Isabella Mariam

The High Court of Bombay Division Bench of Justice R.I. Chagla and Farhan P. Dubash dismissed a writ petition by a successful auction purchaser seeking possession of a mortgaged flat, holding that enforcement steps under the SARFAESI sale process cannot continue once an interim moratorium under the Insolvency and Bankruptcy Code takes effect on commencement of a personal insolvency application. The Court held the secured creditor was not entitled to accept the post-moratorium balance sale consideration or proceed to issue the sale certificate, and that the sale did not stand completed. Consequently, the auction purchaser was found to have acquired no ownership and no right to possession.

The writ petition was filed by a successful auction purchaser seeking physical possession of a residential flat sold by a secured creditor under the SARFAESI Act. The property belonged to two co-owners who had availed credit facilities from a public sector bank and had mortgaged the flat as security. Upon default, the loan account was classified as a non-performing asset, followed by issuance of a demand notice and symbolic possession under the SARFAESI framework.

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Subsequently, the bank issued an auction sale notice and conducted an e-auction in which the petitioner emerged as the highest bidder. Part of the sale consideration was deposited prior to the filing of a personal insolvency application by one of the borrowers under the Insolvency and Bankruptcy Code. Upon such filing, an interim moratorium under Section 96 of the IBC came into effect. The remaining sale consideration was paid thereafter and a sale certificate was issued by the bank.

The borrowers challenged the sale before the Debt Recovery Tribunal, contending that the sale process violated the interim moratorium. As possession was not handed over despite issuance of the sale certificate, the auction purchaser approached the High Court seeking directions to compel delivery of possession.

The Court examined the statutory scheme governing enforcement of security interests and personal insolvency. It observed that under the SARFAESI Act and the applicable Rules, “the transfer of ownership of the secured asset is complete, only upon the issuance of the sale certificate and not at any time prior to that.” Relying on binding precedent, the Bench noted that a statutory sale is concluded only when full consideration is paid and a sale certificate is issued in accordance with Rule 9(6).

On the effect of the 2016 amendment to Section 13(8) of the SARFAESI Act, the Court stated that the amendment “only advances the date on which the right of redemption is lost,” and does not result in automatic extinguishment of ownership upon issuance of a sale notice. The Bench recorded that “the equity of redemption is only a facet of the bundle of rights that constitute ownership,” and loss of such right does not by itself divest the borrower of title.

Turning to the interim moratorium, the Court observed that Section 96 of the IBC operates “in respect of any debt,” and that upon filing of a personal insolvency application, “any pending legal action or proceeding in respect of any debt shall be deemed to have been stayed.” It held that acceptance of balance sale consideration and further steps toward completion of sale during the subsistence of the interim moratorium were impermissible.

Applying these principles, the Court recorded that since substantial portions of the sale consideration were accepted after the interim moratorium came into force, the statutory requirements for completion of sale were not met. Consequently, “there is no transfer of ownership of the secured asset in favour of the successful auction purchaser.”

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The Court directed that “we do not find any merit in the present Writ Petition. The present Writ Petition is hereby dismissed with no order as to costs.”

It was “unable to take any countenance” of the submission seeking refund of the auction amount since “no reliefs to that effect have been sought” in the writ petition, and recorded: “We leave this issue open, to be agitated and considered in appropriate proceedings, that his clients are free to initiate, if they so desire.”

Advocates Representing the Parties

For the Petitioners: Mr. G.S. Hegde, Senior Advocate, along with Ms. P.M. Bhansali, Mr. Arafat Siddique and Ms. Juhi Pandey, Advocates

For the Respondents:Ms. Mable Soans; Mr. Shrirang Katneshwarkar, Advocate; Mr. Gajendra Rajput with Mr. Shubham Kahite, Advocates; Mr. Naushad Engineer, Senior Advocate as Amicus Curiae, with Mr. Sharad Bansal and Mr. Yohann Limathwalla

Case Title: Arrow Business Development Consultants Pvt. Ltd. v. Union Bank of India & Ors.

Neutral Citation: 2025: BHC-AS:54045-DB

Case Number: Writ Petition No. 11132 of 2025

Bench: Justice R.I. Chagla, Justice Farhan P. Dubash