Interim Moratorium under Section 96 IBC vs SARFAESI Sales: Ownership Transfers Only on Sale Certificate, Not on Sale Notice – Commentary on Arrow Business Development Consultants Pvt. Ltd. v. Union Bank of India

Interim Moratorium under Section 96 IBC vs SARFAESI Sales: Ownership Transfers Only on Sale Certificate, Not on Sale Notice

Commentary on Arrow Business Development Consultants Pvt. Ltd. v. Union Bank of India & Ors.
Bombay High Court, 10 December 2025

I. Introduction

This judgment of the Bombay High Court (Division Bench: R.I. Chagla and Farhan P. Dubash JJ.) addresses a significant and increasingly common conflict between:

  • enforcement of security interests by banks under the SARFAESI Act, 2002, and
  • the protective regime for individuals and guarantors under the Insolvency and Bankruptcy Code, 2016 (IBC), particularly the interim moratorium under Section 96.

The core legal question framed by the Court was:

Whether, after the 2016 amendment to Section 13(8) of the SARFAESI Act, the borrower’s ownership rights in the secured asset stand extinguished merely upon issuance of a sale notice under Rule 8(6) of the SARFAESI Rules; and, if not, what is the effect of the interim moratorium under Section 96 IBC on a SARFAESI auction sale that is in progress?

The case arises from a situation where:

  • the Bank had completed a SARFAESI auction and issued a sale certificate to the successful bidder,
  • but after the auction and before completion of all sale formalities, one of the co-owner–borrowers (also a guarantor) filed a personal insolvency application under Section 94 IBC, triggering an interim moratorium under Section 96,
  • raising the question whether the Bank could lawfully accept further sale consideration and hand over possession to the auction purchaser after the interim moratorium commenced.

The decision clarifies:

  • the distinction between equity of redemption and ownership,
  • the precise point at which ownership in a SARFAESI sale transfers to the auction purchaser, and
  • the sweeping effect of an interim moratorium under Section 96 IBC on SARFAESI enforcement, even post the 2016 amendment to Section 13(8).

In doing so, the Court harmonises two recent and important Supreme Court lines of authority:

  • Indian Overseas Bank v. RCM Infrastructure Ltd. (2022) 8 SCC 516 – on completion of SARFAESI sales in the shadow of an IBC moratorium; and
  • Celir LLP v. Bafna Motors (Mumbai) (P) Ltd. (2024) 2 SCC 1 – on extinguishment of the right of redemption post-amendment to Section 13(8) SARFAESI and the nature of the “vested right” of the auction purchaser.

II. Factual Matrix and Procedural History

1. Parties

  • Petitioner: Arrow Business Development Consultants Pvt. Ltd. – the successful auction purchaser of the secured asset under SARFAESI.
  • Respondent No. 1: Union Bank of India – the secured creditor.
  • Respondent No. 2: Neha Punit Agarwal – Resolution Professional (RP) / Insolvency Professional for Ms. Vandana Chaudhari (personal insolvency under IBC).
  • Respondent No. 3: Mr. Ravindra Chaudhari – co-owner and co-borrower / guarantor.

The secured asset is a residential flat (Flat No. 201, second floor, “El Castillo”, Palm Beach Road, Nerul, Navi Mumbai).

