High Court held that IBC provisions prevail over the SARFAESI Act and that the interim moratorium under Section 96 affects SARFAESI proceedings initiated post-moratorium.
The Delhi High Court Single-Judge Bench of Justice Ms. Mini Pushkarna noted that the interim moratorium applies to debts arising from personal guarantees, including those under the SARFAESI Act. The Bench observed that the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016, which restrains legal actions related to debts, also applies to enforcement proceedings under the SARFAESI Act, thus prohibiting further SARFAESI actions while the moratorium is in effect.
In the present writ petition, the petitioner challenged the actions taken by IDBI Bank, New Delhi, under the Securitisation and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (SARFAESI Act), in relation to loan facilities provided by IDBI Bank, Dubai, to a Dubai-based company. The petitioner had provided a personal guarantee for the loan and mortgaged property in India, formalized through a Declaration and Undertaking. Following a default by the Dubai-based company, IDBI Bank, New Delhi initiated enforcement proceedings under the SARFAESI Act, including the appointment of a Receiver to take possession of the mortgaged property.
The petitioner contended that SARFAESI Act provisions were inapplicable since the loan was governed by UAE laws and that IDBI Bank, Dubai, was not a banking company in India. They also argued that the proceedings should not have been initiated due to a personal insolvency moratorium under Section 95(1) of the Insolvency and Bankruptcy Code, 2016 (IBC). In response, the respondents argued that the writ petition was not maintainable as remedies under Section 17 of the SARFAESI Act were available and that SARFAESI proceedings were applicable despite the IBC moratorium.
The High Court considered whether the interim moratorium under Section 96 of the IBC affected SARFAESI enforcement actions. Referring to the Supreme Court ruling in Dilip B. Jiwrajka v. Union of India and Others, REEDLAW 2023 SC 11575, the Court clarified that the interim moratorium under Section 96 primarily restrains legal actions concerning the debt itself, rather than against the debtor personally. It was noted that this interim moratorium applies to debts arising from personal guarantees, including those under the SARFAESI Act.
The Court emphasized that the IBC provisions prevail over conflicting laws, including those of the SARFAESI Act, and that the interim moratorium under Section 96 affects SARFAESI proceedings initiated post-moratorium. The Court also referenced the Supreme Court’s judgment in Indian Overseas Bank v. RCM Infrastructure Limited and Another, REEDLAW 2022 SC 05504, where it was ruled that if SARFAESI proceedings had not reached the sale stage before the moratorium, they could not proceed thereafter.
Further, the Court addressed jurisdictional issues, noting that such matters are typically within the jurisdiction of the Debts Recovery Tribunal (DRT) and that statutory remedies should be exhausted before approaching the High Court. Consequently, the Court concluded that SARFAESI proceedings could not continue due to the interim moratorium, affirming that personal insolvency proceedings impact SARFAESI enforcement and rejecting the respondents' arguments to the contrary.
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