TaxTMI 
TaxTMI 
2026 (7) TMI 1058
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....TTACHARYA) 1. W.P. No. 25486 of 2025 is filed challenging the order passed by the Debts Recovery Tribunal-II, Hyderabad ('DRT') on 08.08.2025 in S.A. No. 300 of 2022. W.P. No. 35956 of 2025 challenges the order dated 14.11.2025 in Appeal No. 101 of 2025 passed by the Debts Recovery Appellate Tribunal, Kolkata ('DRAT'). 2. The Union Bank of India has filed W.P. No. 25486 of 2025, challenging the order passed by the DRT dated 08.08.2025. The respondent Nos.1 to 4 are the guarantors and the impleaded respondent No. 5 is the auction purchaser in the said Writ Petition. 3. The guarantors have filed W.P. No. 35956 of 2025 challenging the order passed by the DRAT dated 14.11.2025. The Union Bank of India is the respondent No. 3 and the auction purchaser is the respondent No. 2 in the said Writ Petition. 4. Both sets of Writ Petitions pray for a Writ of Certiorari to set aside the orders passed by DRT and the DRAT on the dates mentioned above. The parties are referred to as per their nomenclature in the loan transaction. 5. Both Writ Petitions are disposed of by this Common Order since they involve the same parties. 6. Learned Senior Counsel appearing for the Union Bank o....
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....nk for the sale of three secured assets of the borrower Company. 20.10.2022 The secured asset (as mentioned in the Possession Notice) was auctioned, pursuant to Auction Notice dated 26.09.2020. 28.10.2022 Sale Certificates were issued, one of which was registered in favour of the auction purchaser/the respondent No. 5 in W.P. No. 25486 of 2025. 08.08.2025 DRT passed the impugned order in the guarantors' S.A. (No. 300 of 2022) in favour of the guarantors by directing the Bank to refund the auction amount along with interest @6% per annum to the auction purchaser and directed the auction purchaser to hand over physical possession of the property to the guarantors. The auction purchaser challenged the DRT's order dated 08.08.2025 before the DRAT. 04.09.2025 The DRAT granted stay of the operative part of the order of DRT dated 08.08.2025. 30.10.2025 The DRAT granted an interim order in favour of the auction purchaser. 14.11.2025 The DRAT refused to continue the interim order dated 31.10.2025 on the undertaking given by the auction purchaser that it would not create any third-party interest and would not claim any interest over the secured asset in....
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.... IBC. It is also submitted that the DRT granted reliefs that were not prayed for by the guarantors, including declaring the Possession Notice as void. Counsel further submits that the sanctity of a public auction must be protected and cannot be set aside solely on the basis of alleged procedural irregularities. 13. The issue which falls for consideration is whether the order dated 08.08.2025 passed by the DRT calls for interference. The said order was passed on the Securitisation Application filed by the respondents/guarantors. The second impugned order of the DRAT dated 14.11.2025 was passed on an Appeal filed by the Auction Purchaser against the DRT order dated 08.08.2025. 14. The personal guarantors are ex-Promoters/Directors of the corporate debtor, M/s. Parameswara Poultry Farm Pvt. Ltd. Proceedings under the IBC were initiated against the corporate debtor by one of the operational creditors vide an order dated 17.09.2021 in CP No.105/9/HPB/2019 passed by the NCLT. The OTS as agreed by the Bank and the guarantors on 13.11.2019 could not materialize and was finally cancelled on 02.06.2021. The Bank, thereafter, proceeded to auction the property. The auction notice was iss....
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....e foundational action being void. The DRT accordingly allowed the Securitisation Application by setting aside the Possession Notice and directed the Bank to refund the entire sale consideration to the auction purchaser along with interest. The auction purchaser was also directed to hand over the physical possession of the property to the guarantors within a specific time frame. 19. The issue before us, as culled out from the arguments made on behalf of the Bank, the guarantors and the auction purchaser, is whether the action taken by the Bank for possession, auction and sale of the secured asset under the SARFAESI Act is sustainable despite the Bank issuing a Demand Notice to the guarantors under Rule 7(1) of the IBC Rules 2019? In other words, whether recovery proceedings against the personal guarantors can be maintained under the SARFAESI Act where Corporate Insolvency Resolution Process (CIRP) has been initiated against the Corporate Debtor and is pending before the NCLT? 20. The Bank says - Yes, i.e., action for recovery under the SARFAESI Act can be pursued against the guarantors independent of the CIRP. The guarantors say otherwise. According to the guarantors, once the....