2. Chronology of Key Events

  1. Sanction of facilities & security: Union Bank extended credit facilities to Vandana and Ravindra Chaudhari. They mortgaged the flat as security.
  2. 16 April 2023: The account of the borrowers was classified as Non-Performing Asset (NPA).
  3. 24 April 2023: The Bank issued a Section 13(2) SARFAESI demand notice demanding ~Rs. 49.33 crores.
  4. 1 September 2023: The Bank took symbolic possession of the flat under Section 13(4) SARFAESI.
  5. 11 November 2024: On the Bank’s Section 14 SARFAESI application, the Chief Judicial Magistrate, Thane, allowed assistance for taking physical possession of the flat.
  6. 9 May 2025: The Bank issued an auction sale notice under Rule 8(6) of the SARFAESI Rules (Appendix IV-A).
  7. 30 May 2025: Auction held; the Petitioner (Arrow) was declared successful bidder with a bid of Rs. 9,12,25,000.
  8. 30–31 May 2025: Arrow deposited 25% of the sale price (Rs. 91,12,500 + Rs. 1,37,00,000).
  9. 9 June 2025:
    • Vandana Chaudhari filed a personal insolvency application under Section 94 IBC before the NCLT, Mumbai.
    • This automatically triggered an interim moratorium under Section 96 IBC in relation to all her debts.
  10. 18–20 June 2025: Arrow paid the remaining six tranches of the auction price (the bulk of the 75% balance), and the Bank accepted them. All these payments occurred after the interim moratorium commenced on 9 June 2025.
  11. 20 June 2025: The Bank issued a sale certificate under Rule 9(6) SARFAESI Rules in favour of Arrow.
  12. Section 17 SARFAESI challenge:
    • The borrowers filed a Securitisation Application under Section 17 SARFAESI before DRT, Mumbai, challenging the sale as contrary to IBC.
    • 30 July 2025: The DRT disposed of the matter, noting the existence of an IBC moratorium and stating no further orders were necessary.
  13. Writ Petition:
    • Arrow filed the present writ petition before the Bombay High Court, seeking a direction to the Bank to hand over physical possession of the flat.
    • The Bank supported Arrow; the RP and co-owner opposed.
    • The Court appointed Mr. Naushad Engineer, Senior Advocate, as Amicus Curiae to assist, given that the original adversarial dynamic (auction purchaser vs bank) was aligned on one side against the IBC regime.

III. Summary of the Judgment

1. Core Holding

The High Court dismissed the writ petition and held that:

  • After the 2016 amendment to Section 13(8) SARFAESI, only the borrower’s right of redemption is extinguished upon publication of the sale notice; the borrower’s ownership in the secured asset is not extinguished at that point.
  • Ownership in a SARFAESI statutory sale transfers only upon issuance of the sale certificate after full payment, in accordance with Rules 8 and 9 of the SARFAESI Rules.
  • The interim moratorium under Section 96 IBC, which is triggered on filing a personal insolvency application, stays all legal actions/proceedings in respect of any debt and thus bars a secured creditor from accepting further auction sale consideration and issuing a sale certificate after the moratorium has commenced.
  • Since the bulk of the balance consideration and the sale certificate in favour of Arrow occurred after the Section 96 interim moratorium took effect, the sale was not validly completed and Arrow did not acquire ownership of the flat. Arrow therefore cannot claim possession.

2. Consequent Orders

  • The writ petition seeking possession was dismissed, with no order as to costs.
  • The Court declined to order refund of the auction amount with interest, since no such specific relief was prayed for in the writ petition; it left that issue open for appropriate proceedings.

IV. Analysis

A. Statutory Scheme under SARFAESI & Rules 8 and 9

The Court carefully restates the SARFAESI framework to set the legal context:

  1. Section 13(1): Allows enforcement of security interest without court intervention.
  2. Section 13(2): After the borrower’s account is classified as NPA, the secured creditor issues a 60-day demand notice to discharge the entire liability.
  3. Section 13(3A): Secured creditor must consider any representation/objection from the borrower and communicate reasons for non-acceptance.
  4. Section 13(4): On failure to pay within 60 days, the secured creditor may:
    • take possession of the secured asset, and/or
    • take over management of the borrower’s business, etc.
  5. Section 13(8) (pre- and post-2016 amendment):
    • Pre-amendment: Borrower could redeem by paying dues “at any time before the date fixed for sale or transfer” – i.e. up to the date of sale itself.
    • Post-2016 amendment: Borrower can redeem by paying dues “at any time before the date of publication of notice for public auction or inviting quotations or tender or private treaty.” The cut-off is now the date of publication of sale notice. Beyond that, the right of redemption is lost.
  6. Rule 8 SARFAESI Rules:
    • Rule 8(1): Taking possession (symbolic/actual) and issuing a possession notice.
    • Rule 8(5): Valuation and fixation of reserve price.
    • Rule 8(6): 30 days’ sale notice to borrower before auction.
  7. Rule 9 SARFAESI Rules:
    • Rule 9(1): No sale before expiry of 30 days from publication of public notice. Subsequent sale also requires notice.
    • Rule 9(3): Successful auction purchaser must deposit 25% of sale price (including EMD) immediately or on next working day.
    • Rule 9(4): Balance 75% must be paid within 15 days of confirmation (extendable up to 3 months).
    • Rule 9(6): On full payment, the authorised officer issues a sale certificate in Appendix V.

