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Personal insolvency proceedings cannot be used to frustrate proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
The National Company Law Tribunal, Mumbai Bench (“NCLT”), in Mrs. Vandana Ravindra Chaudhari vs. Union Bank of India[1], has reiterated that an application under Section 94[2] of the Insolvency and Bankruptcy Code, 2016 (“IBC”) cannot be used as a device to scuttle concluded or substantially progressed proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) by merely securing the benefit of the interim moratorium under Section 96 of the IBC. The NCLT held that where the timing and surrounding circumstances demonstrate that the insolvency application has been filed solely to stall recovery proceedings, such an application is liable to be rejected.
Brief facts
The present case arose from a company petition filed by Mrs. Vandana Ravindra Chaudhari (“Petitioner”), in her capacity as the personal guarantor to Heera Ind Trading Private Limited (“Corporate Debtor”) under Section 94 of the IBC, seeking initiation of the insolvency resolution process against herself.
The Respondent, Union Bank of India (“Respondent Bank”), had extended various credit facilities to the Corporate Debtor, which were, inter alia, secured by a Deed of Guarantee dated September 27, 2019, executed by the Petitioner to secure liabilities up to INR 45,00,00,000 (Indian Rupees forty-five crore). Owing to persistent defaults in repayment, the account of the Corporate Debtor was classified as a Non-Performing Asset (“NPA”).
Thereafter, the Respondent Bank issued a demand notice dated April 24, 2023 under Section 13(2) of the SARFAESI Act, followed by measures under Section 13(4) on September 2, 2023, to enforce its security interest.
Subsequently, the Petitioner initiated proceedings under Section 94 of the IBC. Pursuant thereto, a resolution professional was appointed, who submitted a report under Section 99 of the IBC recommending admission of the application on the ground that the statutory requirements under Section 94 of the IBC stood satisfied. The filing of the application also resulted in the commencement of the interim moratorium under Section 96 of the IBC, which operated against the ongoing SARFAESI proceedings.
In the present company petition, the Respondent Bank filed the interlocutory application[3] inter alia seeking rejection of the Company Petition contending that it was filed solely with a view to misuse the provisions of the IBC and to avail the benefit of the moratorium without any bona fide intention to resolve the outstanding debt or to arrive at any settlement with the creditors. The Respondent Bank further contended that the secured asset, which formed the subject matter of the sale notice dated May 9, 2025, had already been successfully auctioned on May 30, 2025, prior to the filing of the Section 94 application on June 9, 2025. Therefore, in view of the concluded auction, it submitted that the secured asset ought to be excluded from the personal insolvency resolution process. It was also contended that, since the secured asset was jointly owned by the Petitioner and another co-owner, the resolution professional or bankruptcy trustee would, in any event, be unable to effectively administer or realise the asset during the insolvency process.
The Petitioner opposed the interlocutory application, contending that the Section 94 application had been filed bona fide and diligently prosecuted by promptly curing all office objections, furnishing all requisite documents to the resolution professional, and seeking no adjournments. The Petitioner denied that the application had been filed merely to obtain the benefit of the interim moratorium. It was further submitted that although the auction had been conducted, the sale had not attained finality in accordance with the SARFAESI Act and the Security Interest (Enforcement) Rules, 2002. Consequently, no valid third-party rights had crystallised in favour of the auction purchaser. The Petitioner also contended that the sale certificate, having been issued during the subsistence of the interim moratorium i.e., June 20, 2025, was non est in law. Reliance was placed on the judgment of the Hon’ble Bombay High Court[4], which held that the sale would attain finality only upon issuance of a valid sale certificate in accordance with law, and on the subsequent order of the Hon’ble Supreme Court of India directing the parties to maintain status quo. Lastly, the Petitioner contended that the prayer seeking exclusion of the secured asset from the personal insolvency resolution process was misconceived and was, in any event, governed by Section 110 of the IBC.
Issue
Whether the petition filed under Section 94 of the IBC fulfils the statutory requirements for admission and whether it constitutes an abuse of process intended to invoke the interim moratorium under Section 96 of the IBC to frustrate concluded SARFAESI proceedings?
