Ashwani Kumar Oberoi vs State Bank of India & Ors.

“It is therefore respectfully prayed that this Hon’ble Tribunal may be please to order the respondents to set aside the sale certificate of property of the applicant/personal guarantor to corporate debtor i.e. Plot No.M-31. Industrial Area, Yamunanagar inspite of the fact that the present petition had been filed on 27.04.2024 and certificate of sale has been issued on 31.05.2024 which is after filing of the petition.”

“20.

It is also necessary to take note of the conduct of the Applicant. It is observed that the Public Auction Notice under the SARFAESI Act was issued on 25.03.2024 and the Applicant had sufficient opportunity prior thereto to take appropriate steps towards outstanding dues. However, no such steps were taken and the Applicant chose to initiate proceedings under the Code only after the auction was conducted on 11.04.2024 and the sale stood confirmed on 12.04.2024. It is further noted that the Applicant had also challenged the auction proceedings before the Debts Recovery Tribunal-II, Chandigarh, which by order dated 09.08.2024 in SA No. 340/2024, observed that the action of the secured creditor could not prima facie be said to be erroneous. Such conduct of the Applicant indicates an attempt to stall the recovery process at a belated stage, which cannot be countenanced.

21.

In view of the foregoing discussion, this Adjudicating Authority is of the considered view that the present application does not merit acceptance. The rights of the Applicant came to an end on 12.04.2024, when the sale was confirmed in favour of Ms. Aarushi Mehta and Ms. Prabhsimran Kaur being the H1 bidders. The subsequent filing of the application under Section 94 of the Code on 29.04.2024 cannot have the effect of unsettling a confirmed sale, particularly when the interim moratorium under Section 96 operates prospectively from the date of filing of the application. Accordingly, the steps taken by the Respondents, including the issuance of Sale Certificate dated 31.05.2024 and proposed action for taking physical possession of the property bearing Plot No. N-31, Industrial Area, Yamunanagar, cannot be said to be in violation of Section 96 of the Code.”

“1.

A disturbing trend is noticed by this writ Court as to the manner in which chronic defaulters are taking resort to the provisions of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as ‘the IBC’ for short) to frustrate secured creditors and auction purchasers from proceeding, in accordance with law, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (hereinafter referred to as ‘the Securitisation Act’ for short).

2.

In a number of such matters, it is found that the borrowers/ guarantors act as fence sitters and do not take any steps when the secured creditors proceed under Section 13(2) of the Securitisation Act and take further consequential steps, till the culmination of the process and auction purchasers coming into the picture. At the stage when the auction sale has been conducted and the auction purchaser has come into the picture, in a few instances, even after the sale certificate is issued, when physical possession of the secured asset is about to be handed over to the auction purchaser, the original borrowers/guarantors initiate collusive proceedings under Section 94 or Section 95 of the IBC, claiming triggering of moratorium under Section 96 thereof, the moment such proceedings are filed before the National Company Law Tribunal (NCLT). As a consequence, all steps taken under the provisions of the Securitisation Act, suddenly come to a standstill and such borrowers/guarantors, who are defaulters, wear a cloak of immunity under the garb of moratorium triggered under Section 96 of the IBC. In such a situation, the secured creditor and/or the auction purchaser are required to approach the NCLT and thereafter, the proceedings reach the National Company Law Appellate Tribunal (NCLAT) and then the Supreme Court, till which time the auction purchaser is completely frustrated, despite having parted with consideration in terms of the bid amount.”

“8.

From the facts which has been brought on the record it is clear that appellant has filed the Section 94 application in the NCLT on 24.12.2024 on which date receipt was issued. The assets which are covered by the directions issued by the adjudicating authority were auctioned on 13.12.2024 in favour of the Auction Purchaser which was confirmed on 18.12.2024. Even if we accept the submission of the appellant that sale certificate was signed on 26.12.2024 and 24.12.2024 was only unsigned sale certificate, that shall have no effect on the competition of the auction which took place on 13.12.2024 and confirmed on 18.12.2024 by the Bank. The rights of the personal guarantor came to an end after auction held on 13.12.2024 was confirmed.”

“24.