The judgment’s reasoning is grounded in the proposition that a SARFAESI auction sale is a statutory sale, and therefore validity and completion must strictly conform to this statutory architecture.

B. Equity of Redemption vs. Ownership: Scope of the 2016 Amendment to Section 13(8)

A central plank of the petitioner's argument was that after the 2016 amendment to Section 13(8), borrowers lose their rights in the secured asset upon publication of the sale notice, and hence, by the time the Section 96 interim moratorium commenced, the borrowers had no rights left which the moratorium could protect.

The Court emphatically rejects this, drawing a critical distinction between:

  • Equity of redemption – the borrower’s statutory right to clear the dues and reclaim the mortgaged property; and
  • Ownership – a broader “bundle of rights” including possession, enjoyment, transferability, etc.

Relying on Narayan Deorao Javle v. Krishna (2021) 17 SCC 626, the Court notes:

“[T]he equity of redemption is a right which is subsidiary to the right of ownership … Such right is not over and above the right of ownership…”

And with reference to Black’s Law Dictionary, the Court emphasises that ownership is a bundle of rights – including “use, manage, enjoy, possess and convey” – of which equity of redemption is one element.

Therefore:

  • The 2016 amendment to Section 13(8) simply bringing forward the cut-off date for loss of redemption does not mean that ownership is extinguished on that date.
  • Ownership continues with the borrower until the statutory sale is fully completed, i.e. sale certificate is issued after full payment under Rule 9(6).

This conceptual distinction is the cornerstone that allows the Court to:

  • accept and apply the Supreme Court’s ruling in Celir LLP (extinguishing redemption at sale notice), while
  • still maintain that ownership does not pass to the auction purchaser until issuance of the sale certificate, as held in Indian Overseas Bank.

C. When Is Ownership Transferred in a SARFAESI Sale?

The Court reiterates the law, primarily from Indian Overseas Bank v. RCM Infrastructure Ltd. (2022) 8 SCC 516:

  • In a statutory sale under SARFAESI, sale is completed only when:
    • the auction purchaser pays the entire sale consideration, and
    • the authorised officer issues a sale certificate under Rule 9(6).
  • Receipt of part-payment does not complete the sale; no title passes at that stage.
  • Following Shakeena v. Bank of India and S. Karthik v. N. Subhash Chand Jain, issuance of the sale certificate is the legal point of transfer of ownership in such statutory sales.

Applying this rule, the Court holds:

  • Even post the 2016 amendment to Section 13(8), the “ownership transfer point” remains the issuance of sale certificate, not the date of sale notice or auction or even mere confirmation.
  • The amendment merely shifts the cut-off for redemption; it does not change the completion mechanics of a SARFAESI sale.

D. Provisions Indicating that Ownership Persists with Borrower Until Sale Certificate

Beyond doctrinal distinctions, the Court points to specific statutory provisions demonstrating that loss of redemption ≠ loss of ownership:

  1. Section 13(5-A) SARFAESI: If the sale is postponed for want of higher bids, the secured creditor may itself bid in a subsequent sale. This presupposes that:
    • no third-party purchaser has yet acquired ownership; and
    • the borrower’s ownership still subsists until sale is actually concluded.
  2. Section 13(6) SARFAESI: Any transfer of the secured asset by the secured creditor “shall vest in the transferee all rights … as if the transfer had been made by the owner.”
    • The phrase “as if” creates a limited legal fiction.
    • Relying on Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC 322, the Court emphasises that:
      The words “as if” show a distinction; a legal fiction is limited to the purpose for which it is created and does not transform the secured creditor into the real owner.
  3. Hindon Forge (P) Ltd. v. State Of U.P. (2019) 2 SCC 198:
    • The Supreme Court held that the secured creditor, even after taking possession, does not become the owner.
    • Ownership vests fully in the transferee only once the statutory transfer under Rules 8 & 9 is completed.
  4. Section 13(7) SARFAESI: If sale proceeds exceed the secured debt, the excess must be returned to the borrower – a clear recognition that the underlying proprietary interest is still that of the borrower until transfer is completed.
  5. Second proviso to Rule 9(2): If no higher price than the reserve price is obtained, the sale at reserve price can be conducted only with the borrower’s consent, again recognising the borrower’s continuing proprietary stake.