Analysis and findings
- Pendency of proceedings concerning the secured asset not determinative of the Section 94 application: At the outset, the NCLT observed that the controversy regarding the creation of third-party rights over the secured asset was already pending before the Hon’ble Supreme Court of India. Accordingly, the NCLT declined to render any conclusive finding on whether the auction sale had attained finality. The NCLT further observed that, even upon admission of a Section 94 application, the rights of a secured creditor are protected under Section 110 of the IBC, which preserves the secured creditor’s right to realise or otherwise deal with its security interest outside the personal insolvency resolution process. Consequently, the dispute concerning the secured asset or the alleged crystallisation of third-party rights was held not to be determinative of whether the Section 94 application satisfied the statutory requirements for admission.
- Section 94 cannot be invoked to scuttle concluded SARFAESI proceedings: The principal issue before the NCLT was whether the present application had been filed with a bona fide intention to resolve the insolvency of the personal guarantor or merely to invoke the interim moratorium under Section 96 of the IBC and frustrate the SARFAESI proceedings. Applying the same principle to the facts of the present case, the NCLT noted that the Respondent Bank had initiated SARFAESI measures in September 2023, conducted 9 (nine) unsuccessful auction attempts, issued a fresh sale notice on May 9, 2025, and ultimately completed the auction of the secured asset on May 30, 2025. Section 94 application was, thereafter, filed on June 9, 2025, despite the Petitioner having had ample opportunity to invoke the insolvency process much earlier. The NCLT made the significant observation that it was only after the mortgaged property had been successfully auctioned that the Petitioner ‘woke up’ and initiated the personal insolvency resolution process. The NCLT also placed reliance on the decision of the Hon’ble National Company Law Appellate Tribunal in Ashwani Kumar Oberoi vs. State Bank of India and Ors.[5], wherein the Appellate Tribunal held that the provisions of Section 94 of the IBC cannot be resorted to for the purpose of scuttling a concluded auction sale and that a personal guarantor seeking to challenge measures under the SARFAESI Act must pursue the appropriate remedy before the Debts Recovery Tribunal. On this basis, the NCLT concluded that the application was intended to scuttle the concluded auction process by taking shelter under the interim moratorium provided under Section 96 of the IBC and could not be regarded as a bona fide attempt to resolve the insolvency of the personal guarantor.
Accordingly, the NCLT rejected the Section 94 application, allowed the financial creditor’s interlocutory application seeking its dismissal, and disposed of the intervention application filed by the auction purchaser.
Conclusion
The judgment reinforces that Section 94 of the IBC is a remedy intended for genuine insolvency resolution and cannot be deployed as a tactical device to scuttle concluded or substantially progressed proceedings under the SARFAESI Act by invoking the interim moratorium under Section 96 of the IBC. In the judgment, the NCLT laid emphasis on the chronology of events, i.e. 9 (nine) unsuccessful auction attempts between February 2024 and December 2024, followed by a successful e-auction on May 30, 2025, with the Section 94 application being filed only on June 9, 2025. The judgment concludes that the Petitioner ‘woke up’ to initiate the insolvency process only after the mortgaged property had been sold, thereby evidencing an absence of a bona fide intent.
For financial creditors, the judgment provides practical guidance on resisting belated Section 94 applications where proceedings under the SARFAESI Act have substantially progressed or concluded. On the contrary, personal guarantors should be mindful that the timing of a Section 94 filing will be closely examined and that a delayed application, particularly one filed after the conclusion of an auction, is likely to be treated as an abuse of process rather than a genuine invocation of the insolvency framework.
This Prism has been prepared by:
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Varghese Thomas |
Ahsan Allana |
Dishay Chitalia |
For more details, please contact km@jsalaw.com.
[1] In Inv P(IBC) No. 22/(MB)/2026 and IA(IBC) No. 502/(MB)2026 in CP(IB) No. 794/MB/2025 (decided on June 2, 2026)
[2] Section 94 of the IBC provides a mechanism for a debtor, who has committed a default, to apply to the Adjudicating Authority, either personally or through a resolution professional, for initiation of the insolvency resolution process. The application is subject to the statutory conditions and disqualifications prescribed under Section 94 of the IBC, including that it may be made only in respect of debts which are not excluded debts and cannot be made by a person who is, inter alia, an undischarged bankrupt or is undergoing a fresh start process or an insolvency resolution or bankruptcy process. Upon filing of an application under Section 94 of the IBC, an interim moratorium will commence on the date of the application in relation to all the debts and cease to have effect on the date of admission of such application, as per Section 96 of the IBC.
[3] (IBC)/502/MB/2026
[4] Writ Petition No. 11132 of 2025
[5] Company Appeal (AT) (Ins.) No. 741 & 742 of 2026
