IBC Cannot Be Misused To Impede Recovery Process Under SARFAESI: NCLT Delhi

The National Company Law Tribunal, Delhi, has recently dismissed an application filed under Section 94 of the Insolvency and Bankruptcy Code, which allows a personal guarantor to initiate insolvency proceedings against himself, holding that the provision cannot be used to stall recovery proceedings already underway under the SARFAESI Act, 2002, and before the Debt Recovery Tribunal. The Tribunal said the plea was a tactical attempt to take advantage of the interim moratorium under the IBC.

The tribunal observed:

“The provisions of the Code cannot be allowed to be misused in a manner as to impede the process and steps taken under the SARFAESI Act, 2002 or to prolong the recovery actions taken against the Applicant by the Creditor.”

The bench of Judicial Member Manni Sankariah Shanmuga Sundaram and Technical Member Atul Chaturvedi was dealing with an application filed by Viveck Goel, Personal Guarantor of Aristo Motors Ltd., under Section 94 of the IBC.

Goel claimed that he was unable to repay his debts, including the liability claimed by Federal Bank, which had invoked his personal guarantee after the corporate debtor defaulted.

From the record, the Tribunal noted that Aristo Motors Pvt. Ltd. had availed an overdraft facility from Federal Bank in 2014. The facility was renewed in 2016. The applicant had executed personal guarantee deeds to secure the loan.

The account was subsequently classified as NPA, after which Federal Bank issued a demand notice under Section 13(2) of the SARFAESI Act and initiated recovery proceedings before DRT-II, Chandigarh. The recovery application filed by the bank was eventually decreed ex parte.

The tribunal also took note of the applicant's disclosure of multiple outstanding liabilities. Apart from Federal Bank, dues were shown as payable to Axis Bank, Kotak Mahindra Bank, the Income Tax Department, the Principal Commissioner of CGST, IDFC First Bank, HDFC Bank, and Valo Automotive Pvt. Ltd.

From the material on record, the tribunal found that enforcement action under SARFAESI had already reached an advanced stage. Proceedings for taking possession had been moved before the Chief Judicial Magistrate, while recovery cases against the applicant were continuing before the DRT.

The order further records that the applicant had entered into a one-time settlement with Axis Bank but did not honour the terms in full. It also noted that he had earlier approached other forums, including the High Court, and had been directed to pursue his remedies before the DRT instead.

Against this backdrop, the tribunal examined the timing of the Section 94 application and concluded that it had been filed to obtain the benefit of the interim moratorium under Section 96 of the IBC. In its view, the filing did not reflect a genuine attempt to resolve insolvency, but was aimed at halting recovery measures that were already in progress.

The tribunal emphasised that the interim moratorium is intended to support an orderly insolvency process, not to shield a debtor from lawful recovery proceedings once enforcement has already begun.

Holding that the application amounted to misuse of the statutory process, the Tribunal dismissed the petition.