A landmark ruling by the Bombay High Court has clarified that the moratorium under the Insolvency and Bankruptcy Code, 2016 cannot be invoked to nullify lawful steps taken under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 after a sale certificate has been issued in favor of an auction purchaser. The judgment shuts down a growing trend of chronic defaulters using collusive IBC filings to frustrate secured creditors and bona fide buyers.
Background & Facts
The Dispute
The dispute arose from the enforcement of a secured asset - Flat No.1, Ground Floor, Building No.27/E, Mazgaon Terrace Co-op. Housing Society Limited, Mumbai - mortgaged to Union Bank of India (Respondent No.2) against a credit facility of Rs.6.25 crores extended to Respondent No.3 (borrower). The borrower and guarantors (Respondents Nos.3 to 7) defaulted on repayment, triggering proceedings under the Securitisation Act. Despite repeated opportunities to settle, they delayed, proposed ten One Time Settlement (OTS) offers, and only initiated legal challenges after the auction purchaser had paid and received a sale certificate.
Key Facts
- Credit facility extended: Rs.5 crores, later enhanced to Rs.6.25 crores
- Secured asset: Flat No.1, Ground Floor, Building No.27/E, Mazgaon Terrace Co-op. Housing Society, Mumbai
- Notice under Section 13(2) of Securitisation Act issued: 07.03.2017
- Notice served on borrower and guarantors: 07.03.2017
- Application under Section 14 of Securitisation Act filed for possession: 14.08.2018
- Magistrate’s order permitting possession: 26.11.2019
- Symbolic possession taken by bank: 09.11.2022
- First auction scheduled: 25.01.2023 (failed)
- Second auction scheduled: 23.02.2023 (failed)
- Third auction scheduled: 28.03.2023 (failed)
- 10th OTS proposal offered by borrower: 31.05.2023
- OTS sanctioned by bank: 17.07.2023 (Rs.4.90 crores payable in installments)
- OTS revoked by bank: 02.05.2024 (after non-payment and four reminders)
- Auctions scheduled between 14.03.2024 and 29.10.2024: Six attempts, all failed
- 10th auction scheduled: 25.11.2024 for 13.12.2024
- Securitisation Application filed by borrowers/guarantors: 12.12.2024 (over seven years after Section 13(2) notice)
- Auction conducted: 13.12.2024
- Petitioners declared successful bidders: Bid amount Rs.2,48,50,000
- Sale certificate issued: 24.12.2024
- Sale certificate registered: 26.12.2024
- Company Petition under Section 94 of IBC filed by Respondent No.7: 24.12.2024
- DRT order staying proceedings: 21.01.2025 (citing Section 96 moratorium)
- NCLT order excluding secured asset from moratorium: 02.09.2025
- NCLAT dismissal of appeal: 30.10.2025
- Supreme Court dismissal of Civil Appeal: 26.02.2026
- Application under Section 95 of IBC filed at NCLT Guwahati: 06.10.2025
- Interim Application No.2207/2025 filed before DRT: 13.10.2025
- Impugned DRT order: 26.11.2025 (stayed all further steps)
- Sale deed registered in favor of petitioners: 06.10.2025
Procedural History
- 07.03.2017: Securitisation Act Section 13(2) notice issued
- 14.08.2018: Section 14 application filed before Chief Judicial Magistrate, Mumbai
- 26.11.2019: Magistrate granted possession order
- 09.11.2022: Symbolic possession taken by bank
- 25.01.2023 to 29.10.2024: Nine failed auctions
- 17.07.2023: 10th OTS sanctioned
- 02.05.2024: OTS revoked
- 12.12.2024: Securitisation Application No.215/2024 filed before DRT
- 13.12.2024: 10th auction conducted; petitioners declared successful bidders
- 24.12.2024: Sale certificate issued
- 26.12.2024: Sale certificate registered
- 24.12.2024: Company Petition No.391/2025 filed under Section 94 of IBC before NCLT Mumbai
- 21.01.2025: DRT stayed proceedings citing Section 96 moratorium
- 02.09.2025: NCLT Mumbai excluded secured asset from moratorium
- 30.10.2025: NCLAT dismissed appeal against NCLT order
- 06.10.2025: Section 95 IBC application filed at NCLT Guwahati
- 13.10.2025: Interim Application No.2207/2025 filed before DRT
- 14.10.2025: DRT adjourned hearing, orally directed bank to defer possession
- 26.11.2025: DRT passed impugned order halting possession
- 04.02.2026: NCLAT dismissed recall application
- 26.02.2026: Supreme Court dismissed Civil Appeal (D) No.70784/2025
- 28.03.2026: Writ Petition (L) No.5157/2026 filed before Bombay High Court
The Parties' Positions
Petitioners (Auction Purchasers): Lawful buyers who paid full consideration, obtained registered sale certificate, and were entitled to physical possession. Their rights crystallized before any IBC moratorium was triggered.
Respondent No.2 (Union Bank of India): Secured creditor who followed all procedural requirements under the Securitisation Act, issued notices, conducted auctions, and acted in good faith.
