NCLAT Dismisses Personal Guarantor's Voluntary Insolvency Plea To Halt SARFAESI Recovery, Calls It Abuse

The National Company Law Appellate Tribunal (NCLAT) at Delhi has dismissed appeals by a personal guarantor who sought to halt recovery proceedings after a bank auction had already concluded, holding that his insolvency filing was not bona fide but an attempt to obstruct debt recovery.

“...initiation of proceeding under Section 94 by the personal guarantor was not with object of resolution of insolvency of the personal guarantor rather it was only with the intent to somehow create hurdles in the conclusion of the proceedings initiated by the Bank for recovery of its debts when auction was already held on 11.04.2024 which was confirmed on 12.04.2024, filing of the application on 27.04.2024 clearly was not bona fide application and the application was an abuse of process of Court...”

A bench of Chairperson Justice Ashok Bhushan and Technical Member Indevar Pandey dismissed two appeals filed by Ashwani Kumar Oberoi, personal guarantor to Kirtiman Cements & Packaging Industries Limited. He had challenged orders rejecting his interlocutory applications seeking to restrain the State Bank of India and set aside the sale certificate issued in favour of the auction purchasers.

Oberoi argued that since the sale certificate had not been issued when he filed his application under Section 94 of the Insolvency and Bankruptcy Code on April 27, 2024, the interim moratorium under Section 96 barred further steps by the bank. He relied, among other rulings, on Arrow Business Development Consultants Private Limited.

State Bank of India countered that once the auction notice was published, the right of redemption had come to an end and no rights remained with the personal guarantor.

The tribunal referred to the Bombay High Court's observations about misuse of insolvency proceedings by chronic defaulters and also relied on its earlier rulings in Syed Sirajis Salikin Khadri and Mrs. Vimla Devi, where Section 94 applications aimed at stalling SARFAESI recovery proceedings were rejected.

In the present case, the tribunal noted that SBI issued notice under Section 13(2) on December 31, 2019; later enforced its security interest, issued notice for sale of the assets on March 19, 2024 fixing April 11, 2024 for e-auction, and confirmed the auction sale on April 12, 2024. Oberoi filed his insolvency application only on April 27, 2024, after the auction had already concluded.

The tribunal also noted that Oberoi had separately challenged the auction before the Debt Recovery Tribunal but failed to secure relief.

Dismissing the appeals, the tribunal held that the insolvency process could not be used to derail a concluded auction.