Introduction

In a recent judgment titled Maria Kuresh Rajkotwala v. Rozina Firoz Hajiani & Ors.^[1], the Hon’ble National Company Law Appellate Tribunal, New Delhi (“NCLAT”) has had the occasion to clarify the legal position on the extent of a personal guarantor’s rights over secured assets, once the enforcement process under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) has culminated in an auction.

The NCLAT held that the rights of a personal guarantor in a secured asset stand extinguished upon the conduct and confirmation of an auction under the SARFAESI Act, and such assets cannot form part of the guarantor’s estate when a personal insolvency petition is subsequently filed under the provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC”).

Background

The Appellant, viz., Maria Kuresh Rajkotwala had filed a petition under Section 94 of the IBC seeking to initiate insolvency proceedings qua herself (“Personal Insolvency Petition”) before the National Company Law Tribunal, Mumbai^[2] (“Adjudicating Authority”). It was the contention of the Appellant that the Personal Insolvency Petition was filed on December 24, 2024, upon filing of which an interim moratorium under Section 96 of the IBC became effective. It was, therefore, the case of the Appellant that once the interim moratorium kicked in, all assets of the Appellant were to be covered within the ambit of such protection.

The Appellant was aggrieved of the order passed by the Adjudicating Authority, whereby the Adjudicating Authority had excluded the assets of the Appellant which were auctioned in favour of an auction purchaser (“Secured Assets”) under the provisions of the SARFAESI Act.

It was the case of the Appellant that the Secured Assets could not have been excluded from the assets of the Appellant, inter-alia, for the reasons that (a) the Personal Insolvency Petition was filed on December 24, 2024; and (b) the unsigned sale certificate under the provisions of the SARFAESI Act was issued in favour of the auction purchaser on the same date, i.e. December 24, 2024, while the signed sale certificate was only issued in favour of the auction purchaser on December 26, 2024, i.e., after the imposition of interim moratorium, which was impermissible under law.

On the contrary, it was the contention of the bank that the auction of the Secured Assets was held on December 13, 2024, i.e., prior to the filing of the Personal Insolvency Petition, and therefore, the Appellant cannot claim benefit of interim moratorium as on the date of auction. Even the auction purchaser (who was an intervenor in the Personal Insolvency Petition) reiterated the submissions of the bank and submitted that not only was the auction conducted on December 13, 2024; but, the sale was confirmed in favour of the auction purchaser on December 18, 2024, by virtue of which all rights in the Secured Assets vested with the auction purchaser from such date.

Findings of the Adjudicating Authority (having been affirmed by the NCLAT)

Jural relationship ends on publication of the sale notice

The Adjudicating Authority placed reliance on the judgment of the NCLAT in Pratibha Industries Ltd., through its Liquidator v. Yes Bank Ltd. & Anr^[3]., to observe that a jural relationship between a bank and the debtor comes to an end on the date of publication of the notice for auction under the provisions of the SARFAESI Act^[4]. In this regard, the Adjudicating Authority noted that the sale of assets under the SARFAESI Act are governed by a special legal framework and the defaulting borrowers/ personal guarantors cannot be permitted to withhold the process of auction of the secured assets under the SARFAESI Act, by filing petitions such as the Personal Insolvency Petition, pleading benefit of interim moratorium.

Right of redemption extinguishes on publication of sale notice

The Adjudicating Authority also observed that the SARFAESI Act was brought into force to assist and enable the secured creditors to enforce their security interest. It has also been pointed out by the Adjudicating Authority that Section 13(8) of the SARFAESI Act^[5], categorically sets out that where the amounts due to the secured creditor (together with all costs, charges and expenses incurred by the secured creditor) are tendered to the secured creditor before the date of publication of notice for public auction, the secured assets shall not be transferred/ auctioned.

