Syed Sirajis Salikin Khadri vs Edelweiss Asset Reconstruction ...

[Arising out of the Impugned Order dated 09.12.2024 passed by the Adjudicating Authority, National Company Law Tribunal, Mumbai Bench in I.A. No. 925(MB)2024 in C.P.(IB) No.05(MB)2023]

In the matter of: SYED SIRAJIS SALIKIN KHADRI PERSONAL GUARANTOR (INFRA DREDGE SERVICES PRIVATE LIMITED) Room No.1101/2, B-Wing, Mount Everest Building, Near IMAX Adlabs, 9 Bhakti Park, Wadala East, Mumbai-400037 ...Appellant

Versus

(i) EDELWEISS ASSET RECONSTRUCTION COMPANY LIMITED, Through Secretary Edelweiss House, off C.S.T. Road, Kalina, Mumbai -400098. ...Respondent No.1

(ii) NITIN OM KOTHARI Resolution Professional, 5A/301 Alica Nagar, Lokhandwala Township, Kandivali (E), Mumbai 400101 ...Respondent No.2

Present:

For Appellant : Mr. Krishnendu Dutta, Sr. Advocate.

For Respondent : Mr. Rohit Gupta, Ms. Aakashi Lodha, Advocates for R1.

JUDGMENT

(Hybrid Mode)

Per: Barun Mitra, Member (Technical)

The present appeal filed under Section 61 of Insolvency and Bankruptcy

Code 2016 ('IBC' in short) by the Appellant arises out of the Order dated 09.12.2024 (hereinafter referred to as 'Impugned Order') passed by the

Adjudicating Authority (National Company Law Tribunal, Mumbai Bench-IV) in

I.A. No.925(MB)2024 in C.P.(IB) No.05(MB)2023. By the impugned order, the

Adjudicating Authority allowed the intervention application filed by Edelweiss

Asset Reconstruction Company Ltd.-Financial Creditor to intervene in the main

CP No. 05/2023 and which impugned order also dismissed the CP No. 05/2023.

Aggrieved by the impugned order, the present appeal has been preferred by the

Appellant who is Director of the Corporate Debtor- Infra Dredge Services Pvt.

Ltd.

2. Coming to the factual matrix of the present matter, the Corporate Debtor

had obtained loan facility from Bank of India amounting to Rs 52.32 Cr. The

Appellant was a personal guarantor towards the aforementioned loan. The

Appellant had mortgaged his residential property as security towards the loan

availed by the Corporate Debtor and entered into a Deed of Guarantee as a

personal guarantor towards the said loan. The Corporate Debtor and the

Appellant faced several difficulties in repaying the loan. The default in making

repayments occurred on 31.03.2011 which eventually led to declaration of the

Corporate Debtor's account as NPA on 30.06.2011. The Bank of India initiated

SARFAESI proceedings and issued a Demand Notice under Section 13(2) of the

SARFAESI Act and took symbolic possession of the secured assets on

18.12.2012. The said loan together with underlying securities were subsequently

assigned by Bank of India to the Respondent No.1-Edelweiss Asset

Reconstruction Company Ltd. The Respondent No.1 filed a Section 7 petition

against the Corporate Debtor which was admitted leading to initiation of CIRP of

Page 2 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 the Corporate Debtor. The Appellant has claimed that it had defaulted as a

personal guarantor to the aforementioned debt and hence was entitled to

exercise his statutory remedy under Section 94 of IBC. The Appellant filed CP

No. 05/2023 for initiation of insolvency resolution proceedings in exercise of

statutory remedy available under Section 94(1) of the IBC read with Rule 6(1) of

the Insolvency and Bankruptcy (Application for Insolvency Resolution Process

for Personal Guarantors to Corporate Debtors) Rules, 2019 for restructuring

their debt on the basis of a repayment plan submitted by them. CP No. 05/2023

was listed for hearing before the Adjudicating Authority on 10.01.2023. On

22.02.2023, the Appellant was directed by the Adjudicating Authority to intimate

all other creditors of the Section 94 proceedings initiated by them which was

complied with on 28.03.2023. When the CP No. 05/2023 was pending at the

stage of Section 100, an Intervention Application No. 925 of 2024 was filed by

the Respondent No.1 seeking intervention in CP No. 05/2023 and disposal

thereof on the ground that the purpose behind filing the proceedings under

Section 94 of the IBC by the Appellant was to gain benefit of moratorium and to

stall the recovery proceedings initiated by the Respondent No. 1. Aggrieved by

the impugned order, the present appeal has been preferred.

3. We have heard Shri Krishnendu Dutta, Ld. Senior Counsel for the

Appellant and Shri Rohit Gupta, Ld. Counsel representing the Respondent No.1.

