Personal insolvency application rejected for lack of bona fides where it was used to obstruct ongoing recovery proceedings.

A personal insolvency application under the Insolvency and Bankruptcy Code was rejected where the record showed that recovery proceedings against the corporate debtor, the personal guarantor and other guarantors were already pending, including SARFAESI action and proceedings before the DRT. The Tribunal held that the application appeared to be filed to obstruct recovery and to take unfair advantage of the interim moratorium under Section 96, so it lacked bona fides and was not fit for admission.

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Issues: Whether an application under Section 94 of the Insolvency and Bankruptcy Code, 2016 seeking initiation of insolvency resolution process against a personal guarantor deserved admission when recovery proceedings were already pending and the application was found to be filed to take advantage of interim moratorium.

Analysis: The application was examined against the background of existing recovery proceedings against the corporate debtor, the personal guarantor and other guarantors, including proceedings under the SARFAESI framework and recovery action before the DRT. The Tribunal considered that the applicant had invoked the personal insolvency mechanism despite the pendency of these proceedings and in the context of an arrest notice already issued. On that basis, the filing was treated as an attempt to obstruct recovery and to misuse the statutory protection of interim moratorium under Section 96 of the Code. The Tribunal therefore found the application to be lacking bona fides and not fit for admission.

Conclusion: The application under Section 94 was rejected and was not admitted.

Ratio Decidendi: A personal insolvency application may be declined where the record shows that it is filed collusively or with an ulterior motive to obstruct ongoing recovery proceedings and to misuse the protection of interim moratorium.

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