Pending SARFAESI Proceedings No Ground To Reject Personal Guarantor's Insolvency Application: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai has admitted an insolvency resolution application filed by a personal guarantor. It held that the pendency of recovery proceedings under the SARFAESI Act, by itself, cannot render such an application non-maintainable.

A coram of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar observed:

“In view of the overriding effect accorded to the Insolvency and Bankruptcy Code, 2016 under Section 238, pendency of recovery proceedings under the SARFAESI Act cannot, by itself, render the present application non-maintainable. In the absence of material demonstrating mala fides or abuse of process, the present proceedings cannot be rejected solely on the ground that recovery proceedings had already been initiated by the Financial Creditor. Though the filing of the present application immediately prior to the scheduled e-auction may raise suspicion, the same, in the absence of any further material, cannot by itself constitute a ground for rejection of the application.”

The order was passed on an application filed by Madhubala R. Jain. She had furnished a personal guarantee for credit facilities extended by Bank of India to Kankria Agro Ltd.

According to the record, Bank of India had sanctioned various credit facilities to Kankria Agro Ltd. Madhubala Jain executed a personal guarantee on March 6, 2023.

After the loan account was classified as a non-performing asset on June 28, 2025, the bank issued a demand notice and invoked the guarantee. It subsequently took symbolic possession of mortgaged properties. It also instituted recovery proceedings before the Debt Recovery Tribunal.

Bank of India opposed the application. The bank contended that the guarantor had repeatedly filed applications under the Insolvency and Bankruptcy Code immediately before scheduled e-auctions of secured assets. According to the bank, this was done to obtain the benefit of the interim moratorium and obstruct recovery proceedings.

The Tribunal noted that an earlier application filed by the guarantor had been dismissed as defective. It also noted that another petition had subsequently been withdrawn. The Tribunal further noted that the earlier defective application and the present proceedings had been initiated shortly before scheduled auctions.

The Tribunal observed that the facts of the case were distinguishable from the decision in Syed Sirajis Salikin Khadri v. Edelweiss Asset Reconstruction Company Ltd., relied upon by the bank. It noted that, in that case, proceedings under the Insolvency and Bankruptcy Code had been initiated after an inordinate delay. The case also involved prolonged litigation aimed at obstructing recovery proceedings.

The Tribunal held,

“We do not find any inordinate delay on the part of the personal guarantor to invoke provisions of IBC for resolution of his insolvency in terms of provisions of section 94 of IBC, which provide for time bound resolution of insolvency of guarantors and also allows the creditors a choice to stay away from such process. Hence, we are of considered view that the action of personal guarantor to approach this tribunal for resolution of his insolvency in terms of section 94 of IBC can not be faulted by deciphering an ill motive, which does not seem to exist in the present case. ”

The Tribunal further observed that proceedings under the SARFAESI Act are recovery proceedings. They enable secured creditors to enforce security interests without intervention of civil courts. The Insolvency and Bankruptcy Code, on the other hand, provides a mechanism for insolvency resolution of individuals and personal guarantors.

Noting that Bank of India had not disputed the existence of debt, default, or invocation of the guarantee, the Tribunal found no merit in the bank's objections and held that the application warranted admission.

The Tribunal admitted the application. It declared a moratorium and directed Resolution Professional Mahesh Sureka to carry out the functions assigned under the Code.