SARFAESI proceedings do not bar Section 7 insolvency action when financial debt and default are established.

Pendency of SARFAESI proceedings does not bar a Section 7 application under the Insolvency and Bankruptcy Code because the Code has overriding effect and is directed to insolvency resolution, not mere recovery. The material on record is stated to show sanction and disbursal of loan, execution of guarantee and mortgage documents, non-payment, and classification of the account as non-performing, thereby establishing financial debt and default. The objections based on set-off, possession of the secured asset, the threshold increase, and Section 10A were rejected as inapplicable on the stated facts. The application was admitted and CIRP was initiated with moratorium and appointment of an interim resolution professional.

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Issues: (i) Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was maintainable despite prior proceedings and possession action under the SARFAESI Act, 2002; (ii) Whether the material on record established financial debt, default, and non-applicability of the statutory defences raised by the corporate debtor.

Issue (i): Whether an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was maintainable despite prior proceedings and possession action under the SARFAESI Act, 2002.

Analysis: The pendency of measures under the SARFAESI Act, 2002 does not bar a financial creditor from invoking the Insolvency and Bankruptcy Code, 2016. The Code is a later enactment and by virtue of its overriding effect, the existence of recovery action under SARFAESI does not prevent commencement of corporate insolvency resolution proceedings. The filing under Section 7 is directed to resolution of the corporate debtor and not merely recovery.

Conclusion: The Section 7 application was maintainable notwithstanding SARFAESI proceedings.

Issue (ii): Whether the material on record established financial debt, default, and non-applicability of the statutory defences raised by the corporate debtor.

Analysis: The application and supporting documents showed sanction and disbursal of loan, execution of guarantee and mortgage documents, classification of the account as non-performing, and persistent non-payment. The objections based on alleged set-off, possession of secured asset, threshold increase, and Section 10A were not accepted. The default was found to be above the applicable threshold and to have occurred prior to the suspension period introduced by Section 10A.

Conclusion: Financial debt and default were established and the defences raised by the corporate debtor were rejected.

Final Conclusion: The application was admitted and corporate insolvency resolution process was initiated against the corporate debtor, along with the consequential moratorium and appointment of the interim resolution professional.

Ratio Decidendi: Pendency of SARFAESI measures does not bar admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016 where financial debt and default are established and the application is otherwise complete.

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