NCLT Chandigarh Sets Aside Canara Bank's SARFAESI Sale Of Mohan Rail Components' Assets

The Chandigarh Bench of the National Company Law Tribunal (NCLT) has allowed applications filed by Jaspal Singh and Narinder Kaur, suspended directors and personal guarantors of Mohan Rail Components, and set aside the sale certificate issued by Canara Bank in respect of the company's core assets on 1 January 2026.

A Bench comprising Judicial Member Khetrabasi Biswal and Technical Member Kaushalendra Kumar Singh held that recovery proceedings under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) cannot undermine the insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly where proceedings under Section 7 of the Code have already been heard and reserved for orders. It observed:

“The parties ought to have acted in such a manner that does not interdict judicial process of adjudication, especially in the present case where the company petition u/s 7 of the Code was preferred by the same Financial Creditor, seeking initiation of CIRP, which is not only restricted for the benefit of the Financial Creditor, but is in the beneficial interest of all, including other Operational Creditors and stakeholders.”

Mohan Rail Components had availed credit facilities from Canara Bank, which were declared non-performing assets in 2015. Canara Bank commenced recovery proceedings under the SARFAESI Act in 2016 and took symbolic possession of the mortgaged properties.

The credit facilities were secured by various properties, including immovable mortgaged assets co-owned by Mohan Rail Components and other personal guarantors on which factory premises had been constructed.

Canara Bank carried out a series of recovery actions under the SARFAESI Act from 2016. In 2020, Mohan Rail Components proposed a One-Time Settlement (OTS) of Rs. 16.15 crore and made part payment, but could not complete the settlement due to financial constraints during the pandemic.

In 2023, Canara Bank filed a petition under Section 7 of the IBC before the NCLT seeking initiation of the Corporate Insolvency Resolution Process (CIRP) against Mohan Rail Components. The matter was argued and reserved for orders on 28 October 2025.

While the Section 7 petition was pending, Canara Bank issued a sale notice on 27 November 2025 under the SARFAESI Act for auctioning Mohan Rail Components' factory land, building and machinery. The auction was conducted on 19 December 2025 and included assets jointly owned by Mohan Rail Components and other personal guarantors. The assets fetched bids marginally above the reserve price.

On 29 December 2025, Narinder Kaur, a personal guarantor, filed a petition under Section 94 of the IBC, triggering an interim moratorium under Section 96.

Despite commencement of the interim moratorium, Canara Bank issued the sale certificate on 1 January 2026. The corporate debtor was admitted into CIRP on 20 February 2026.

Jaspal Singh and Narinder Kaur challenged the sale before the NCLT, contending that the sale certificate issued after commencement of the interim moratorium was illegal. They argued that subsequent actions, including receipt of the balance sale consideration, registration of the sale certificate and delivery of possession, were also impermissible and liable to be set aside.

Canara Bank argued that the auction had been validly conducted under the SARFAESI Act before commencement of CIRP. It contended that mere reservation of orders in the Section 7 petition did not impose a moratorium and that the interim moratorium under Section 96 applied only to the guarantors and not to the corporate debtor's assets.

The Tribunal noted that although the auction was conducted on 19 December 2025, the sale certificate was issued and the balance sale consideration was received on 1 January 2026, after the interim moratorium had commenced. It held that the statutory protection under Section 96 operates automatically from the date of filing and does not depend upon a judicial declaration.

The Bench also criticised Canara Bank for proceeding with the auction despite having itself invoked Section 7 jurisdiction, with the petition having already been heard and reserved for orders. It observed that such conduct undermined the objective of the IBC. It added:

“Such a course of action, though initiated under the SARFAESI Act, directly impacts the very objective sought to be achieved under the Code, namely preservation of the Corporate Debtor as a going concern and maximisation of value through the insolvency resolution process.”

Invoking Rule 11 of the NCLT Rules, 2016, the Bench exercised its inherent powers and set aside the sale certificate dated 1 January 2026 to enable the CIRP to proceed unhindered.

Accordingly, the NCLT allowed both applications.

For Applicants: Advocates Aalok Jagga and Sahil Lohan

For Respondents: Advocates Harsh Garg and Ashwani Sharma