Writ Against SARFAESI Action Dismissed as Sec. 94 Plea Isn’t Maintainable Where Borrower Was a Proprietorship Firm | HC

Case Details: Ramesh Kothari v. State of Madhya Pradesh - [2025] 173 taxmann.com 341 (HC-Madhya Pradesh)

Judiciary and Counsel Details

• Vivek Rusia & Prem Narayan Singh, JJ.
• Amit Agrawal, Sr. Adv. & Utkarsh Joshi, Adv. for the Petitioner.
• Bhuwan Gautam, Govt. Adv. for the Respondent.

Facts of the Case

In the instant case, the petitioner stood as a guarantor to a loan advanced by the respondent bank to borrowers. On default in the repayment, the bank initiated recovery proceedings under Section 14 of the SARFAESI Act, 2002.

In compliance with the order passed by the District Magistrate for taking possession of mortgaged property with the help of Tehsildar, Tehsildar issued a notice to borrowers as well as the petitioner for taking possession of mortgaged property.

The petitioner approached the NCLT by way of petition under section 94 of the IBC. To protect possession of the secured asset, the petitioner also filed an instant writ seeking direction from respondents to stop the recovery of possession during the pendency of insolvency proceedings before the Debt Recovery Tribunal (DRT).

It was noted that proprietorship firms are not included in the definition of ‘corporate debtor’. Further, since borrowers were sole partnership firms, no application under section 94 was liable to be entertained even at the petitioner’s instance. Now, the stage of consideration of representation was over.

High Court Held

The High Court held that the District Magistrate had already passed an order and, hence, had become a functus officio. Further, the Tehsildar who had issued a notice did not enjoy any adjudication power to consider the petitioner’s objection/representation. Thus, in view of the above, the instant Writ Petition was totally misconceived and was to be dismissed.