Assets Sold Before Insolvency Filing Excluded From Debtor’s Estate; Moratorium Under IBC Cannot Undo Completed Auctions

Assets Sold Before Insolvency Filing Excluded From Debtor’s Estate; Moratorium Under IBC Cannot Undo Completed Auctions

Introduction

The National Company Law Appellate Tribunal (NCLAT), New Delhi, has ruled that assets validly sold through auction before the filing of an insolvency application under Section 94 of the Insolvency and Bankruptcy Code, 2016 (IBC), cannot form part of the debtor’s estate or be protected by the moratorium under Section 96 of the Code.

A bench comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) dismissed the appeal filed by Maria Kuresh Rajkotwala, thereby upholding the National Company Law Tribunal (NCLT), Mumbai order dated September 2, 2025, which had excluded the auctioned property from the insolvency proceedings of the personal guarantor.

Factual Background

The appellant, Maria Kuresh Rajkotwala, had filed an application under Section 94 of the IBC seeking initiation of insolvency proceedings as a personal guarantor to a principal borrower. Meanwhile, the Union Bank of India, a secured creditor, conducted an e-auction sale of mortgaged assets under the SARFAESI Act, which was concluded, and a sale certificate was issued in favor of the successful auction purchaser.

Subsequently, the appellant sought to restrain the bank from issuing the sale certificate, claiming that the auctioned property formed part of her insolvency estate. The NCLT rejected the plea, holding that the sale had been completed prior to the commencement of the moratorium and that the right of redemption had already extinguished upon publication of the sale notice. Aggrieved, the appellant filed the present appeal before the NCLAT.

Procedural Background

The NCLT, Mumbai, after considering the submissions, had held that the auction sale was concluded before the insolvency application was filed. It further held that since the sale certificate had been issued and the transaction completed, the property could not be included within the insolvency estate. The NCLAT was therefore called upon to decide whether the issuance of the sale certificate after the auction could invalidate the sale and whether the moratorium under Section 96 of the IBC could retrospectively protect the property.

Issues

1. Whether assets sold in an auction before the filing of an insolvency application under Section 94 can be treated as part of the debtor’s estate.

2. Whether the issuance of a sale certificate after the auction can invalidate the sale.

3. Whether the moratorium under Section 96 of the IBC can operate retrospectively to protect such assets.

Contentions of the Parties

Appellant’s Submissions: The appellant argued that the sale certificate, although dated earlier, was actually signed and issued two days after the auction, making the transaction incomplete at the time of filing the insolvency application. It was contended that the unsigned sale certificate produced by the bank was invalid and that the asset should therefore be included in the insolvency estate.

Respondent Bank’s Submissions: The Union Bank of India submitted that the auction sale was completed and confirmed well before the insolvency filing. It contended that the issuance of the sale certificate was merely a ministerial act, and the sale stood concluded on confirmation.

The bank further argued that the right of redemption of the personal guarantor had already extinguished upon publication of the sale notice and could not be revived by subsequent insolvency proceedings.

Reasoning and Analysis

The Tribunal observed that the sale had been confirmed and the sale certificate issued prior to the insolvency filing, thereby crystallizing the auction purchaser’s rights before the moratorium took effect. It held that even assuming the appellant’s contention that the certificate was formally signed later, this did not affect the validity of the concluded sale, as the auction had been finalized and confirmed earlier. The Bench further emphasized that the moratorium under Section 96 of the IBC operates prospectively, protecting only the assets forming part of the debtor’s estate as on the date of commencement of insolvency. Transactions completed prior to that date cannot be invalidated or reversed. Moreover, relying on the Supreme Court’s ruling in Celir LLP, the Tribunal reaffirmed that the right of redemption ceases upon publication of the auction notice if dues are not settled by the borrower or guarantor by that time. The Court stated that, “The right of redemption of the personal guarantor in relation to the secured asset stood extinguished much prior to the commencement of the moratorium.”

Accordingly, the NCLAT upheld the NCLT’s finding that assets sold prior to insolvency proceedings cannot be included within the debtor’s estate.

Implications

This decision clarifies that secured creditors’ rights under SARFAESI remain unaffected by the subsequent initiation of insolvency proceedings under the IBC. The ruling reinforces that completed auction sales prior to insolvency filing are legally protected and cannot be undone by moratorium provisions. It provides certainty to auction purchasers and financial institutions, preserving the sanctity of pre-insolvency enforcement actions and limiting misuse of the IBC by debtors attempting to reclaim auctioned assets through insolvency petitions.

In this case the appellant was represented by Ms. Eshna Kumar, Mr. Jenil Shah and Ms. Akshita Sharma, Advocates.