SARFAESI Sale Cannot Proceed If Sale Certificate Is Not Issued Before IBC Moratorium: Bombay High Court

The Bombay High Court on Wednesday held that a secured creditor cannot proceed with a SARFAESI sale once an interim moratorium under the Insolvency and Bankruptcy Code comes into force. It rulled that the Union Bank of India was not entitled to accept balance payments or issue a sale certificate after the personal insolvency process against the borrower had commenced.

In an order passed on December 10, Justices R I Chagla and Farhan P Dubash held that “the secured creditor could not have continued with the proceedings under the SARFAESI Act and could not have accepted the balance payment after the commencement of the interim-moratorium under Section 96 of the IBC.”

The case arose from a writ petition filed by Arrow Business Development Consultants Pvt Ltd, which had emerged as the highest bidder in an e auction conducted by Union Bank of India on May 30, 2025 for sale of a residential flat mortgaged by borrowers Vandana and Ravindra Choudhari.

Arrow Business deposited the initial bid amounts on May 30 and 31. It then paid the remaining six instalments in June 2025, after which the Bank issued a sale certificate on June 20.

In the meantime, Vandana had filed a personal insolvency application on June 9, 2025 under Section 94 of the Insolvency Code, which triggered an interim moratorium that prohibited continuation of any proceedings in respect of her debts.

Union Bank and Arrow Business argued that the borrower's ownership in the flat had already extinguished upon publication of the sale notice on May 9, 2025 and that the moratorium could not affect a sale that had, according to them, already passed the stage where the borrower retained any rights.

The Bank submitted that the 2016 amendment to Section 13(8) of the SARFAESI Act meant that once the notice was published, the borrower lost the ability to redeem the property. The Bank and the purchaser therefore contended that the sale process could lawfully continue and that the Bank was entitled to accept the remaining instalments.

The court rejected these arguments and held that an amendment curtailing the borrower's right of redemption cannot be equated with extinguishment of ownership.

It observed that “even post the 2016 Amendment to Section 13(8) of the SARFAESI Act continues to be that the transfer of ownership in the secured asset takes effect only upon the issuance of sale certificate and not at any time, prior thereto. Moreover, as per the statutory framework of the SARFAESI Act, only if the terms of payment have been complied with, can the secured creditor proceed to issue a sale certificate in favour of the successful purchaser.”

Relying on the Supreme Court ruling in Indian Overseas Bank v RCM Infrastructure(2022), the court reiterated that a SARFAESI sale is incomplete unless full payment is made before the moratorium begins. Since six of the eight payment tranches and the sale certificate were issued after the interim moratorium came into effect, the court held that Union Bank was barred from continuing with the sale.

It concluded that the sale “never stood completed” because Arrow Business did not acquire any ownership rights or possession of the property.

The court dismissed the plea and declined to order a refund of the amount deposited by the bidder and left the issue of refund to be decided in separate proceedings.

Case Title: Arrow Business Development Consultants Pvt Ltd vs Union Bank of India & Ors

Case Number: Writ Petition No. 11132 of 2025

For Petitioner: Sr. Advocate G.S. Hegde a/w Advocates P.M. Bhansali, Arafat Siddique, Juhi Pandey

For Respondents: Advocate Mable Soans of Mable & Associates; Advocate Shrirang Katneshwarkar; Advocates Gajendra Rajput, Shubham Kahite

Senior Advocate Naushad Engineer (Amicus Curae) along with Advocates Sharad Bansal, Yoham Limathwalla

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