From these, the Court synthesises a clear principle:

Even after publication of the sale notice (and consequent loss of redemption rights), the borrower remains the owner of the secured asset until full payment is made and a sale certificate is issued under Rule 9(6).

E. Interim Moratorium under Section 96 IBC: Scope and Effect

The Court then turns to the IBC framework, particularly Section 96, dealing with interim moratorium in individual/personal insolvency:

  • Trigger: The interim moratorium under Section 96 takes effect automatically on the date of application under Sections 94/95 IBC; it does not wait for an admission order.
  • Duration: It continues until admission or rejection of the application under Section 100.
  • Scope:
    • All pending legal actions or proceedings in respect of any debt are deemed to be stayed; and
    • No new legal action or proceeding in respect of any debt can be initiated by creditors.

Relying heavily on Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 43, the Court emphasises:

Section 96 operates “in respect of a debt”, not merely “against the debtor”. It is wider in formulation than Section 14, which is explicitly directed at actions “against the corporate debtor”.

Hence:

  • Section 96 insulates the debt itself from ongoing or fresh legal enforcement, regardless of the forum or the mechanism (including SARFAESI enforcement).
  • This covers all of the debtor’s debts, including guarantee obligations and security created on personal property.

This interpretation is reinforced by the Delhi High Court’s decision in Sanjay Dhingra v. IDBI Bank Ltd. 2024 SCC OnLine Del 4521, where:

  • An individual guarantor’s property was under SARFAESI proceedings.
  • Upon a Section 95 IBC application, an interim moratorium under Section 96 commenced.
  • The Court held that:
    • The words “in relation to all the debts” in Section 96(1) mean that the interim moratorium covers all debts of the guarantor, including those being enforced under SARFAESI.
    • Post-commencement of interim moratorium, the Bank could not continue SARFAESI sale or accept balance sale consideration.

F. Application to Facts: Why the Sale Did Not Complete

With these principles in hand, the Court’s application to the present facts is straightforward:

  1. Sale notice & loss of redemption:
    • The sale notice was published on 9 May 2025.
    • Post-2016 Section 13(8), this extinguished the borrowers’ right of redemption (per Celir LLP).
    • However, it did not extinguish the borrowers’ ownership (per the reasoning outlined earlier).
  2. Auction & part-payment:
    • Auction held on 30 May 2025; Arrow was successful bidder.
    • 25% of the sale price was paid on 30–31 May 2025, before the IBC application.
    • At this point, Arrow had a contractual/statutory expectation but no title.
  3. Interim moratorium under Section 96 starts:
    • Vandana files a Section 94 IBC application on 9 June 2025.
    • Section 96 interim moratorium immediately kicks in in respect of all her debts, including the mortgage debt to Union Bank.
    • At this point:
      • No sale certificate had been issued.
  4. Payments & sale certificate after moratorium:
    • Between 18–20 June 2025, Arrow paid the remaining six tranches of the auction price.
    • The Bank accepted these payments after 9 June 2025, i.e. during the interim moratorium.
    • The sale certificate was issued on 20 June 2025, again during the interim moratorium.
  5. Legal consequence:
    • Per Section 96 IBC and Indian Overseas Bank, the Bank was barred from:
      • continuing enforcement proceedings “in respect of any debt”; and
      • accepting balance auction sale consideration and completing the sale.
    • Therefore:
      • The acceptance of the post-9 June payments was contrary to the moratorium.
      • The sale certificate issued on 20 June 2025 could not be treated as having lawfully completed a statutory sale.
      • Accordingly, the sale did not stand completed in the eyes of law.
    • Consequently, Arrow never acquired ownership of the flat and could not demand possession.