4. Making his submissions Ld. Sr. Counsel for the Appellant submitted that

when CP No. 05/2023 came up for hearing before the Adjudicating Authority on

09.12.2024, the Appellant had not filed their reply to the Intervention Application

No. 925 of 2024 filed by Respondent No.1. Moreover, when the report filed by the Page 3 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 Resolution Professional ("RP" in short) under Section 99 of IBC was yet to be

heard and orders under Section 100 of the IBC were yet to be passed, no

Intervention Application could have been entertained by the Adjudicating

Authority. The principles of natural justice were also violated by the Adjudicating

Authority as the Appellant was not allowed opportunity to respond to the

Intervention Application before passing the impugned order dismissing the

Section 94 petition. It was strenuously contended that the dismissal of Section

94 petition was premature since the report of the RP did not contain any adverse

findings. The impugned order could not have been passed in the absence of

taking note of the finding in the report filed by the RP under Section 99 of the

IBC. Holding that the summary rejection of the Section 94 petition by allowing

an Intervention Application at pre-admission stage was procedurally irregular, it

is the contention of the Appellant that the impugned order was therefore both

procedurally and legally unsustainable.

5. It was also asserted that the Adjudicating Authority had failed to provide

any reasoned order under Section 100(4) of the IBC which alone empowers

dismissal of a Section 94 petition for fraudulent intent. Assailing the impugned

order, it is the contention of the Appellant that mere initiation of proceedings

under SARFAESI Act cannot be the basis for arriving at a finding that the Section

94 petition was filed with an intention to defraud the creditors. The right to file

Section 94 application cannot be denied on the ground that SARFAESI

proceedings were initiated prior to filing of Section 94 application. It was

erroneous on the part of the Adjudicating Authority to come to the conclusion

that the Section 94 application had been filed with an intent other than

Page 4 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 insolvency resolution. It was thus contended that the impugned order was

flawed.

6. It is the case of the Appellant that Section 94 of the IBC is a statutory

provision which entitles an individual to file an application for initiation of PIRP

when an individual has committed a default. In the present case since it is

admitted by the Appellant that a default had occurred on their part and that

being so, their right under Section 94 which is available to a personal

guarantor/individual cannot be taken away on the ground that SARFAESI

proceedings had been initiated prior to filing of Section 94. Proceedings under

SARFAESI Act by itself constituted a proof that the Appellant had committed a

default. Hence, SARFAESI proceedings by itself cannot be construed as an

ineligibility on the part of the personal guarantor to file Section 94 application.

The Appellant was therefore entitled to exercise their statutory right under

Section 94 of IBC to submit a repayment plan. Reliance was placed by the

Appellant on the judgement of this Tribunal in Getz Cables Pvt. Ltd. Vs State

Bank of India and Anr. in CA(AT)(Ins.) No. 1953 of 2024 wherein it held that

the right under Section 94 given to a personal guarantor/individual cannot be

taken away only on the ground that SARFAESI proceedings have been initiated

prior to filing of Section 94 application.

7. It has also been contended by the Appellant that following the dismissal of

the Section 94 petition, coercive recovery measures were initiated by Respondent

No.1 against the Appellant including a possession notice issued under

SARFAESI Act. Hence, the Appellant has filed IA No. 2059 of 2025 before this

Tribunal seeking protection from coercive recovery action as this was likely to

Page 5 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 cause irreparable harm in view of senior citizenship status of the Appellant

having age-related adverse health conditions besides his need to discharge other

familial obligations including wedding in the family. It was submitted that the

Appellant was willing to repay the outstanding debt subject to being protected

from coercive steps of dispossession from the subject residential premises.

8. Refuting the allegations and contentions raised by the Appellant, Shri

Rohit Gupta, Ld. Counsel for Respondent No.1. submitted that the Appellant had

initiated multiple legal proceedings during last ten years primarily to delay the

attempts made by the Respondent No.1 to recover the outstanding loan amounts

due to them by initiating SARFAESI proceedings. It was also asserted that the

Appellant had made several false promises to repay the outstanding amount and

also given undertaking to sell the immovable property to clear their outstanding

dues. However, they had persistently failed to honour their commitment. It was

further argued that the Appellant has sought to invoke the provisions of Section

94 of IBC not for purpose of genuine insolvency resolution but with the intent of

invoking moratorium so as to frustrate enforcement action of recovery

proceedings against them. The present Section 94 petition has been filed with

the intent of wriggling out of their obligations to repay the debt. This appeal was

a clear instance of the abuse of process of law and hence the Adjudicating

Authority rightly dismissed the CP No. 05/2023 after entertaining their

Intervention application. It was submitted by the Respondent No. 1 that since

the Appellant had wilfully and repetitively failed to honour its commitment to

repay the debt or vacate the residential property, it did not wish to retract from

the taking steps to take actual possession of the security asset.

