Interplay between SARFAESI Sale and Interim Moratorium under the Insolvency and Bankruptcy Code, 2016 (Section 96)
The intersection between the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act) and the Insolvency and Bankruptcy Code, 2016 (IBC) has been a persistent source of judicial scrutiny. While earlier discourse predominantly focused on the moratorium under Section 14 of the IBC, recent litigation has brought to the forefront the interim moratorium under Section 96, applicable to individuals and personal guarantors. This article undertakes a comprehensive examination of the legal consequences of Section 96 on an ongoing SARFAESI sale, particularly when the insolvency application is filed after auction but before completion of sale. Through statutory interpretation, doctrinal analysis, and judicial precedent, the article argues that a SARFAESI sale remains incomplete until issuance of a valid sale certificate, and any enforcement action taken during the subsistence of an interim moratorium is void in law. The article further clarifies the distinction between the extinguishment of redemption rights and transfer of ownership, and situates recent judicial developments within the broader insolvency framework.
I. Introduction
India’s insolvency regime has undergone a paradigm shift with the enactment of the Insolvency and Bankruptcy Code, 2016. Designed as a comprehensive and time-bound framework for insolvency resolution, the IBC introduced statutory moratoria to protect debtors from coercive recovery actions. Parallelly, the SARFAESI Act empowers secured creditors to enforce security interests without judicial intervention.
The friction between these two legislations becomes particularly acute when enforcement under SARFAESI overlaps with insolvency proceedings under the IBC. While conflicts involving corporate debtors and Section 14 moratorium have been extensively litigated, the interim moratorium under Section 96, applicable to individuals and personal guarantors, has recently emerged as a decisive legal checkpoint in SARFAESI enforcement.
This article critically examines whether a secured creditor can complete a SARFAESI sale when an interim moratorium under Section 96 intervenes mid-process.
II. Statutory Framework
A. SARFAESI Act, 2002
Under Section 13 of the SARFAESI Act, a secured creditor may enforce security interests upon default:
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Section 13(2): Issuance of demand notice
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Section 13(4): Taking possession of secured assets
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Section 13(8) (post-2016 amendment): Extinguishment of borrower’s right of redemption upon publication of sale notice
The sale procedure is governed by Rules 8 and 9 of the SARFAESI Rules, 2002, culminating in the issuance of a Sale Certificate under Rule 9(6).
B. Insolvency and Bankruptcy Code, 2016
Section 96 of the IBC introduces an interim moratorium upon filing of an application under Section 94 or 95:
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It commences on the date of filing
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Applies “in relation to all debts”
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Deems all pending legal actions or proceedings to be stayed
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Prohibits initiation or continuation of recovery actions
Unlike Section 14, Section 96 operates automatically and without judicial declaration.
III. When Is a SARFAESI Sale Complete?
A central legal question is whether a SARFAESI sale is complete upon:
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Publication of sale notice
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Confirmation of auction
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Payment of 25% consideration
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Issuance of sale certificate
The Supreme Court has conclusively held that a SARFAESI sale is a statutory sale, not a contractual one, and is complete only upon issuance of a sale certificate.
In Indian Overseas Bank v. RCM Infrastructure Ltd. (2022) 8 SCC 516, the Court held that even confirmation of sale does not transfer ownership unless the sale certificate is issued after receipt of full consideration.
IV. Interim Moratorium under Section 96: Scope and Effect
The Supreme Court in Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 435 clarified that Section 96 is debt-centric, not debtor-centric. The words “in respect of any debt” give the moratorium a wide amplitude, encompassing secured debts and enforcement actions.
The Delhi High Court in Sanjay Dhingra v. IDBI Bank Ltd. (2024 SCC OnLine Del 4521) held that SARFAESI proceedings cannot continue once Section 96 is triggered, even if the auction process had already begun.
V. Extinguishment of Redemption vs Transfer of Ownership
A recurring argument advanced by banks relies on the amended Section 13(8) of SARFAESI, contending that the borrower loses all rights upon publication of sale notice. This interpretation is legally flawed.
The right of redemption is merely one component of ownership. Ownership itself is a bundle of rights, which includes possession, enjoyment, and alienation.
In Narayan Deorao Javle v. Krishna (2021) 17 SCC 626, the Supreme Court reaffirmed that extinguishment of redemption does not ipso facto extinguish ownership.
Therefore, even after the 2016 amendment, ownership continues with the borrower until a valid sale certificate is issued.
VI. The Limited Applicability of Celir LLP v. Bafna Motors
In Celir LLP v. Bafna Motors (Mumbai) Pvt. Ltd. (2024) 2 SCC 1, the Supreme Court held that a borrower cannot redeem the property after publication of sale notice. However, the case did not involve insolvency proceedings or a statutory moratorium.
Crucially, Celir LLP does not dilute the principle that ownership transfers only upon issuance of sale certificate, nor does it override Section 96 of the IBC.
VII. Supremacy of IBC over SARFAESI
Section 238 of the IBC provides that its provisions override inconsistent laws. The Supreme Court in Innoventive Industries Ltd. v. ICICI Bank (2018) 1 SCC 407 affirmed the overriding nature of the IBC.
Consequently, once Section 96 is triggered, any SARFAESI action inconsistent with the moratorium is rendered void.
VIII. Legal Consequences of Moratorium-Hit SARFAESI Sales
When interim moratorium intervenes before completion of sale:
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Acceptance of balance consideration is illegal
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Sale certificate issued during moratorium is void ab initio
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Auction purchaser acquires no title
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Possession cannot be delivered
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Remedy lies in restitution, not enforcement
This position was authoritatively reaffirmed by the Bombay High Court in Arrow Business Development Consultants Pvt. Ltd. v. Union Bank of India (WP 11132/2025, decided on 10-12-2025).
The interplay between SARFAESI and Section 96 of the IBC underscores a fundamental principle of insolvency law: collective resolution prevails over individual enforcement. A SARFAESI sale, being statutory in nature, remains incomplete until issuance of a sale certificate. If an interim moratorium intervenes before that stage, the secured creditor’s hands are statutorily tied.
The jurisprudence emerging from recent Supreme Court and High Court decisions leaves little room for ambiguity: IBC is not a procedural inconvenience—it is a substantive bar. Any SARFAESI action taken in derogation of Section 96 is legally unsustainable and constitutionally suspect.
This article is intended for academic discussion and professional reference and may be cited in pleadings, journals, or legal research with appropriate attribution.