G. Reconciling Celir LLP with Indian Overseas Bank

A key contribution of this judgment is its careful reconciliation of:

1. What Celir LLP decides

In Celir LLP:

  • Multiple failed auctions were followed by a successful ninth auction.
  • After the auction and confirmation, and after 25% payment, but before completion, the borrower approached the Courts claiming a right to redeem.
  • The Supreme Court held that, post-2016 Section 13(8):
    • The borrower’s right of redemption is extinguished on the date of publication of the sale notice under Rule 9(1) SARFAESI Rules.
    • The borrower cannot then, even by offering a higher amount, compel the Bank to ignore an already-confirmed auction.
    • On confirmation of sale under Rule 9(2), the successful bidder gets a vested right to obtain a sale certificate under Rule 9(6).
    • The Bank cannot, after confirming the sale in favour of a third-party purchaser, enter into a private arrangement with the borrower instead.
  • IBC issues, moratorium, or interplay with Section 96 were not in issue in Celir LLP.

2. Vested right of auction purchaser – but subject to legal bars

The Bombay High Court accepts that, per Celir LLP, confirmation of sale invests the auction purchaser with a “vested right” to obtain a sale certificate. However:

  • This vested right is:
    • conditional on the purchaser making full payment within the statutory period, and
    • subject to overarching legal prohibitions, such as an IBC moratorium that comes into effect before completion.
  • Celir LLP does not hold that the vested right is absolute and immune from other statutory regimes such as the IBC.

Thus, harmonising both cases, the Court reasons:

Celir LLP governs the relationship between borrower and auction purchaser under SARFAESI and holds that redemption cannot be exercised after the cut-off. It does not deal with what happens when a third statutory regime (IBC) intervenes between confirmation and issuance of sale certificate.

Therefore, Celir LLP does not dilute or overrule Indian Overseas Bank on:

  • when a SARFAESI sale is legally “complete”; and
  • the effect of an IBC moratorium on an ongoing sale process.

H. Distinguishing Section 14 Moratorium from Section 96 Interim Moratorium

The Petitioner tried to argue that:

  • Section 14 (corporate CIRP) moratorium expressly covers SARFAESI-like actions, whereas
  • Section 96 interim moratorium should be read more narrowly and not cover SARFAESI enforcement.

The Court, relying on Dilip B. Jiwrajka, rejects this line of argument:

  • Section 14(1)(a)–(c) explicitly refer to proceedings “against the corporate debtor” and enumerate categories like suits, execution, etc.
  • Section 96 instead uses broader language:
    • “in respect of any debt”, and
    • “in relation to all the debts”.
  • This formulation indicates that:
    • Section 96 targets the debt itself and all enforcement actions around it, regardless of forum or cause of action structure.
    • It is at least as wide, and in some sense wider (being automatic on filing), than Section 14.

Accordingly, actions under SARFAESI are squarely within the prohibition of Section 96 once the interim moratorium begins.

I. Bank’s & Auction Purchaser’s Position vs. Borrowers’ Conduct

The Bank emphasised:

  • the timing of the Section 94 IBC application – allegedly filed only when borrowers saw that possession would soon be taken;
  • the public nature of its funds and alleged abuse of process; and
  • that SARFAESI enforcement, fairly conducted, should not be derailed by a “last minute” IBC filing.

The Court notes these concerns but nonetheless holds:

  • Courts cannot ignore the express and mandatory language of Section 96, which operates automatically on filing of a personal insolvency application.
  • Even if the application is filed strategically, the statutory consequences under IBC cannot be bypassed.
  • The proper remedy for any alleged abuse lies, if at all, in the IBC process itself (e.g., contesting admission or seeking dismissal), not in allowing secured creditors to continue enforcement in breach of the moratorium.

Hence, strong policy arguments in favour of the Bank and auction purchaser could not override the clear statutory scheme as interpreted by the Supreme Court.

J. Relief on Refund of Auction Proceeds

Counsel for the Petitioner (auction purchaser) argued, in the alternative and without prejudice, that if possession could not be granted:

  • the auction monies deposited with the Bank should at least be refunded with interest.

