Mumbai: Bombay high court recently quashed a debt recovery tribunal (DRT) order that stayed the post-sale process of a bank’s auction of a Mazgaon flat.
The HC said it observed a “disturbing trend” where borrowers and “chronic defaulters act as fence sitters” and take no action when banks proceed with recovery. These defaulters instead invoke “collusive proceedings” under insolvency law only when auction purchasers are to be handed physical possession of the flat.
In a March 18 order, a bench of Justices Manish Pitale and Shreeram Shirsat expressed distress at the misuse of the Insolvency and Bankruptcy Code (IBC). It said borrowers claim that moratorium stands triggered the moment such proceedings are filed before National Company Law Tribunal (NCLT). “As a consequence, all steps taken under the provisions of the Securitisation Act suddenly come to a standstill” and defaulting borrowers “wear a cloak of immunity under the garb of a moratorium”, the HC said.
In a relief to purchasers of the flat auctioned in Dec 2024 for Rs 2.5 crore, the HC held the bidding process of the bank, which mortgaged the flat, cannot be faulted, as the moratorium was invoked post-sale. The Union Bank loaned nearly Rs 6.3 crore and issued a notice in March 2017 to the borrower for default in repayment.
The HC said chronic defaulters resort to provisions of IBC “to frustrate secured creditors and auction purchasers from proceedings, in accordance with law, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002”.
The judgment was in a petition filed by the purchasers of the auctioned flat at Mazgaon who said they were being deprived of its possession.
In Nov 2019, following two attempted proposals towards one-time settlement (OTS), a magistrate’s court allowed the bank to take physical possession. The bank took symbolic possession in Nov 2022. The HC said the borrower did not challenge the symbolic possession. The bank then set auction dates, but got no bidders. After several failed attempts at OTS and auctions, the 10th auction of Nov 2024 was challenged by the borrower and guarantors before the DRT in Dec 2024. The flat was successfully auctioned on Dec 12, 2024, the HC said. The borrower then moved NCLT to initiate the insolvency resolution process and followed with a plea before the DRT to claim that moratorium kicks in once IBC proceedings are filed.
More litigation ensued, leading up to Supreme Court, which on Feb 26, confirmed orders of NCLT and its appellate tribunal in Delhi to exclude the Mazgaon flat from moratorium. The purchasers’ counsel Sidhart Samantaray said the borrowers and guar-antors were “frustrating and thwarting” the process and depriving physical possession. Charles Dsouza, counsel for the bank, supported the purchasers’ contention. But Kruti Bhavsar, counsel for the loan borrowers and guarantors, said DRT’s order was lawful and moratorium had kicked in on Oct 6, 2025, before the auction by a creditor invoking IBC in Guwahati NCLT.
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Relief for SoBo flat auction buyer:HC bins DRT stay
Expressing distress at misuse of Insolvency & Bankruptcy Code, Bombay HC quashed a Debt Recovery Tribunal order that stayed post-sale process of a bank’s auction of a Mazgaon flat. The flat was auctioned in Dec 2024 for Rs 2.5cr after which the loan defaulter moved NCLT to initiate the insolvency resolution process and then approached DRT to claim moratorium kicks in once IBC proceedings are filed. HC held the bidding process of the bank cannot be faulted as the moratorium was invoked post-sale.