Respondents Nos.3 to 7 (Borrowers and Guarantors): Chronic defaulters who made ten OTS proposals without payment, delayed legal challenges for over seven years, and filed collusive IBC applications at NCLT Mumbai and NCLT Guwahati to stall enforcement.
Relief Sought
The petitioners sought:
- Setting aside of the DRT’s impugned order dated 26.11.2025
- Directing the bank to proceed with physical possession of the secured asset
- Directing the DRT to decide the pending Securitisation Application No.215/2024 on merits within a fixed timeline
- Costs for abuse of process
The Legal Issue
Can a moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 be invoked to stall the enforcement of a secured asset after a sale certificate has been issued and registered in favor of an auction purchaser, particularly when the borrower has remained silent for over seven years and repeatedly offered but failed to honor settlement proposals?
Arguments Presented
For the Petitioner
The petitioners, supported by the secured creditor, argued that:
- The sale certificate was issued and registered on 24.12.2024 and 26.12.2024 respectively, prior to any IBC application being filed
- The NCLT Mumbai, NCLAT, and Supreme Court had already held that the secured asset was excluded from the moratorium under Section 96
- The Section 95 IBC application filed at NCLT Guwahati on 06.10.2025 was collusive, with forged documents, no witness signatures, and a Mumbai-based bank receipt
- The borrowers’ conduct constituted waiver and estoppel under Arce Polymers v. Alphine Pharmaceuticals and ITC Ltd. v. Blue Coast Hotels
- The DRT’s one-line order ignoring binding precedents amounted to jurisdictional error and failure of justice
For the Respondent
The borrowers and guarantors contended that:
- The Section 95 IBC application filed by a creditor on 06.10.2025 triggered a fresh moratorium under Section 96
- The DRT was legally bound to stay proceedings pending resolution of the IBC application
- The Securitisation Application was still pending and deserved adjudication on merits
- The petitioners had an alternative remedy before DRAT, making the writ petition maintainable
The Court's Analysis
The Bombay High Court undertook a rigorous analysis of the sequence of events, the statutory framework of the Securitisation Act and IBC, and the conduct of the defaulting parties. The Court emphasized that the IBC was enacted to promote entrepreneurship and credit availability, not to enable strategic delays by chronic defaulters.
"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."
The Court noted that the sale of the secured asset was completed, the sale certificate was issued and registered, and the rights of the auction purchasers had crystallized on 24.12.2024 - well before the Section 94 IBC application was filed on the same day and long before the Section 95 application was filed on 06.10.2025. The NCLT Mumbai’s order dated 02.09.2025, upheld by NCLAT and the Supreme Court, had conclusively held that the secured asset was excluded from the moratorium.
The Court further found the Section 95 application at NCLT Guwahati to be collusive, citing multiple irregularities: unregistered deed of guarantee, absence of witness signatures, hand-delivered notices without proof of service, and a payment receipt from a Mumbai bank for an application filed in Guwahati. The Court held that such tactics were designed to exploit procedural delays and exhaust the petitioners and the bank.
The Court applied the doctrine of waiver and estoppel, relying on Arce Polymers v. Alphine Pharmaceuticals and ITC Ltd. v. Blue Coast Hotels, to hold that the borrowers’ repeated OTS offers, silence for over seven years, and failure to challenge the Section 13(2) notice amounted to intentional relinquishment of statutory rights. The bank had acted in reliance on this conduct, and third-party rights had been created.
The DRT’s failure to consider these binding precedents and its reliance on a collusive moratorium claim constituted a jurisdictional error warranting writ intervention.
The Verdict
The writ petition was allowed. The impugned order dated 26.11.2025 of the DRT was set aside. The Union Bank of India is directed to proceed with physical possession of the secured asset without awaiting the disposal of Interim Application No.2207/2025. The DRT is directed to decide the pending Securitisation Application No.215/2024 on merits within four weeks and dispose of it by 15.05.2026. The Court Commissioner shall execute possession in accordance with the Magistrate’s order under Section 14 of the Securitisation Act.
What This Means For Similar Cases
Moratorium Cannot Revive Extinguished Rights
- Practitioners must argue that once a sale certificate is issued and registered under the Securitisation Act, the borrower’s right of redemption is extinguished
- Any IBC application filed thereafter cannot revive the moratorium to undo completed transactions
- The NCLT’s exclusion of assets from moratorium under Section 96 is binding on DRTs and DRATs
Waiver Through OTS Conduct Is Enforceable
- Repeated OTS proposals without payment constitute intentional relinquishment of statutory rights under the Securitisation Act
- Courts will apply estoppel where creditors act in reliance on borrower’s assurances
- Delay beyond seven years in challenging a Section 13(2) notice, coupled with OTS conduct, bars equitable relief under Article 226
Collusive IBC Filings Will Be Scrutinized
- Courts will examine the authenticity of IBC applications filed by third-party creditors with suspicious documentation
- Mismatched jurisdiction (e.g., Mumbai bank receipt for Guwahati NCLT filing) raises red flags
- Petitioners may seek costs and adverse inference against parties using IBC as a litigation tactic
