Bombay HC Pulls Up NCLT Mumbai Registry Over Scrutiny Lapse In Personal Guarantor Insolvency Plea

The Bombay High Court on Tuesday pulled up the Mumbai Registry of the National Company Law Tribunal (NCLT) for failing to follow mandatory procedures while scrutinising a personal guarantor insolvency petition under the Insolvency and Bankruptcy Code.

A division bench of Justices Manish Pitale and Shreeram V. Shirsat held that the Registry did not comply with Rule 28 of the NCLT Rules and prior directions issued by the High Court in Bank of Baroda vs. Union of India.

“It is obvious that the Registry of the NCLT in the present case, concerning the petition filed by the third party petitioner under Section 95 of the IBC, failed to follow and comply with directions contained in paragraph 13 of the judgement of this Court in the case of Bank of Baroda vs. Union of India and another (supra), as also the clauses of the SOP framed by the NCLT itself,” the Court observed.

Subsequently, it said," In the light of the observations made hereinabove, we direct the Registry of the NCLT, Mumbai to ensure that the procedural irregularities committed by the said Registry, while scrutinizing the said petition, are not repeated in future. We are of the opinion that the report submitted by the Assistant Registrar of the NCLT demonstrates that in the present case, while scrutinizing the petition filed by the said third party petitioner, the Registry of the NCLT failed to follow the procedure indicated by this Court in the judgement in the case of Bank of Baroda vs. Union of India and another (supra) in the context of Rule 28 of the NCLT Rules."

The court found that defects in the petition were not dealt with as per the prescribed procedure. It noted that the matter was reopened and eventually registered despite non compliance with timelines under the Rules and the standard operating procedure.

Rule 28 of the NCLT Rules requires the Registry to scrutinise filings, notify defects, grant limited time to cure them, and if defects persist, place the matter before the Registrar for a final opportunity. If defects still remain, the petition must be declined for registration.

The issue surfaced after objections were raised by the lender, Standard Chartered Bank. The bank argued that the personal guarantor insolvency petition had not been processed in accordance with law and should never have been registered. According to it, the defects identified in the filing were not cured within the prescribed timelines, and the eventual registration ought not to benefit the borrowers or trigger the interim moratorium.

The court was dealing with a plea by Kapole Advertising Agency and others, who were borrowers as well as personal guarantors, challenging orders passed by the Debts Recovery Tribunal (DRT) on January 9, 2026.

Those orders had denied them interim relief in recovery proceedings initiated by the bank under the SARFAESI Act. The DRT took the view that the interim moratorium under the Insolvency and Bankruptcy Code could not be relied upon since it had not been brought to the bank's notice.

Around the same time, a third-party creditor had moved a personal guarantor insolvency petition under Section 95 of the Code before the National Company Law Tribunal on July 9, 2025. That petition was eventually registered on November 4, 2025, and it is from this date that the interim moratorium came into effect.

However, despite finding fault with the NCLT Registry, the High Court set aside the DRT's orders.

“We find substance in the contention of the petitioners that the effect of the interim moratorium cannot be ignored or diluted, particularly when the petitioners had no control over the manner of filing and scrutiny of the petition before the NCLT. We find that the allegation of connivance between the petitioners and the third party petitioner before the NCLT can best be examined by the NCLT, in the event respondent No.1 bank and respondent Nos.2 and 3 auction purchasers choose to approach the NCLT for a direction that the interim moratorium would not operate against them,” the Court observed.

The court held that the interim moratorium operates by law and cannot be made contingent on whether it was communicated to the secured creditor.

While noting the procedural lapses by the Registry, the Court rejected the bank's contention that such irregularities would negate the moratorium. It held that once the petition was registered, the interim moratorium operated in law and could not be disregarded.

Allowing the petition, the court set aside the DRT's orders and held that further recovery steps would remain subject to the interim moratorium. It clarified that such steps could be taken only after the moratorium ceases to operate or if the NCLT rules that it does not apply to the concerned creditors.

The court also granted liberty to the bank and auction purchasers to approach the NCLT for appropriate relief, including a determination on the applicability of the interim moratorium.