The object of the IBC is to ensure that insolvency resolution of corporate persons and individuals is undertaken in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interest of all stake holders. The IBC emphasizes upon an effective legal framework for the timely resolution of insolvency and bankruptcy, so that an opportunity is made available for revival of the debtor to support development of credit markets and to encourage entrepreneurship, with liquidation being the last resort. The whole purpose of enactment of IBC is for improving the ease of doing business, facilitating more investments, leading to higher economic growth and development in the country.

25.

We find that the manner in which the defaulting borrowers and guarantors have been taking recourse to the provisions of the IBC, particularly Sections 94, 95 and 96 thereof, shows that such strategies are frustrating the very object of the IBC, apart from paralyzing the whole process of lawful steps taken by secured creditors in respect of secured assets under the provisions of the Securitisation Act. As noted hereinabove, chronic defaulters of loan and financial facilities, when facing the heat of proceedings initiated by secured creditors reaching culmination, scamper to file proceedings under Sections 94 and 95 of the IBC in a collusive manner, so as to claim that the moment such proceedings are initiated, moratorium is triggered under Section 96 thereof, as a result of which further lawful proceedings are stayed. The filing of such proceedings under the IBC is only with the object of frustrating the legal process and it has nothing to do with the object with which the IBC was enacted.”

“94.

Application by debtor to initiate insolvency resolution process.– (1) A debtor who commits a default may apply, either personally or through a resolution professional, to the Adjudicating Authority for initiating the insolvency resolution process, by submitting an application.”

“13.

When we look at the impugned order, we find that the Adjudicating Authority at para 5 thereof has exhaustively listed out the details of the multiple legal proceedings initiated by the Appellant before various Courts/Tribunals/Forums. This leaves no doubt in our mind that each time physical possession of the secured residential premises was sought to be taken by the Respondent No.1 by following the due process laid down under the SARFAESI Act, the Appellant tried to circumvent the possession notice and stall/defer these proceedings by initiating some legal proceeding or the other. This pattern of conduct of the Appellant underlines an entrenched pattern of evasion of recovery proceeding on one pretext or the other.

14.

This now brings us to the filing of the Section 94 application on 03.12.2022 and its timing. We notice that Section 94 application was filed by the Appellant within weeks after the issue of a possession notice upon them on 11.11.2022 by the Respondent No.1. When after the 4th SA was disposed of, the Appellant realised that it had failed to secure any further relief from the DRT and that dispossession from the subject residential premises was imminent that the present Section 94 petition was filed on 03.12.2022 and a communication sent on 06.12.2022 to the Respondent No.1 to hold its hand from taking over possession of the residential premises on account of moratorium. This letter of 06.12.2022 clearly reveals the intention of the Appellant to stall the recovery proceedings by taking undue benefit of the moratorium provisions. Filing of the Section 94 application at this juncture leaves no room for doubt in our mind that these proceedings were not initiated with the intent of genuine insolvency resolution but as a tool to obstruct lawful recovery of enforcement with the manifest intent of the Appellant being to seek refuge under the moratorium provision under Section 96 of the IBC in an effort to prevent enforcement of possession of the secured residential premises.

16.

