Misuse of Insolvency Framework: Repetitive Section 94 Petitions Cannot Stall SARFAESI Recovery
- REEDLAW
- 13 hours ago
- 3 min read
REEDLAW Legal News Network reports: In an order passed today, 2-09-2025, the National Company Law Appellate Tribunal (NCLAT), New Delhi, held that repeated filing of Section 94 petitions under the Insolvency and Bankruptcy Code (IBC) after prior dismissals constitutes a misuse of the insolvency framework. The Tribunal clarified that such petitions cannot be used to claim a moratorium under Section 96 or to obstruct recovery proceedings initiated under the SARFAESI Act.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka, while adjudicating a batch of two Company Appeals, held today, 2 September 2025, that repeated filing of Section 94 IBC petitions after prior dismissal amounts to an abuse of process and misuse of the insolvency framework. The Tribunal emphasised that such petitions cannot be permitted to delay or defeat SARFAESI recovery proceedings or to claim the benefit of a moratorium under Section 96 of the IBC, thereby reinforcing judicial disapproval of mala fide litigation strategies.
The NCLAT Bench dealt with two connected appeals filed by a mother and son, both personal guarantors of the same corporate debtor, challenging separate orders of the Adjudicating Authority (NCLT, New Delhi Bench-III) which had dismissed their Section 94 IBC petitions and related restoration applications. The first appellant, Smt. Vimla Devi had initially filed a Section 94 petition in June 2023, which was dismissed for non-prosecution on 01.04.2024 after repeated adjournments. She then filed a second Section 94 petition on 29.05.2024, a day before the scheduled possession of her property, which was again dismissed for non-prosecution on 10.07.2024. Her restoration application was also rejected on 24.09.2024 with costs of ₹20,000 imposed, as the Adjudicating Authority found no satisfactory explanation for filing a second petition after the first had been dismissed and noted suppression of facts regarding the earlier dismissal.
The Tribunal observed that the appellant had consistently defaulted in appearance, despite repeated opportunities, and had not disclosed the earlier dismissal while filing the second petition. It held that such conduct indicated an attempt to misuse the insolvency framework to stall recovery proceedings under the SARFAESI Act and gain the benefit of moratorium under Section 96 IBC. The plea of technical glitches and ill health was not accepted since these reasons were neither substantiated nor communicated to the Adjudicating Authority during the proceedings.
In the second appeal, filed by Shri Manoj Aggarwal, the son of Smt. Vimla Devi, the facts revealed a similar pattern. His first Section 94 petition, filed on 16.06.2023, was dismissed for non-prosecution on 10.01.2024 after multiple adjournments. He filed a second Section 94 petition on 24.06.2024, which too was dismissed on 08.10.2024 when the Adjudicating Authority found that he had failed to disclose the dismissal of the earlier petition and was repeatedly seeking adjournments without justifiable cause. The argument that the appellant relied on counsel and suffered medical difficulties was rejected as an afterthought. The Tribunal concluded that both appellants had indulged in repetitive litigation on the same cause of action, with no bona fide intent to pursue the petitions on the merits, thereby abusing the process of law.
NCLAT upheld the orders of the Adjudicating Authority, holding that there was no illegality in dismissing the restoration application or the subsequent Section 94 petitions, as the appellants’ conduct showed a deliberate attempt to delay and obstruct recovery proceedings by taking refuge under the IBC moratorium provisions.
Mr. Gulshan Kr. Sachdeva, Advocate, represented the Appellant.
Mr. Gautam K. Singhal, Ms. Anjali Maurya, Ms. Aastha Vishnoi, Ms. Swaksha Mandhyan and Mr. Rajat Chaudhary, Advocates, appeared for the Respondent.
This is premium content available to our subscribers.
To access the full content related to this article — including the complete judgment, detailed legal analysis, ratio decidendi, headnotes, cited case laws, and updates on relevant statutes and notifications — we invite you to subscribe to REEDLAW’s premium research platform.
Click here to Subscribe and unlock exclusive access to structured legal analysis, judicial summaries, and a comprehensive legal research database.
Already a subscriber? Click the link below to access the full document and linked case laws.
REEDLAW Legal Research & Analysis is India’s most trusted legal publishing and research platform, empowering legal professionals with structured judicial insights and authoritative legal intelligence since 1985.
Our comprehensive legal intelligence platform covers Corporate Insolvency, Bankruptcy, SARFAESI, Company Law, Contract, MSMEs, Arbitration, Debt Recovery, and Commercial Laws. Through curated journals — IBC Reporter and Bank CLR — and an advanced digital database, REEDLAW simplifies complex legal research for professionals, institutions, and academia across India.
Comments