Court sets aside DRT order, allowing secured creditors and auction purchasers to proceed with asset possession.
In a significant ruling, the Bombay High Court has intervened to address the misuse of the Insolvency and Bankruptcy Code (IBC) by chronic defaulters, who have been leveraging its provisions to thwart legal processes under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act (Securitisation Act). The court, while hearing the case of Rozina Firoz Hajiani and Others versus Union of India and Others, set aside an order of the Debts Recovery Tribunal (DRT) that had stalled further steps by secured creditors and auction purchasers.
The division bench, comprising Justices Manish Pitale and Shreeram V. Shirsat, observed that chronic defaulters were using the IBC provisions to initiate collusive proceedings, thereby claiming a moratorium under Section 96 of the IBC. This tactic was being employed to delay and frustrate proceedings initiated under the Securitisation Act, adversely affecting the financial and business environment in the country.
The court noted that the misuse of the IBC provisions was hindering the objectives of both the IBC and the Securitisation Act. The secured asset in question had been auctioned, and a sale certificate had been issued and registered in favor of the petitioners, Rozina Firoz Hajiani and others, who were the successful bidders. However, the proceedings were paralyzed due to the triggering of a moratorium by the borrowers/guarantors through proceedings under the IBC.
The court emphasized that such misuse of legal provisions could not be permitted, as it leads to a failure of justice. It exercised its writ jurisdiction to prevent such failure by setting aside the impugned order of the DRT, which had restrained further steps by the secured creditor.
The Bombay High Court directed that there would be no impediment in handing over physical possession of the secured asset to the petitioners. It also instructed the DRT to expedite the hearing and disposal of the securitisation application on its merits, ensuring that the proceedings are concluded at the earliest.
This judgment serves as a significant precedent, reinforcing the judiciary's role in curbing the misuse of legal provisions by chronic defaulters and safeguarding the interests of secured creditors and auction purchasers.
Bottom Line:
The misuse of provisions of the Insolvency and Bankruptcy Code (IBC) by chronic defaulters to frustrate secured creditors and auction purchasers cannot be permitted; writ jurisdiction can be exercised to prevent failure of justice.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 (Sections 94, 95, 96), Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (Section 13), Article 226 of the Constitution of India.
Rozina Firoz Hajiani v. Union of India, (Bombay)(DB) : Law Finder Doc id # 2869945