This would simply mean that the right to redeem the secured asset is available to a borrower/ debtor only upto a certain stage and in no event beyond the publication of sale notice. In fact, the law has been clarified by the Supreme Court recently in the matter titled M. Rajendran & Ors. v. M/s. KPK Oils and Proteins India Pvt Ltd & Ors^[6] to state that a secured creditor is required to give a composite notice under Rule 8(6) read with Rule 9(1) of the Security Interest (Enforcement) Rules, and thus, the moment such a composite notice is issued, the right of redemption ceases to exist.

Completed actions under the SARFAESI Act cannot be undone by interim moratorium

Keeping in mind the above, the Adjudicating Authority and the NCLAT held that as on the date of filing of the Personal Insolvency Petition by the Appellant, the sale of the Secured Assets had already been given effect to on December 13, 2024, i.e., the date on which the auction took place, and also on December 18, 2024, i.e., the date on which the bank confirmed the sale in favour of the auction purchaser. In both of these scenarios, the right of the Appellant in the Secured Assets had come to an end, and hence, the said Secured Assets cannot form part of the estate of the Appellant, and no effect whatsoever of the provisions of IBC imposing interim moratorium would apply on the said Secured Assets.

Our analysis

The decision passed by the Adjudicating Authority reaffirmed by the NCLAT reinforces the clear statutory boundaries between the SARFAESI Act and the IBC, and strengthens the legislative intent, and eliminates the possibility of mischief by defaulting borrowers.

SARFAESI Act is a special statute, which is a creditor-enforcement statute that operates in a different domain and was envisaged and promulgated with an intent to enable secured creditors to enforce security interest without intervention of court. Therefore, it would not be out of place to mention that SARFAESI Act has been brought into effect to ease recovery of defaulted monies. IBC on the other hand also being a special statute, envisages provisions of moratorium/ interim moratorium to preserve the assets of the borrowers/ personal guarantors, during the insolvency process to inter-alia maximise the value. It has been time and again reiterated by the Supreme Court that IBC is not a tool for recovery^[7].

Once an auction has been conducted and sale confirmed under SARFAESI Act, the debtor or personal guarantor no longer retains any legal interest in the secured asset. Filing a personal insolvency petition thereafter cannot revive extinguished rights or unwind a lawfully completed sale.

In the matter before the NCLAT, it has held that the timing of the insolvency filing, i.e., after the auction of the Secured Assets and sale confirmation, could not be permitted to be used to stall or invalidate the SARFAESI enforcement process. The NCLAT’s endorsement of this principle prevents misuse of IBC mechanisms to frustrate legitimate creditor actions.

Conclusion

The NCLAT’s ruling provides a welcome clarity on the interaction between the SARFAESI Act and the IBC, particularly on the finality of auction proceedings under the SARFAESI Act.

The judgment confirms that once a secured asset has been auctioned and the sale is confirmed, the personal guarantor’s rights stand extinguished, and such assets cannot be drawn back into the insolvency estate through a subsequently filed personal insolvency petition.

This strengthens creditor rights under SARFAESI and prevents abuse of the IBC moratorium framework.

In view of the above facts and considering that both IBC and SARFAESI Act operate in different domains, the judgment of the NCLAT reaffirming the findings of the Adjudicating Authority is in the right direction. The same not only curbs defaulting borrowers from taking undue advantage of provisions of IBC in relation to moratorium/ interim moratorium; but also enables the creditors to exercise rights available to them under the SARFAESI Act.

Endnotes:

[1] Judgment dated October 30, 2025 passed by the NCLAT in Company Appeal (AT) No. 1644 of 2025.

[2] CP (IB) No.391 /MB/ 2025.

[3] Company Appeal (AT) (Ins) No.1049 of 2024, dated April 4, 2025.

[4] Rule 8(6) read with Rule 9(1) of the Security Interest (Enforcement) Rules, 2002.

[5] Amended on September 1, 2016.

[6] Civil Appeal No.12174 of 2025.

[7] HPCL Biofuels Limited v. Shahji Bhanudas Bhad, Civil Appeal No.12233 of 2024.