The Court declined to grant this relief for a narrow procedural reason:

  • The writ petition itself did not contain a specific prayer seeking refund of the auction amount or interest.
  • In writ jurisdiction – particularly when determining complex inter-statutory questions – the Court refrained from moulding relief beyond the pleadings.

However, crucially:

  • The Court expressly left this issue open, allowing the auction purchaser to pursue appropriate remedies (civil suit, restitutionary claims, or proceedings under IBC) in another forum.

V. Precedents Cited and Their Influence

1. Indian Overseas Bank v. RCM Infrastructure Ltd. (2022) 8 SCC 516

  • Facts: SARFAESI auction initiated, part-payment made; thereafter, a Section 14 IBC moratorium commenced; the Bank accepted the remaining 75% post-moratorium.
  • Held:
    • SARFAESI statutory sale completes only on full payment and issuance of sale certificate.
    • Acceptance of balance price and completion of sale after moratorium is legally impermissible.
  • Influence: Bombay HC applied the same principle to Section 96 interim moratorium (Part III IBC), analogising from corporate debtor moratorium to personal insolvency moratorium.

2. Celir LLP v. Bafna Motors (Mumbai) (P) Ltd. (2024) 2 SCC 1

  • Held:
    • Post-2016 amendment, borrower’s right of redemption ends on the date of publication of sale notice under Rule 9(1).
    • On confirmation of sale, auction purchaser obtains a vested right to a sale certificate under Rule 9(6), and the Bank cannot thereafter cut a private deal with the borrower.
  • Influence:
    • Used to rebut borrower’s claim that redemption survives till registration/possession.
    • But confined to SARFAESI borrower–purchaser matrix; not applied to override IBC moratorium logic from Indian Overseas Bank and Dilip Jiwrajka.

3. Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 43

  • Clarified that:
    • Section 96 IBC interim moratorium:
      • is triggered on filing and ceases upon admission/rejection;
      • operates “in respect of any debt”, thus targeting the debt, not just the debtor.
    • Section 14 IBC moratorium is conceptually distinct and applies to corporate debtors.
  • Influence:
    • Provided the doctrinal basis to treat Section 96 as broad enough to cover SARFAESI enforcement, leaving no room for accepting payments or issuing sale certificates during the interim moratorium.

4. Narayan Deorao Javle v. Krishna (2021) 17 SCC 626

  • Clarified that equity of redemption is subsidiary to ownership, not its entirety.
  • Influence:
    • Supported the Court’s conceptual distinction between loss of redemption (under Section 13(8)) and continuing ownership until sale certificate.

5. Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC 322

  • On interpretation of the phrase “as if” in legal fictions.
  • Influence:
    • Helped limit the effect of Section 13(6) SARFAESI: the Bank is treated “as if” it were the owner only for the purpose of transfer; it is not in law the true owner.

6. Hindon Forge (P) Ltd. v. State Of U.P. (2019) 2 SCC 198

  • Held that a secured creditor, even after taking possession, does not become owner; ownership passes only when the secured asset is transferred.
  • Influence:
    • Reinforced that possession and enforcement steps are not equivalent to transfer of ownership.

7. Sanjay Dhingra v. IDBI Bank Ltd. 2024 SCC OnLine Del 4521

  • Held that Section 96 IBC applies to:
    • “all the debts” of the individual, including debts secured by mortgages under SARFAESI; and
    • thus, SARFAESI proceedings continue to be stayed after commencement of interim moratorium.
  • Influence:
    • Directly used to support the proposition that banks cannot continue SARFAESI sales or accept post-moratorium payments in respect of a guarantor’s property once a Section 96 moratorium is triggered.

VI. Complex Concepts Simplified

1. SARFAESI Statutory Sale vs. Ordinary Sale

  • A SARFAESI sale is not a private sale; it is a statutory process governed by the SARFAESI Act and Rules.
  • For title to pass:
    1. Possession and valuation steps (Rule 8);
    2. Publication of sale notice (Rules 8 & 9);
    3. Auction and confirmation (Rule 9(1)–(3));
    4. Full payment within time (Rule 9(4));
    5. Issuance of sale certificate (Rule 9(6)).

