Guarantors Misused Moratorium to Stall SARFAESI Recovery: NCLAT Upholds Dismissal of Repeat S. 94 Petitions [Read Order]
In the second petition, the NCLT issued a Show Cause Notice asking why he failed to disclose the earlier dismissal.
In a recent ruling, national company law appellate tribunal (NCLAT) Delhi has dismissed the appeals, holding that the repeated section 94 petitions under the Insolvency and Bankruptcy Code (IBC) to seek moratorium protection and stall recovery proceedings under the SERFAESI ACT.
The appeal arises from separate orders of the National Company Law Tribunal (NCLT) dated 24.09.2024 and 08.10.2024. Which had dismissed the guarantors section 94 petitioners for non- prosecution. Both appellants, Manoj Agrawal and Vimala Devi, mother and son, stood as personal guarantors for MMR Agro Food Pvt. Ltd, whose loan account was declared NPA on 30.11.2022.
Following SARFAESI notices and possession proceedings, the guarantors filed insolvency petitions strategically one day before scheduled possession dates, seeking moratorium protection under Section 96 IBC.
The appellants, Manoj Agrwal and Vimala Devi, argued that their absence was due to genuine reasons. One of the appellants, Vimala Devi, a senior citizen suffering from cancer, stated that she was unable to pursue proceedings personally and relied on counsel who failed to appear. Manoj Aggarwal similarly claimed reliance on counsel who mishandled the matter.
Also mentioned that their reasons for non- appearance should have been viewed with leniency, allowing restoration so the Section 94 application could be heard on the merits to ensure justice.
The respondent, Karnataka Bank Ltd, argued that the Appellant has been misusing the process of law with malafide intention to defeat the recovery proceedings initiated by the Respondent Bank by seeking refuge under the moratorium and was misusing the section 94 petition to delay recovery.
Illness claims were raised very lately at the appellate stage and not before the NCLT. It was also contented that the adjudicating authority reviewed all prior facts and proceedings and correctly found no sufficient reasons to justify restoring the application, leading to its dismissal.
After hearing both sides very carefully, the appellate tribunal observed that the Adjudicating Authority had given ample opportunity to the Appellant to make good their appearance to protect their interest. Their petitions were dismissed for non‑prosecution after repeated adjournments. The Tribunal emphasized that filing second petitions without disclosing earlier dismissals was misleading and amounted to abuse of process.
Tribunal also held that the timing of fillings always one day before possession, which showed intent to misuse moratorium provisions under section 96 rather than genuine insolvency relief, and Restoration applications lacked a satisfactory explanation, and medical grounds were not raised before the NCLT.
The bench of Justice Ashok Bhushan ( Chairman), Barun Mitra ( Technical member), and Arun Baroka(Technical member ) acknowledged that while litigants should not suffer solely due to lawyers’ negligence, the IBC requires strict adherence to timelines to ensure efficient resolution.
Accordingly, The Appeals are dismissed. with costs of ₹20,000 imposed on Smt. Vimla Devi to be deposited in the Prime Minister’s Relief Fund
