Abuse of insolvency process: personal guarantor's Section 94 filing can be rejected when used to stall recovery and seek moratorium.

A personal guarantor's Section 94 insolvency application under the IBC may be rejected where the timing and surrounding conduct show it was filed to obstruct SARFAESI recovery and obtain the benefit of moratorium, rather than for bona fide insolvency resolution. The tribunal noted that prior initiation of enforcement proceedings does not by itself bar a Section 94 application, but each case must be examined for genuine insolvency intent. It also held that, where the Section 99 report is already on record and adequate opportunity to respond has been given, the Adjudicating Authority may proceed at the Section 100 stage, and no breach of natural justice is made out merely because an intervention application was entertained.

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Issues: (i) Whether the personal guarantor's application under Section 94 of the Insolvency and Bankruptcy Code, 2016 was liable to be rejected on the ground that it was filed to obstruct recovery proceedings and to obtain the benefit of moratorium. (ii) Whether the impugned order suffered from procedural illegality or breach of natural justice because the intervention application was entertained and the Section 94 application was dismissed at the pre-admission stage.

Issue (i): Whether the personal guarantor's application under Section 94 of the Insolvency and Bankruptcy Code, 2016 was liable to be rejected on the ground that it was filed to obstruct recovery proceedings and to obtain the benefit of moratorium.

Analysis: The application was filed after a long sequence of recovery steps under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and after repeated litigation by the appellant to resist possession of the secured residential property. The timing of the Section 94 application, immediately after the latest possession notice, and the surrounding conduct showed a consistent attempt to delay or frustrate enforcement. The Tribunal accepted that the right to invoke Section 94 is not barred merely because SARFAESI proceedings had already been initiated, but held that the facts of each case must be examined to see whether the proceeding is a genuine insolvency resolution attempt or a device to secure moratorium and obstruct recovery.

Conclusion: The application was not filed for genuine insolvency resolution and was correctly treated as an abuse of the insolvency process. The finding was against the appellant.

Issue (ii): Whether the impugned order suffered from procedural illegality or breach of natural justice because the intervention application was entertained and the Section 94 application was dismissed at the pre-admission stage.

Analysis: The report under Section 99 of the Insolvency and Bankruptcy Code, 2016 had already been filed, and the appellant had been granted time to respond to the intervention application. The record showed multiple opportunities for filing a reply, but no reply was filed. In these circumstances, the Adjudicating Authority was held competent to consider the matter at the stage of Section 100 and to entertain the intervention application. No procedural irregularity or violation of natural justice was established.

Conclusion: The challenge on procedural grounds failed and was against the appellant.

Final Conclusion: The appeal was devoid of merit because the Section 94 proceeding was found to be a tactical attempt to stall recovery rather than a bona fide insolvency resolution request, and no procedural infirmity was made out in the impugned order.

Ratio Decidendi: A Section 94 application by a personal guarantor may be rejected where the surrounding conduct and timing show that it was filed not for bona fide insolvency resolution but to obstruct lawful recovery and obtain moratorium, and the Adjudicating Authority may proceed under Section 100 where the statutory report is already on record and adequate opportunity to respond has been given.

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