Page 6 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025

9. We have duly considered the arguments advanced by the Learned Counsel

for both the parties and perused the records carefully.

10. The moot question before us for our consideration is whether in the given

facts and circumstances, the Adjudicating Authority was correct in concluding

that the initiation of SARFAESI proceedings was sufficient basis to hold that the

Section 94 application has been resorted to by the Appellant for putting a

spanner in the recovery proceedings initiated by the Respondent No.1 and

therefore deserved to be dismissed.

11. For a proper appreciation of the issue at hand, it may be useful at this

stage to go through the chronological sequence of events right from initiation of

the SARFAESI proceedings to the initiation of Section 94 petition. When we see

the material placed on record, we notice that it is an admitted fact that the

Corporate Debtor had failed to discharge their repayment obligations and their

account was classified as a NPA way back in 30.06.2011. The Appellant as

personal guarantor had also duly acknowledged the outstanding debt as early

as on 13.08.2012 and had made part payment towards the loan in 2018. The

debt liability is also acknowledged in the financial statements of the Corporate

Debtor for the FY-2017-18. It is also an undisputed fact that a demand notice

had been issued under the SARFAESI Act by the original Lender-Bank of India

on 06.08.2012.

12. The Bank of India initiated recovery measures under SARFAESI Act

following which the present Appellant had filed Securitisation Applications ("SA"

in short) challenging the recovery measures taken by the Bank of India. The

Page 7 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 present Appellant had filed these SAs before the DRT to prevent the Bank of

India and later the Respondent No.1 from taking physical possession of the

security asset. Coming to the SAs filed by the Appellant before the DRT, we notice

that 1st S.A. was filed on 17.12.2012 which was disposed of on 12.04.2013. The

2nd S.A. was filed on 31.07.2013 which was disposed of on 02.05.2018. The 3rd

S.A. was disposed of by the DRT on 30.08.2018 directing the Appellant to vacate

the suit flats on 07.09.2018 and hand over the possession to the secured

creditor. The Appellant had given an undertaking on 30.08.2018 to the DRT to

handover possession of the subject residential premise within seven days but

did not ensure compliance. Instead of handing over possession, the Appellant

filed a Writ Petition before the Hon'ble High Court of Bombay and a plea was

taken that they had found a buyer for the secured asset. The Hon'ble High Court

of Bombay on 04.12.2019 allowed the Appellant to make payment to the

Respondent No.1 either by themselves or through the buyer of the secured asset

within twelve weeks and that in the event of default, the Respondent No.1 would

be entitled to take possession of the subject residential premise and sell the same

to release their dues. However, there was again a breach of commitment made

before the Hon'ble High Court of Bombay by the Appellant. When the fourth S.A.

filed by the Appellant was heard, the DRT in its Order of 07.12.2022, captured

the conduct of the Appellant over the last 10 years seeking to frustrate the action

on the part of the Creditor under the SARFAESI Act and observed that: "....... the

borrowers or the applicant left no stone unturned to delay or protract or frustrate

the secured creditor's action and measures under the SARFAESI Act read with the

Rules. The applicant's conduct aims to wilfully misuse and abuse easy access to

the justice administration system. Complying with the court's order and Page 8 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 undertaking is fundamental to litigation to achieve fairness between the parties.

The borrowers have failed the test of judicial scrutiny for repetitive breaches of the

court's order or multiple non-compliance with the undertakings." The DRT also

directed the Appellant to comply with the Court's order and undertaking given

by them from time to time.

13. When we look at the impugned order, we find that the Adjudicating

Authority at para 5 thereof has exhaustively listed out the details of the multiple

legal proceedings initiated by the Appellant before various

Courts/Tribunals/Forums. This leaves no doubt in our mind that each time

physical possession of the secured residential premises was sought to be taken

by the Respondent No.1 by following the due process laid down under the

SARFAESI Act, the Appellant tried to circumvent the possession notice and

stall/defer these proceedings by initiating some legal proceeding or the other.

This pattern of conduct of the Appellant underlines an entrenched pattern of

evasion of recovery proceeding on one pretext or the other.

14. This now brings us to the filing of the Section 94 application on 03.12.2022

and its timing. We notice that Section 94 application was filed by the Appellant

within weeks after the issue of a possession notice upon them on 11.11.2022 by

the Respondent No.1. When after the 4th SA was disposed of, the Appellant

realised that it had failed to secure any further relief from the DRT and that

dispossession from the subject residential premises was imminent that the

present Section 94 petition was filed on 03.12.2022 and a communication sent

on 06.12.2022 to the Respondent No.1 to hold its hand from taking over

possession of the residential premises on account of moratorium. This letter of

Page 9 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 06.12.2022 clearly reveals the intention of the Appellant to stall the recovery

proceedings by taking undue benefit of the moratorium provisions. Filing of the

Section 94 application at this juncture leaves no room for doubt in our mind that

these proceedings were not initiated with the intent of genuine insolvency

resolution but as a tool to obstruct lawful recovery of enforcement with the

manifest intent of the Appellant being to seek refuge under the moratorium

provision under Section 96 of the IBC in an effort to prevent enforcement of

possession of the secured residential premises.

