The Misuse of IBC, 2016 by Chronic Defaulters

The Misuse of IBC, 2016 by Chronic Defaulters

In case of Rozina Firoz Haijani v. Union of India [2026] GCtR 231 (Bombay) it was noted thus : 

"A disturbing trend is noticed by this writ Court as to the manner in which chronic defaulters are taking resort to the provisions of the Insolvency and Bankruptcy Code, 2016 to frustrate secured creditors and auction purchasers from proceeding, in accordance with law, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002."

"In a number of such matters, it is found that the borrowers/ guarantors act as fence sitters and do not take any steps when the secured creditors proceed under Section 13(2) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and take further consequential steps, till the culmination of the process and auction purchasers coming into the picture. At the stage when the auction sale has been conducted and the auction purchaser has come into the picture, in a few instances, even after the sale certificate is issued, when physical possession of the secured asset is about to be handed over to the auction purchaser, the original borrowers/guarantors initiate collusive proceedings under Section 94 or Section 95 of the IBC, claiming triggering of moratorium under Section 96 thereof, the moment such proceedings are filed before the National Company Law Tribunal (NCLT)." 

"A perusal of Section 96 of the IBC shows that under sub-Section (1) (a), an interim moratorium commences on the date the application under Sections 94 and 95 of the IBC is filed and that such moratorium would operate in relation to all debts."