2026 (3) TMI 1084 - HC - IBC

IBC moratorium exclusion where purchaser rights crystallised before moratorium allows completion of enforcement and possession.

Interplay between enforcement under the Securitisation Act and the IBC moratorium is addressed: where a sale certificate was issued and registered and ... Misuse of insolvency moratorium to frustrate SARFAESI proceedings - long delay by the borrowers/guarantors after service of notice under Section 13(2) - physical possession - waiver and equitable estoppel by repeated OTS proposals - crystallization of auction purchaser rights - Writ jurisdiction to correct manifest misuse and jurisdictional error. Whether the DRT erred in restraining the secured creditor from proceeding on the ground that a moratorium under the IBC had been triggered by a collateral/possibly collusive filing - HELD THAT:- The Court held that chronic defaulters and guarantors were resorting to proceedings under Sections 94-96 of the IBC as a tactical device to stall and frustrate lawful steps under the Securitisation Act, thereby defeating both statutes' objects and causing failure of justice. The DRT's one line order halting further steps until disposal of the interim application amounted to a jurisdictional error in the peculiar factual matrix, because it permitted manifest misuse of the IBC to paralyze enforcement carried out pursuant to SARFAESI and the competent Magistrate's orders. In these exceptional circumstances the writ Court exercised jurisdiction to set aside the impugned DRT order so as to prevent perpetuation of the misuse of legal process. [Paras 1, 25, 37, 43, 44] The impugned order of the DRT was set aside and the secured creditor need not await disposal of the interim application before taking further steps in pursuance of the auction sale and registered sale certificate. Waiver and equitable estoppel by repeated OTS proposals - Whether the borrowers and guarantors, by repeatedly proposing One Time Settlements and failing to challenge notices and proceedings for years, waived their statutory rights and are estopped from obstructing completion of the auction sale - HELD THAT:- Relying on established principle that waiver is an intentional relinquishment of a known right, the Court found that the borrowers/guarantors repeatedly made OTS proposals, failed to follow up, and did not object to the notice under Section 13(2) for many years. Such conduct demonstrated waiver/estoppel, placed the secured creditor and third party auction purchasers in a position of detriment, and reinforced the conclusion that the borrowers could not be permitted to defeat third party rights created by the completed sale. [Paras 26, 28, 39, 40] The borrowers' conduct amounted to waiver and equitable estoppel, which weighed against permitting them to frustrate completion of the auction and possession to the purchasers. The Court accepted and relied upon the NCLT's findings (confirmed by NCLAT and the Supreme Court) that actions lawfully completed prior to commencement of the moratorium are not invalidated by a subsequently invoked moratorium. The sale to the auction purchasers and issuance/registration of the sale certificate crystallized their rights before the insolvency petition was filed, and therefore the secured asset stood excluded from the personal guarantor's estate and could not be shielded by a later filed moratorium. [Paras 14, 30, 31, 34] The secured asset and the registered sale certificate were excluded from the moratorium because the sale and crystallisation of purchaser's rights occurred prior to the commencement of moratorium. Given the demonstrated pattern of misuse, the confirmed exclusion of the asset from moratorium, and the DRT's failure to take the securitisation application on merits, the Court exercised its discretionary writ jurisdiction to ensure justice. It directed the DRT to complete pleadings within a fixed short time frame and to decide the securitisation application expeditiously, while permitting the secured creditor to proceed in pursuance of the registered sale certificate and the competent Magistrate's order. [Paras 41, 44, 45] The Court directed that the secured creditor need not await disposal of the interim application and ordered the DRT to complete pleadings and decide the securitisation application on merits by the specified date. Final Conclusion: The writ petition was allowed; the DRT's impugned order was set aside so that the secured creditor and registered auction purchasers may take consequential steps in pursuance of the sale certificate, and the DRT was directed to complete pleadings and decide the securitisation application on merits within the time frame specified by the Court. Issues: Whether the one-line order of the Debts Recovery Tribunal dated 26th November 2025 halting further steps pursuant to a registered sale certificate (on account of a subsequently filed application under Section 95 of the IBC) was unsustainable and whether the secured creditor and auction purchasers could proceed with physical possession and consequential steps without awaiting disposal of Interim Application No. 2207 of 2025.Analysis: The facts show long delay by the borrowers/guarantors after service of notice under Section 13(2) of the Securitisation Act, repeated one time settlement proposals, symbolic possession and multiple failed auctions, followed by a completed auction, issuance and registration of a sale certificate in favour of the auction purchasers prior to the filing of insolvency applications relied upon to claim moratorium. The legal framework involves the interplay between the Securitisation Act (enforcement of security, auction and sale certificate) and the IBC moratorium provisions that commence upon filing of petitions under Sections 94/95 and operate under Section 96. Prior adjudication (NCLT order dated 2nd September 2025, affirmed on appeal and by the Supreme Court) held that the secured asset and sale stood excluded from moratorium because the sale and crystallization of purchasers' rights occurred before commencement of moratorium. The DRT's impugned order operated to stay further steps despite those findings and in circumstances where documents supporting the later Section 95 petition raised strong suspicion of collusion and abuse of process. Principles of waiver and equitable estoppel (as applied in relevant precedent) are engaged where the borrower repeatedly permitted settlement negotiations and did not timely challenge enforcement steps, and where third-party rights have crystallized. The balance of rights and the object of IBC (time bound resolution and maximization of asset value) and the Securitisation Act (enforcement of security) favour allowing lawful completion of steps that were concluded prior to any moratorium.Conclusion: The impugned DRT order dated 26th November 2025 is set aside. The secured creditor need not await disposal of Interim Application No. 2207 of 2025 before taking further steps pursuant to the registered sale certificate; consequential possession steps shall proceed in accordance with law and the DRT shall expedite and decide the securitisation application on merits within the directed timeframe.