15. At this stage we advert our attention to the Getz Cable judgment supra

on which the Appellant has placed their reliance. We have no quarrel with the

proposition of law laid down in Getz Cable judgment supra that the right under

Section 94 given to a personal guarantor/individual cannot be taken away only

on the ground that SARFAESI proceedings have been initiated prior to filing of

Section 94 application. Be that as it may, it is pertinent to notice that the said

judgement has also observed that the Adjudicating Authority has to decide each

case depending on the specific and individual facts of each case.

16. This is a case clearly where the Appellant on one excuse the other has all

along tried to delay the handing over of the security to the Respondent No.1. We

find that steps under SARFAESI Act have been pending since 2012. The

Appellant has consistently misused the benevolent indulgence afforded by

various adjudicatory forums to the Appellant in the past to resolve the matter.

Each time the Appellant got relief from the court it slept over its commitment to

either handover the subject residential premises to the Respondent No.1 or to

make payment by selling the said property to clear the outstanding debt. The Page 10 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 present Section 94 proceedings have been filed 13 years after symbolic

possession had been taken by the Bank of India on 10.12.2012. We notice that

when the SARFAESI proceedings were on the verge of completion and all

manoeuvres adopted by the Appellant to stall and delay the recovery proceedings

having come to a naught, the Appellant now sought to wriggle out of this

situation by resorting to filing of the Section 94 application. In view of the

persistent lack of good faith displayed by the Appellant, the Adjudicating

Authority cannot be said to be wrong in concluding that the Appellant on having

received the possession notice once again from the Respondent No.1 has again

tried to dodge the said notice by filing a Section 94 application. Hence, the

reliance placed by the Appellant on the judgment in Getz Cables judgment

supra is misplaced. The facts of the present case and that of Getz Cables supra

are distinguishable. In the matter of Getz Cables supra, the insolvency

proceedings under Section 94 of IBC was instituted immediately after initiation

of SARFAESI proceedings. In comparison to the close proximity between the

SARFAESI proceedings and filing of Section 94 petition in Getz Cables

judgment supra, in the present case there is a yawning time-gap of more than

a decade between the SARFAESI and Section 94 proceedings. In the present

case, the SARFAESI proceedings have been going on since 2012 and the

Appellant has unleashed a chain of litigations which have been doggedly and

relentlessly pursued in various courts of law to derail the recovery proceedings.

Section 94 proceedings have been initiated by the Appellant more or less

coinciding with the issue of possession notice dated 11.11.2022 by Respondent

No.1. The present Section 94 application is clearly yet another salvo on the part

of the Appellant to stall the recovery by taking advantage of moratorium. This Page 11 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025 clearly shows that the Appellant has been ceaselessly orchestrating litigative

proceedings and embroiled the Respondent No.1 in these proceedings clearly to

subvert the recovery proceedings initiated against them and not for the purpose

of the insolvency resolution. In the given fact situation, we are inclined to agree

with the findings returned by the Adjudicating Authority that the Appellant had

approached the Adjudicating Authority by filing the Section 94 application with

an intent other than insolvency resolution.

17. The questioning of the jurisdiction of the Adjudicating Authority by the

Appellant to examine the maintainability and bonafide of an application under

Section 94 at the stage of Section 100 lacks substance. Since the report under

Section 99 of the IBC had already been filed by the RP, nothing prevented the

Adjudicating Authority to hear the matter and pass orders under Section 100 of

the IBC while also entertaining the Intervention Application of Respondent No.1.

This brings us to the contention of the Appellant of violation of the principle of

natural justice by the Adjudicating Authority as the Appellant did not get an

opportunity to file their response to the Intervention Application of the

Respondent No.1. When we look at the material on record, we find that the

Adjudicating Authority by its order dated 27.03.2024 had allowed four weeks'

time to the Appellant to file their response. The matter was fixed for hearing on

four dates viz. 08.05.2024, 25.06.2024, 03.09.2024 and 25.10.2024. However,

no reply was filed by the Appellant. The contention of the Appellant in this regard

is unsupported by record and therefore lacks credulity.

Page 12 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025

18. For the forgoing reasons, we find no merit in the Appeal. The Appeal stands

dismissed. All IAs stand closed. No costs.

[Justice Ashok Bhushan] Chairperson

[Barun Mitra] Member (Technical)

[Arun Baroka] Member (Technical)

Place: New Delhi Date: 25.04.2025

Abdul/Harleen

Page 13 of 13 Company Appeal (AT) (Insolvency) No. 455 of 2025