--- title: "SARFAESI v. IBC: Judicial Resolution and Continuing Challenges After RCM Infrastructure" date: 2026-06-12 author: "Suraj Jagtap" url: https://ksandk.com/banking/sarfaesi-vs-ibc-rcm-infrastructure-judgment/ --- # SARFAESI v. IBC: Judicial Resolution and Continuing Challenges After RCM Infrastructure Posted On - 12 June, 2026 • By - Suraj Jagtap ![sarfaesi ibc moratorium - SARFAESI v. - Modern courtroom interior in Wrocław, Poland featuring judge's bench and red seating.](https://ksandk.com/wp-content/uploads/stock-pexels-1781260277112.webp) ## **Introduction** India’s insolvency and debt recovery framework frequently witnesses tension between two significant statutes, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”) and the Insolvency and Bankruptcy Code, 2016 (“IBC”).[[1]](#footnote-32518) While the SARFAESI Act empowers secured creditors to enforce security interests and recover dues without court intervention, the IBC seeks to maximise value through a collective insolvency resolution process while preserving the corporate debtor as a going concern. The conflict between these frameworks becomes particularly significant when proceedings under both statutes concern the same secured asset. The Supreme Court’s decision in *RCM Infrastructure Ltd. v. Union of India* brought much-needed clarity to this intersection by determining when a SARFAESI sale can be considered legally complete for the purposes of the IBC moratorium. The judgment clarified that a sale under the SARFAESI framework is completed only upon receipt of the full sale consideration and issuance of the sale certificate. Consequently, actions undertaken after the commencement of the Corporate Insolvency Resolution Process (CIRP) and the imposition of the moratorium under Section 14 of the IBC would be invalid. While the decision resolves the question of completion of a SARFAESI sale, several practical and legal concerns remain unresolved, including strategic insolvency filings and the protection available to bona fide auction purchasers. ## **Legislative History: Recovery versus Resolution** The SARFAESI Act was enacted following recommendations of various expert committees, including the Narasimham Committees and the Andhyarujina Committee, which highlighted inefficiencies in traditional debt recovery mechanisms available to banks and financial institutions.[[2]](#footnote-26573) The legislation allows secured creditors to enforce security interests after classification of a borrower’s account as a Non-Performing Asset (NPA). Under Section 13 of the SARFAESI Act, creditors may take possession of secured assets and sell them without court intervention, subject to compliance with the procedure prescribed under the Security Interest (Enforcement) Rules, 2002. In contrast, the IBC adopts a resolution-centric approach. In *Swiss Ribbons Pvt. Ltd. v. Union of India*, the Supreme Court recognised that the primary objective of the Code is revival of the corporate debtor rather than mere recovery of debt. Section 14 of the IBC imposes a moratorium upon commencement of CIRP and expressly prohibits actions to foreclose, recover or enforce security interests, including proceedings under the SARFAESI Act. Further, Section 238 of the IBC grants overriding effect to the Code in cases of inconsistency with other laws, thereby establishing the primacy of the insolvency framework during the moratorium period. ## **Judicial Uncertainty Prior to *RCM Infrastructure*** Before the Supreme Court’s decision in *RCM Infrastructure*, courts had adopted differing approaches regarding the stage at which a SARFAESI auction sale attained finality. Certain decisions suggested that confirmation of the highest bid completed the sale. Others attached significance to delivery of possession. However, a consistent judicial standard remained elusive, creating uncertainty for lenders, borrowers and auction purchasers. This uncertainty had practical consequences. Prospective purchasers often hesitated to participate in SARFAESI auctions involving distressed companies due to concerns that subsequent insolvency proceedings could invalidate completed transactions. The absence of clarity also increased litigation concerning the interaction between secured creditor enforcement rights and the insolvency process. ## **The *RCM Infrastructure* Decision** In *RCM Infrastructure*, Indian Overseas Bank conducted a SARFAESI auction after classifying the borrower’s account as an NPA. The successful auction purchaser deposited 25% of the bid amount in accordance with the applicable rules. However, before payment of the balance consideration, the corporate debtor initiated CIRP under Section 10 of the IBC. Despite the commencement of insolvency proceedings and the resulting moratorium, the bank accepted the remaining consideration and proceeded with the sale process. The Supreme Court held that the sale had not attained finality prior to commencement of CIRP. Interpreting Rules 8 and 9 of the Security Interest (Enforcement) Rules, 2002, the Court concluded that a SARFAESI sale is completed only upon payment of the full sale consideration and issuance of the sale certificate. Since both events occurred after commencement of the moratorium, the transaction was held to be invalid. The Court rejected arguments based on substantial compliance and equitable considerations, emphasising strict adherence to the