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....t the corporate debtor before the Adjudicating Authority upon the occurrence of a default. On the other hand, section 8 provides for an operational creditor, upon the occurrence of default, to deliver a Demand Notice of unpaid operational debtor copy of an invoice demanding payment of the amount involved in the default to the corporate debtor. 27. Hence, it is clear that section 7 does not contemplate delivery of any Demand Notice by the financial creditor to the debtor for the purpose of initiation of CIRP. The initiation of the CIRP against personal guarantors by a financial creditor commences only upon admission of an application under section 95 of the IBC. 28. Further, the imposition of a moratorium under section 14 of the IBC against the corporate debtor (Parameshwara Poultry Farm Pvt. Ltd.) would not amount to an embargo on the petitioner Bank to enforce its security interest against the personal guarantors under the provisions of the SARFAESI Act. The scheme of the IBC makes it clear that section 14 under Chapter II (Part II) - 'Corporate Insolvency Resolution Process' - applies to a corporate debtor who has committed a default and against whom CIRP has been initiated....
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....2019 is not found to be tenable in light of the above facts as well as the reasons stated below. 33. Section 60(1) under Chapter VI (Part II) of the IBC - 'Adjudicating Authority for Corporate Persons' - stipulates that the NCLT shall be the Adjudicating Authority for corporate persons including corporate debtors and personal guarantors having territorial jurisdiction over the place where the registered office of the corporate person is located. 34. Section 60(2) provides that an application relating to the insolvency resolution, liquidation or bankruptcy of a corporate guarantor or personal guarantor shall be filed before the same National Company Law Tribunal where the CIRP or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal. 35. Section 60(3) further provides that any insolvency resolution process or liquidation/bankruptcy proceeding of a corporate guarantor or personal guarantor pending before any Court or Tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process of the corporate debtor. 36. Section 60 and the sub-sections thereunder should be placed in context of the undis....
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....r Jain (supra) does not assist the case of the guarantors since a unified adjudication process before the NCLT would only arise where the secured creditor has initiated a CIRP against the personal guarantor. Section 238 of the IBC, whereby the IBC has been given overriding powers over all other statutes, would also not come to the guarantors' aid since there is only one CIRP pending against the corporate debtor and not against the guarantors as on date. The issue of centralizing the adjudication against the Corporate Debtor and the personal guarantors would hence not arise. 40. Needless to say, the sanctity of a public auction must be protected at all times. The respondent No. 5/Auction Purchaser before us claims to be irrevocably prejudiced by reason of the impugned order passed by the DRT on 08.08.2025 whereby the DRT set aside the public auction held on 20.10.2022 and the consequent Sale Certificate dated 28.10.2022 issued in favour of the respondent No. 5. Sale of an immovable property/secured asset forms part of Rule 8 of The Security Interest (Enforcement) Rules, 2002. The notice of sale, issue of Sale Certificate and delivery of possession of the secured immovable asset f....
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....annot accept the findings of the DRT as reflected in the impugned order dated 08.08.2025 on several grounds. Our reasons have substantially been stated in the foregoing paragraphs. We however deem it fit to reiterate that the DRT failed to appreciate that a Demand Notice under Rule 7(1) of the 2019 Rules would not, ipso facto, translate to filing of an application under section 95(1) of the IBC. Section 95(1) entails an 'Application' by the creditor for initiating an Insolvency Resolution Process under Chapter III of the IBC against individuals or a partnership firm. Chapter III falls under Part III of the IBC (Insolvency Resolution and Bankruptcy for Individuals and Partnership Firm). Without such an application under section 95(1) being FILED before the jurisdictional NCLT, there would consequently be no interim moratorium under section 96(1) of the IBC. In other words, the guarantors can only claim the benefit of an Interim Moratorium under section 96(1) subject to satisfaction of the condition precedent of the Bank/Secured Creditor filing an application for CIRP under section 95(1) of the IBC. 46. Admittedly, the Bank in the present case chose not to pursue the provisions un....
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.... to require discharge of liability in full was reiterated in Hindon Forge (P) Ltd. v. State of U.P. (2019) 2 SCC 198. Hindon Forge also recognised that the secured creditor is entitled to pass on the entire interest in the property to the auction purchaser. SBI v. V.Ramakrishnan (2018) 17 SCC 394 definitively held that SARFAESI proceedings against the guarantor can continue under the SARFAESI Act, despite a moratorium being imposed on the corporate guarantor. Notably, the Supreme Court held that the object of the IBC is not to allow personal guarantors to escape from an independent co-extensive liability to pay off the entire outstanding debt. Punjab National Bank v. Vindhya Cereals Pvt. Ltd. 2020 SCC OnLine NCLAT 957 reiterated that a financial creditor can simultaneously proceed under SARFAESI Act as well as IBC. 50. The decisions placed on behalf of the auction purchaser reinforce that a confirmed auction can only be interfered with on extremely limited grounds and that a party who challenges an action must show its bona fides by participating in the said auction and making a bid [Valji Khimji and Co. v. Hindustan Nitro Product (Gujarat) Ltd. (Official Liquidator), (2008) 9 S....