NCLAT Rejects Guarantor’s Plea to Stall SARFAESI via Insolvency Application

NCLAT Dismisses Abuse of Process in Personal Insolvency Filings

The National Company Law Appellate Tribunal (NCLAT) rejected a personal guarantor’s appeal challenging the rejection of his application under the personal insolvency resolution process (PIRP), ruling that such filings cannot be used as a tactical shield to delay enforcement under the SARFAESI Act, 2002. The guarantor had filed for personal insolvency resolution under Section 94 of the IBC after the secured creditor initiated possession proceedings under SARFAESI.

NCLAT observed that the timing and circumstance of the application indicated an attempt to misuse the moratorium conferred under Section 10(1)(a) of the IBC. Since no prima facie case or larger public interest was established, the tribunal upheld the dismissal of the PIRP application. It reiterated that insolvency mechanisms are not substitutes for staying enforcement actions where the intent is procedural delay.

“The IBC is not a sword to defeat legitimate recovery actions,”

the tribunal stated. This ruling provides clarity for lenders: personal insolvency filings that lack bona fide intent will be scrutinized strictly. Practitioners must advise guarantors that initiating PIRP solely to stall SARFAESI actions may be dismissed as abuse of process.