NCLAT Delhi: Section 94 Of IBC Cannot Be Used To Obstruct Recovery Process Under SARFAESI Act
Pranav B Prem
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, comprising Justice Ashok Bhushan (Chairperson), Barun Mitra (Member-Technical), and Arun Baroka (Member-Technical), has upheld the dismissal of a petition filed under Section 94 of the Insolvency and Bankruptcy Code, 2016 (IBC) by the personal guarantor, holding that proceedings under the IBC cannot be misused to obstruct legitimate recovery actions initiated under the SARFAESI Act. The Tribunal clarified that while Section 94 grants a statutory right to personal guarantors, its exercise must be bona fide and not as a tool to delay lawful recovery proceedings.
Background
The Corporate Debtor, Infra Dredge Services Private Limited, defaulted on a loan facility amounting to Rs. 52.32 crore availed from the Bank of India. The Appellant, acting as a personal guarantor, had mortgaged his residential property to secure the loan. Following the default, the Corporate Debtor’s account was classified as a Non-Performing Asset (NPA) on 30.06.2011, and proceedings under the SARFAESI Act were initiated, culminating in the Bank taking symbolic possession of the mortgaged assets in December 2012.
Subsequently, the Bank assigned the loan and securities to Edelweiss Asset Reconstruction Company Limited (Respondent No.1). Edelweiss initiated a Section 7 application under the IBC, resulting in the commencement of CIRP against the Corporate Debtor. Meanwhile, the Appellant filed an application under Section 94 of the IBC, seeking the initiation of insolvency resolution proceedings against himself as a personal guarantor, claiming entitlement to statutory protection and proposing a repayment plan.
Respondent No.1 intervened, contending that the Section 94 petition was filed merely to obtain the benefit of moratorium and to obstruct enforcement under SARFAESI. The Adjudicating Authority (NCLT Mumbai Bench) allowed the intervention, dismissed the Section 94 application, and the Appellant challenged the dismissal before the NCLAT under Section 61 of the IBC.
Contentions of the Parties
The Appellant argued that the initiation of SARFAESI proceedings should not preclude him from exercising his right under Section 94. Relying on the decision in Getz Cables Pvt. Ltd. v. State Bank of India [CA(AT)(Ins.) No. 1953 of 2024], it was contended that a personal guarantor’s statutory right under Section 94 could not be extinguished solely due to prior SARFAESI action. The Appellant further alleged procedural irregularities, including the violation of principles of natural justice by the Adjudicating Authority for deciding the intervention application without granting him an opportunity to respond.
Conversely, the Respondent submitted that the Appellant had initiated multiple legal proceedings over the past decade solely to delay recovery. It was pointed out that the Appellant failed to comply with several commitments, including undertakings before courts to vacate the secured property or repay dues. The Respondent emphasized that the Section 94 petition was a strategized attempt to abuse the moratorium under Section 96 of the IBC and delay enforcement of the SARFAESI measures.
Observations of the NCLAT
The Tribunal carefully examined the sequence of events and the Appellant’s conduct over the years. It was noted that despite multiple proceedings, including Securitisation Applications (SAs) before the DRT and writ petitions before the Bombay High Court, the Appellant persistently delayed recovery proceedings. The DRT had already observed in its order that the Appellant consistently abused the judicial process to frustrate lawful enforcement under SARFAESI.
Significantly, the NCLAT observed that the Section 94 application was filed merely weeks after the issuance of a possession notice under SARFAESI on 11.11.2022. A letter dated 06.12.2022 sent by the Appellant to the creditor specifically sought the benefit of moratorium, revealing the intent to obstruct recovery rather than seek genuine insolvency resolution. The Tribunal found that the timing of the Section 94 filing and the conduct of the Appellant left no doubt that the proceedings were initiated with an ulterior motive.
Addressing the reliance on the Getz Cables judgment, the NCLAT clarified that while the right under Section 94 cannot be denied merely because SARFAESI proceedings were initiated, the Adjudicating Authority is required to examine the specific facts of each case. Given the Appellant’s long history of obstructive litigation and bad faith, the Tribunal distinguished the facts from Getz Cables and concluded that the Section 94 application was an abuse of process.
Regarding the alleged violation of natural justice, the Tribunal found that the Appellant had been granted sufficient time—over multiple hearing dates—to file a reply to the intervention application but failed to do so. Therefore, the contention of procedural unfairness was rejected.
Verdict
The NCLAT held that the Appellant had abused the insolvency framework to stall legitimate recovery under SARFAESI. It upheld the Adjudicating Authority’s decision to dismiss the Section 94 application, finding no merit in the appeal. Consequently, the appeal was dismissed, and all pending applications were closed, with no order as to costs.
Appearance
For Appellant: Mr. Krishnendu Dutta, Sr. Advocate
For Respondent: Mr. Rohit Gupta, Ms. Aakashi Lodha, Advocates for R1
Cause Title: Syed Sirajis Salikin Khadri V. Edelweiss Asset Reconstruction Company Limited
Case No: Company Appeal (AT) (Insolvency) No. 455 of 2025
Coram: Justice Ashok Bhushan [Chairperson] , Mr. Arun Baroka [Member (Technical)], Mr. Barun Mitra [Member (Technical)]
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