Mumbai: The Bombay high court recently quashed a debt recovery tribunal (DRT) order that stayed all further post-sale process of a bank’s auction of a south Mumbai flat.The HC said it observed a “disturbing trend”, “in many matters” 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, the bench of Justices Manish Pitale and Shreeram Shirsat expressed distress at the misuse of Insolvency and Bankruptcy Code (IBC). It said borrowers claim that moratorium stands triggered the moment such proceedings are filed before the 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”, said the court.In a relief to purchasers of the south Mumbai flat auctioned in December 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 Rs 6.25 crore and issued 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 proceeding, in accordance with law, under the provisions of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (the Securitisation Act)”.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 November 2019, following two attempted proposals towards a one-time settlement (OTS), a magistrate’s court allowed the bank to take physical possession. The bank took symbolic possession in November 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 November 2024 was challenged by the borrower and guarantors before the DRT in December 2024. The flat was successfully auctioned on December 12, 2024, the HC said.The borrower then moved the NCLT to initiate the insolvency resolution process and immediately followed with a plea before the DRT to claim that moratorium kicks in once IBC proceedings are filed.More litigation ensued, leading up to the Supreme Court, which on February 26, 2026, 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 guarantors 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 the 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.The HC said the IBC is meant as an effective legal framework for timely resolution, “improving the ease of doing business, facilitating more investments, leading to higher economic growth and development in the country”. But, it added, chronic defaulters use IBC to frustrate and paralyse the process.