2. Equity of Redemption

  • Legal right of a mortgagor to repay the debt in full and reclaim the mortgaged property before final transfer to a third party.
  • Pre-2016 SARFAESI: could be exercised up to the actual date of sale/transfer (aligned with Section 60 of Transfer of Property Act).
  • Post-2016 SARFAESI: must be exercised before publication of sale notice. After that, the right is extinguished – but ownership is not.

3. Ownership vs. Possession vs. Redemption

  • Ownership: Full bundle of rights in property (use, enjoy, alienate, etc.).
  • Possession: Physical or constructive control, which can be with owner or secured creditor.
  • Equity of redemption: Specific right to clear the debt and restore full unencumbered ownership before transfer.

SARFAESI enforcement may:

  • shift possession to the Bank,
  • extinguish the right of redemption after a certain point, but
  • does not transfer ownership to an auction purchaser until the sale certificate is issued.

4. Section 14 vs. Section 96 IBC Moratoria

Aspect Section 14 IBC (Corporate Debtor) Section 96 IBC (Individual / Personal Insolvency)
When it starts On admission of CIRP application by NCLT Automatically on the date of filing of application under Sections 94/95
Who/what it shields “Corporate debtor” – no suits or enforcement against the debtor “In respect of any debt” of the applicant – shields all debts from enforcement
Examples of barred actions Suits, execution, SARFAESI action against corporate debtor’s property Any legal action or proceeding in respect of any debt of the individual (including SARFAESI enforcement of guarantee-backed property)
Duration Till completion or termination of CIRP or order of liquidation From filing till admission/rejection decision under Section 100

5. Personal Guarantor and Secured Creditor

  • Personal guarantor: An individual who guarantees repayment of a debtor’s obligations and often mortgages personal property as collateral.
  • Secured creditor: A creditor holding a security interest (e.g., mortgage) in the debtor’s or guarantor’s property.
  • Under the IBC (Part III), personal guarantors can initiate insolvency processes:
    • Section 94: debtor’s application;
    • Section 95: creditor’s application.
  • Section 96 interim moratorium covers enforcement of the secured creditor’s rights against the guarantor’s secured asset once triggered.

VII. Impact and Future Implications

1. For Banks and Secured Creditors

  • Banks must now treat interim moratorium under Section 96 IBC as a serious legal bar on SARFAESI enforcement, including:
    • accepting post-auction payments;
    • issuing sale certificates; and
    • taking steps for physical possession.
  • Before:
    • accepting balance sale consideration; or
    • issuing a sale certificate;
    banks will have to:
    • conduct due diligence on whether any Section 94/95 applications have been filed by the borrower/guarantor, and
    • monitor NCLT/IBC developments closely.
  • Risk of defective or incomplete sales if the moratorium intervenes mid-process; banks may be exposed to refund/restoration claims from auction purchasers.

2. For Auction Purchasers

  • This judgment highlights a non-trivial risk in buying under SARFAESI:
    • Even after confirmation and part-payment, a subsequent IBC filing can effectively freeze completion of the sale.
  • Practical measures:
    • Conduct IBC searches (NCLT filings, IBBI records) before and after bidding.
    • Negotiate auction terms (where possible) to clarify consequences of IBC filings.
    • Be prepared to pursue restitutionary relief if sale is stalled or annulled by operation of law.

3. For Borrowers and Personal Guarantors

  • The decision confirms that:
    • After the sale notice, borrowers cannot revive their right of redemption (Celir LLP); but
    • They still retain ownership until sale certificate is lawfully issued.
  • Filing a personal insolvency application under Section 94:
    • triggers a powerful protective shield via Section 96; and
    • may halt ongoing SARFAESI proceedings in respect of their properties and guarantees.
    • However, any strategic or abusive filings will likely be scrutinised during:
      • admission hearings under Section 100 IBC; and
      • subsequent insolvency resolution or bankruptcy proceedings.

