Bona fide insolvency filing: Section 10 relief can be refused when used to stall SARFAESI recovery proceedings.

A section 10 application under the Insolvency and Bankruptcy Code, 2016 may be rejected even if formally complete where the corporate debtor's conduct shows lack of bona fides and an attempt to misuse insolvency to obstruct ongoing recovery action. Here, SARFAESI proceedings had already substantially advanced, including possession, auction steps and confirmation of sale, while the applicant had also pursued parallel proceedings to delay recovery. The tribunal treated this conduct as inconsistent with a genuine insolvency resolution request and found that the applicant had not approached it with clean hands. The rejection was therefore justified and the appeal failed.

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Issues: Whether an application under section 10 of the Insolvency and Bankruptcy Code, 2016, otherwise stated to be complete, could still be rejected where the corporate debtor approached the tribunal with doubtful bona fides and had attempted to stall recovery proceedings already underway under the SARFAESI Act, 2002.

Analysis: The appeal arose from rejection of the corporate debtor's section 10 application. The record showed that the loan account had long been in default and that recovery measures under the SARFAESI Act, including notice under section 13(2), measures under section 13(4), possession, auction steps, and confirmation of sale, had substantially progressed before the insolvency application was filed. The corporate debtor had also pursued parallel proceedings before the DRT and the High Court to impede the recovery process. Although the application was found to satisfy the formal requirements of section 10 and the disqualification under section 11 was not attracted, the decisive consideration was that the application was filed after repeated efforts to obstruct recovery and not as a genuine step toward insolvency resolution. The conduct of the applicant supported the finding that it had not approached the tribunal with clean hands.

Conclusion: The rejection of the section 10 application was justified and the appeal failed.

Final Conclusion: The insolvency application could be declined where the tribunal found that it was used as a device to frustrate pending recovery action rather than to achieve bona fide insolvency resolution.

Ratio Decidendi: A section 10 application under the Insolvency and Bankruptcy Code, 2016 may be rejected despite formal completeness if the corporate debtor's conduct shows lack of bona fides and abuse of insolvency to thwart ongoing recovery proceedings.

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