NCLAT dismissed a personal guarantor’s application for personal insolvency, finding misuse of IBC moratorium to delay SARFAESI possession proceedings.
NCLAT Rejects Personal Guarantor’s Plea Misusing IBC to Stall SARFAESI
The National Company Law Appellate Tribunal (NCLAT) dismissed an application filed by a personal guarantor seeking initiation of a personal insolvency resolution process, holding it was a tactic to misuse the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) to stall ongoing SARFAESI recovery proceedings. The tribunal found no genuine intent to undergo resolution, but rather a strategic attempt to gain temporary relief from enforcement.
The NCLAT emphasized that Section 94 of the IBC, which allows personal guarantors to undergo insolvency, cannot be invoked as a shield against legitimate asset recovery actions under the SARFAESI Act, 2002. The tribunal noted that the guarantor had not submitted a viable repayment plan or cooperated with preliminary requirements, indicating forum shopping rather than bona fide insolvency. Precedents such as State Bank of India v. V. Ramakrishnan were cited to underline that IBC’s procedural safeguards are not anti-SARFAESI tools.
This ruling is significant for financial institutions facing delay tactics. It empowers lenders to challenge frivolous applications by personal guarantors aimed solely at evading enforcement. Legal teams should be vigilant in opposing such petitions early, highlighting lack of good faith and parallel proceedings to prevent abuse of the IBC framework.
Citations
- Insolvency and Bankruptcy Code, 2016, Section 94
- SARFAESI Act, 2002
- State Bank of India v. V. Ramakrishnan