    4. For IBC–SARFAESI Interplay Jurisprudence

    • The judgment:
      • reinforces the primacy of IBC moratoria over SARFAESI enforcement, even in the realm of personal insolvency (Part III);
      • extends the Indian Overseas Bank logic to Section 96 interim moratorium (not only Section 14 corporate moratorium); and
      • clarifies how to harmoniously read Celir LLP (SARFAESI-specific) with IBC-centric decisions.
    • Future cases involving:
      • personal guarantors’ properties,
      • partly completed SARFAESI sales, or
      • clustered enforcement actions
      will likely rely on this decision as a key precedent.

    5. Regulatory and Market Behaviour

    • Regulators and banks may:
      • consider internal guidelines to handle SARFAESI sales where an IBC process is anticipated or pending;
      • tighten internal compliance to monitor IBC filings related to borrowers/guarantors.
    • The market for distressed assets (especially SARFAESI auctions) may:
      • price in IBC-intervention risk in bid values;
      • see increased legal due diligence by bidders; and
      • be influenced in favour of resolution plans within IBC as opposed to parallel out-of-court enforcement.

    VIII. Conclusion and Key Takeaways

    1. Key Legal Principles Established

    1. Ownership vs Redemption under SARFAESI (Post-2016):
      • Publication of a sale notice under Rule 8(6)/Rule 9(1) extinguishes the borrower’s right of redemption (Celir LLP).
      • However, it does not extinguish ownership – the borrower remains owner until the statutory sale is completed by issuance of a sale certificate after full payment (Indian Overseas Bank).
    2. Completion of SARFAESI Sale:
      • A SARFAESI sale is complete only when:
        • the auction purchaser has paid 100% of the sale price within the prescribed time; and
        • a sale certificate under Rule 9(6) is issued.
      • Part payment and confirmation alone do not transfer title.
    3. Effect of Section 96 IBC Interim Moratorium:
      • It is triggered automatically on filing an application under Sections 94/95 IBC.
      • It stays all pending and prohibits new legal actions or proceedings in respect of any debt of the applicant.
      • This includes SARFAESI enforcement against the debtor/guarantor’s mortgaged assets.
      • Once in force, a secured creditor cannot accept balance sale consideration or issue a sale certificate in a pending SARFAESI sale.
    4. Vested Right of Auction Purchaser (Celir LLP), but Subject to IBC:
      • Upon confirmation of sale, the auction purchaser acquires a vested right to seek a sale certificate against the borrower under SARFAESI.
      • However, this right is subject to superior statutory constraints such as IBC moratoria; it does not override them.
    5. Outcome in the Present Case:
      • Because the interim moratorium under Section 96 commenced before completion of the sale (i.e., before lawful acceptance of all payments and issuance of sale certificate), the:
        • sale could not be validly completed; and
        • auction purchaser did not acquire ownership or right to possession.
      • The writ petition seeking possession was rightly dismissed.

    2. Broader Significance

    This judgment provides a crucial and nuanced reconciliation between SARFAESI enforcement (post-2016) and the IBC moratorium framework. It:

    • preserves the integrity of the IBC’s moratorium mechanisms, including the relatively under-discussed Section 96 interim moratorium for individuals and guarantors;
    • clarifies that flashpoint dates under SARFAESI (like sale notice/auction) do not override the IBC’s protective umbrella when it comes to completion of transfers;
    • balances the interests of banks, borrowers, guarantors, and third-party purchasers by:
      • respecting the finality of SARFAESI auction vis-à-vis borrowers’ redemption rights, but
      • ensuring that no transfer of property can bypass the IBC moratoria.

    In essence, the precedent may be encapsulated thus:

    Even after the 2016 amendment to Section 13(8) SARFAESI, the borrower’s ownership in the secured asset subsists until the sale certificate is issued; if a Section 96 IBC interim moratorium intervenes before that point, the secured creditor cannot lawfully complete the SARFAESI sale, and the auction purchaser does not acquire title to the property.

Case Details

Year: 2025
Court: Bombay High Court

Judge(s)

HON'BLE SHRI JUSTICE R. I. CHAGLA HON'BLE SHRI JUSTICE FARHAN PARVEZ DUBASH

Advocates

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