statutory framework. The judgment provides important clarity regarding the interaction between SARFAESI enforcement proceedings and the moratorium under Section 14 of the IBC. ## **Strategic Use of Moratorium and Emerging Concerns** While *RCM Infrastructure* settled the issue of completion of a SARFAESI sale, it also highlighted the possibility of strategic use of insolvency proceedings by borrowers. A corporate debtor may file an application under the IBC immediately before completion of a SARFAESI auction, thereby triggering the moratorium and effectively freezing enforcement proceedings. Such filings may significantly affect secured creditors who have already undertaken extensive recovery efforts. A similar principle was considered by the Bombay High Court in *Arrow Business Development Consultants Pvt. Ltd. v. Union Bank of India*[[3]](#footnote-10303), where the Court invalidated the issuance of a sale certificate after commencement of an interim moratorium in personal insolvency proceedings. Although courts and tribunals have occasionally recognised abuse of insolvency processes, no settled judicial framework currently exists for identifying and addressing mala fide insolvency filings intended solely to frustrate secured creditor enforcement. ## **The Insolvency and Bankruptcy (Amendment) Act, 2026** The Insolvency and Bankruptcy (Amendment) Act, 2026 introduced several reforms relevant to the SARFAESI–IBC interface, although certain provisions are yet to be brought into force. One significant amendment is the explanation inserted under Section 14(3)(b), clarifying the scope of the moratorium in relation to proceedings involving sureties. At the same time, the principle laid down in *State Bank of India v. V. Ramakrishnan*, permitting creditors to proceed against guarantors’ independent assets, remains unaffected. The amendments also introduce Sections 64A, 67B and 67C, which provide penalties for frivolous proceedings, violations of the moratorium and suppression of material facts. Of particular importance is Section 64A, which empowers the Adjudicating Authority to impose penalties in cases involving frivolous or vexatious insolvency proceedings. This provision has the potential to discourage strategic insolvency filings, although its effectiveness will ultimately depend upon judicial interpretation and enforcement. Further, the amendments introduce a Creditor-Initiated Resolution Process (CIRP-C) framework, which may create new questions regarding the relationship between insolvency proceedings and ongoing SARFAESI enforcement actions. ## **Protection of Bona Fide Auction Purchasers** One of the most significant unresolved issues concerns the protection of bona fide auction purchasers whose transactions are subsequently invalidated because of insolvency proceedings. Auction purchasers often invest substantial amounts in reliance upon the validity of the SARFAESI process. However, if a sale is rendered void due to commencement of CIRP, purchasers may find themselves without ownership rights despite acting in good faith. This uncertainty can discourage participation in SARFAESI auctions and adversely impact realisation values for secured creditors. Comparative jurisdictions provide stronger safeguards. For example, Section 363(m) of the United States Bankruptcy Code offers protection to good-faith purchasers in certain circumstances, thereby promoting confidence in insolvency-related asset sales. Other jurisdictions have similarly developed mechanisms to balance insolvency objectives with commercial certainty. Indian law presently lacks a dedicated statutory framework protecting bona fide auction purchasers whose transactions are disrupted by subsequent insolvency proceedings. This remains an important area for future legislative reform. ## **Conclusion** The Supreme Court’s decision in *RCM Infrastructure* has brought considerable clarity to the long-standing conflict between the SARFAESI Act and the IBC. By holding that a SARFAESI sale is completed only upon payment of the full sale consideration and issuance of the sale certificate, the Court has established a clear legal standard for determining whether an auction sale survives the commencement of insolvency proceedings. The Insolvency and Bankruptcy (Amendment) Act, 2026 further attempts to address concerns relating to moratorium violations and frivolous insolvency filings. Nevertheless, important challenges remain. First, the legal framework still lacks a robust mechanism for identifying and preventing strategic CIRP filings intended solely to obstruct legitimate recovery actions by secured creditors. Secondly, the absence of meaningful statutory protection for bona fide auction purchasers continues to create uncertainty and may reduce participation in SARFAESI auctions. As India’s insolvency regime continues to evolve, addressing these issues will be essential to maintaining an appropriate balance between the objectives of corporate resolution under the IBC and the enforcement rights of secured creditors under the SARFAESI Act. 1. Insolvency and Bankruptcy Code, 2016, s 14. [↑](#footnote-ref-32518) 2. Narasimham Committee Reports (1991 & 1998); T.R. Andhyarujina Committee Report (2000). [↑](#footnote-ref-26573) 3. *Arrow Business Development Consultants Pvt. Ltd. v. Union Bank of India*, MANU/MH/8461/2025. 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