Abuse of insolvency process: a section 10 petition may be refused when filed mainly to secure moratorium protection and block secured recovery.

An application under section 10 of the Insolvency and Bankruptcy Code may be refused where it is used primarily to obtain the section 14 moratorium and obstruct secured creditors' recovery action. The tribunal found that the corporate debtor's liabilities and the pending SARFAESI enforcement against mortgaged assets did not justify admission when the filing appeared aimed at stalling repossession and enforcement. Mere compliance with the formal requirements of section 10 was treated as insufficient where the real purpose and bona fides of the petition were suspect, and the request to commence the insolvency resolution process was rejected.

---

---

Issues: Whether the corporate insolvency resolution petition under section 10 of the Insolvency and Bankruptcy Code, 2016 should be admitted where the filing appeared to be aimed at obtaining the moratorium and preventing enforcement of securities by the banks.

Analysis: The petition disclosed that the corporate debtor had significant liabilities and that the banks had already initiated recovery action under the SARFAESI regime against properties mortgaged by the company, its directors, and guarantors. The filing was viewed as a means to secure the protection of the moratorium under section 14 of the Insolvency and Bankruptcy Code, 2016, thereby stalling repossession and enforcement against secured assets. In those circumstances, mere compliance with the formal requirements of section 10 was held insufficient, and the adjudicating authority was required to examine the real purpose and bona fides of the application.

Conclusion: The petition was not admitted and the request to trigger the insolvency resolution process was rejected.

Ratio Decidendi: An application under section 10 of the Insolvency and Bankruptcy Code, 2016 may be refused where the filing is found to be an abuse of process intended principally to obtain the benefit of moratorium and defeat legitimate recovery action by secured creditors.

---