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Informist, Wednesday, Dec. 10, 2025

 

NEW DELHI – The Bombay High Court Wednesday ruled that when an interim moratorium is imposed on the personal guarantor's assets under insolvency proceedings, a secured creditor to the person cannot receive balance payment from the successful purchaser of these assets. When a debtor or creditor files for personal insolvency against a person, an interim moratorium comes into force under the Insolvency and Bankruptcy Code, 2016, halting all legal actions and debt recoveries against the person while the application is reviewed.

 

Thus, if an interim moratorium kicks in post confirmation of the sale but before the balance payment is made, the only outcome is that there is no transfer of ownership of the secured asset in favour of the successful purchaser under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, said the high court. If there is any legal embargo in completing the sale, the successful purchaser cannot claim any ownership rights, the court said. Moreover, the interim moratorium under Section 96 of the 2016 Code is much wider than that under Section 14, the court added.

 

The court said in the present case, the sale conducted under the provisions of the SARFAESI Act does not stand completed since, during the intervening period from the date of confirmation of sale on May 30 till the issuance of sale certificate on Jun. 20, the interim moratorium imposed on Jun. 9 stayed all proceedings in respect of any debt of the borrowers Vandana Chaudhari and Ravindra Chaudhari. 

 

In view of the imposition of the interim moratorium, payments of the balance six tranches from purchaser Arrow Business Development Consultants Pvt. Ltd. could not have been accepted by Union Bank of India, said the court. Resultantly, Arrow Business is not the owner of the secured asset and therefore, not entitled to possession of the same, said the court.

 

The case has its genesis in Vandana Chaudhari and Ravindra Chaudhari availing certain financial facilities from Union Bank of India. The borrowers are the owners of the secured asset, a flat in Mumbai which was mortgaged by them and which served as security for the financial facility. After the borrowers' account was classified as a non-performing asset due to defaults in payments, the bank issued an auction sale notice for the property, of which Arrow Business Development was declared a successful purchaser.

 

Thereafter, Arrow Business Development made payments in tranches to Union Bank of India for the secured asset. However, on Jun. 9, Vandana Chaudhari filed an insolvency application against herself and accordingly, the National Company Law Tribunal declared an interim moratorium. The remaining payment of the secured asset was made by Arrow Business Development after the interim moratorium. Arrow Business Development moved the high court against the bank's inaction to hand over the possession of the secured asset despite the issuance of sale certificate in its favour.

 

On Wednesday, shares of Union Bank of India ended 1.6% lower at INR 148.06 on the National Stock Exchange.  End

 

Reported by Surya Tripathi

Edited by Tanima Banerjee

 

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