Authority: National Company Law Appellate Tribunal, Principal Bench, New Delhi

Order Date: 21 August 2026

Case Overview

This appeal was filed by The Cosmos Co-Operative Bank Ltd. against an order from the Adjudicating Authority (NCLT) that admitted Respondent No. 1, Sonal Udayan Velvan (a personal guarantor), into the insolvency resolution process under Section 94 of the Insolvency and Bankruptcy Code (IBC), 2016.

The dispute originates from credit facilities aggregating Rs. 3.80 crores extended to the principal borrower, M/s V.K. Plast LAM Pvt. Ltd. These facilities were secured by a mortgage on immovable property provided by Respondent No. 1, who also executed personal guarantees. Upon persistent defaults, the loan account was classified as a Non-Performing Asset (NPA), prompting the Appellant Bank to initiate recovery under the SARFAESI Act, 2002.

The Bank issued a notice under Section 13(2) of the SARFAESI Act and, following non-compliance, took symbolic possession of the mortgaged property on 28 December 2023. A Court Commissioner was later appointed on 04 May 2024 to take physical possession. Meanwhile, the corporate debtor (M/s V.K. Plast LAM Pvt. Ltd.) was admitted into Corporate Insolvency Resolution Process (CIRP) on 11 July 2024.

The Respondent Guarantor had previously filed Securitization Application No. 275 of 2024 challenging the SARFAESI proceedings, but no stay was granted. He then filed his first application under Section 94 of the IBC (C.P.(IB) No.293(AHM)2024) on 20 September 2024, which was dismissed by the Adjudicating Authority on 04 October 2024 without granting any liberty to refile.

The Bank proceeded with the SARFAESI recovery, issuing an e-auction sale notice on 31 August 2025 and successfully auctioning the mortgaged property to Hetalben Sanjaybhai Prajapati for Rs. 2,08,00,000 on 17 September 2025. Subsequently, the Respondent Guarantor filed a second application under Section 94 of the IBC (C.P.(IB)/433(AHM)2025) on the same grounds as his first, dismissed application. This second application was allowed by the Adjudicating Authority, admitting him into the insolvency process.

The Appellant Bank argued this was a blatant misuse of Section 94 of the IBC solely to stall the concluded SARFAESI recovery process, as the e-auction had already been successfully conducted.

The NCLAT, after hearing the submissions and perusing the records, noted the sequence of events. It observed that the first application was dismissed, the SARFAESI process had advanced significantly with a successful auction, and the second application was filed only after the auction concluded. The Tribunal found prima facie force in the Appellant's argument that the application was not filed with an intention to resolve insolvency but to stall recovery.

Final Outcome

The NCLAT issued formal notice to the respondents, requiring the Appellant to complete requisite steps within three working days. Critically, the operation of the impugned order admitting the personal guarantor into insolvency was stayed until the next date of hearing. The appeal was listed for further proceedings on 23 September 2026.

The practical consequence is that the admission of the personal guarantor into the insolvency process is immediately halted, allowing the Bank's SARFAESI recovery process, which had already resulted in a successful auction, to potentially proceed unimpeded pending the final outcome of this appeal.

Topics: Personal Guarantor Insolvency, SARFAESI Act, NCLAT