/SC. It is pertinent to point out that Section 15 of the Ordinance does not empower the bank/FI to departmentally manage the business, but only to appoint a new team of directors or administrator to manage the business of the borrower.

How long to run the management after take over by the secured creditor? It is obvious the management is taken over by the secured creditor to realise his dues. Once the dues are realised, it has no right or reason to continue managing the business. This is explained in Section 15(4) as under-

4. Where the management of the business of a borrower had been taken over by the secured creditor, the secured creditor shall, on realisation of his debt in full, restore the management of the business of the borrower to him