This is a case clearly where the Appellant on one excuse the other has all along tried to delay the handing over of the security to the Respondent No.1. We find that steps under SARFAESI Act have been pending since 2012. The Appellant has consistently misused the benevolent indulgence afforded by various adjudicatory forums to the Appellant in the past to resolve the matter. Each time the Appellant got relief from the court it slept over its commitment to either handover the subject residential premises to the Respondent No.1 or to make payment by selling the said property to clear the outstanding debt. The present Section 94 proceedings have been filed 13 years after symbolic possession had been taken by the Bank of India on 10.12.2012. We notice that when the SARFAESI proceedings were on the verge of completion and all manoeuvres adopted by the Appellant to stall and delay the recovery proceedings having come to a naught, the Appellant now sought to wriggle out of this situation by resorting to filing of the Section 94 application. In view of the persistent lack of good faith displayed by the Appellant, the Adjudicating Authority cannot be said to be wrong in concluding that the Appellant on having received the possession notice once again from the Respondent No.1 has again tried to dodge the said notice by filing a Section 94 application. Hence, the reliance placed by the Appellant on the judgment in Getz Cables judgment supra is misplaced. The facts of the present case and that of Getz Cables supra are distinguishable. In the matter of Getz Cables supra, the insolvency proceedings under Section 94 of IBC was instituted immediately after initiation of SARFAESI proceedings. In comparison to the close proximity between the SARFAESI proceedings and filing of Section 94 petition in Getz Cables judgment supra, in the present case there is a yawning time-gap of more than a decade between the SARFAESI and Section 94 proceedings. In the present case, the SARFAESI proceedings have been going on since 2012 and the Appellant has unleashed a chain of litigations which have been doggedly and relentlessly pursued in various courts of law to derail the recovery proceedings. Section 94 proceedings have been initiated by the Appellant more or less coinciding with the issue of possession notice dated 11.11.2022 by Respondent No.1. The present Section 94 application is clearly yet another salvo on the part of the Appellant to stall the recovery by taking advantage of moratorium. This clearly shows that the Appellant has been ceaselessly orchestrating litigative proceedings and embroiled the Respondent No.1 in these proceedings clearly to subvert the recovery proceedings initiated against them and not for the purpose of the insolvency resolution. In the given fact situation, we are inclined to agree with the findings returned by the Adjudicating Authority that the Appellant had approached the Adjudicating Authority by filing the Section 94 application with an intent other than insolvency resolution.”

“12.

When petition No. 455 of 2023 was dismissed for non-prosecution, the Appellant did not challenge the dismissal of this petition. Instead, the Appellant once again slipped into the dormant mode until the Respondent once again initiated steps to take physical possession of the mortgaged property. We notice that when the mortgaged property was to be again taken over on 30.05.2024, the Appellant filed the second Section 94 petition vide No. 380 of 2024. Curiously, the date of filing of the first and second Section 94 petitions was always one day prior to the date fixed by the Court Receiver to take over possession of the mortgage property. This timing cannot be treated as a simple case of accidental coincidence but signifies the ulterior motive of the Appellant taking refuge of moratorium under Section 96 of the IBC and to hinder and delay the recovery proceedings as and when initiated by the Respondent Bank.

14.

When we look at the above order it is clear that the Appellant did not appear either on the first or the second revised call and hence the matter was dismissed for non-prosecution. It clearly shows that the Appellant was not serious of defending her case but was dragging the matter. When the Section 94 petition had already been dismissed once earlier, any vigilant litigant would not be as lackadaisical the second time. The same conduct of the Appellant of non-appearance on the dates of hearing had continued even after filing of the second section 94 petition. We are not persuaded to believe that technical malfunction as stated by the Appellant prevented the appearance especially when the matter was again taken up on revised call and the Appellant went unrepresented. We also do not find that the Adjudicating Authority upto this stage was ever informed about the alleged adverse medical condition of the Appellant. The medical prescriptions have been placed before this Tribunal for the first time and hence we wish to refrain from making any observations on the illness of the Personal Guarantor. The conduct of the litigant is clearly dubious and it clearly appears that the Appellant was more interested in delaying the proceedings by absenting themselves from appearing before the Adjudicating Authority when the matter was listed for hearing. The intention of the Appellant was to buy more time so as to avoid the execution of the Possession Notice and avail the benefit of moratorium under Section 96 of IBC.

18.

In the given backdrop, we find that the Appellant was persistently not appearing after filing the Section 94 applications without sufficient cause or explanation. This is a clear case of the Appellant resorting to repeat litigations for the same cause of action thus abusing the process of law and wasting the valuable time of the Adjudicating Tribunal. It would not be far from truth to infer that the underlying intent of the Appellant was to prevent the Respondent from taking legal action for the recovery of its outstanding dues against the Appellants including enforcement actions undertaken under SARFAESI Act. We have no reasons to disagree with the Adjudicating Authority that it did not find any satisfactory basis for allowing the restoration application. We are of the considered view that the dismissal of the restoration application is not for unjustified reasons. The Adjudicating Authority cannot be faulted for rejecting the restoration application.”