In a significant development at the intersection of personal insolvency under the Insolvency and Bankruptcy Code (IBC), SARFAESI proceedings and the powers of the Debt Recovery Tribunal, the Supreme Court has directed restoration of possession of a secured property to personal guarantor Ashok Rajkumar Gupta, while leaving the larger legal controversy to be finally adjudicated by the Bombay High Court.

The case assumes importance because it arises from the increasingly contentious question: what happens to SARFAESI enforcement against a personal guarantor once proceedings under Section 95 of the IBC have been initiated and the interim moratorium under Section 96 comes into play?

The Supreme Court proceedings arose from orders passed by the Bombay High Court in Suryoday Small Finance Bank Limited’s challenge to a DRT Pune order directing restoration of possession. The matter, Ashok Rajkumar Gupta & Ors. v. Suryoday Small Finance Bank Limited & Ors., was heard by a Supreme Court Bench comprising Justice K.V. Viswanathan and Justice Arun Palli on August 5, 2026.

THE DISPUTE

The controversy traces back to proceedings before the DRT, Pune. According to the Supreme Court’s order, the DRT was informed that a petition under Section 95 of the IBC filed by the petitioners was pending before the NCLT, Mumbai. Taking note of the moratorium, the DRT on January 28, 2026 directed Suryoday Small Finance Bank not to take possession of the property.

The bank’s stand, however, was that possession had already been taken between 3.25 pm and 4.10 pm on January 28. What followed was unusually sharp criticism from the DRT.

While ordering restoration of possession, the Tribunal recorded that the Court Commissioner and the bank’s authorised officer had proceeded with taking possession even while the application was being heard and despite the injunction subsequently being pronounced.

The DRT described the bank’s conduct as “not appreciable and acceptable to law”, said possession had been taken “hastily”, and observed that such practice had to be deprecated. It consequently directed the bank to de-seal the property and restore possession to the applicants within one week.

BOMBAY HIGH COURT STAYS DRT — GUARANTORS MOVE SUPREME COURT

Suryoday challenged the DRT’s February 4 order before the Bombay High Court. The High Court stayed the DRT order pending final disposal of the writ petition. When the guarantors thereafter approached the Supreme Court, the apex court initially ordered maintenance of status quo regarding possession as it existed on June 24, 2026.

The Supreme Court has now substantially altered that position. The Bench recorded its opinion that pending disposal of the writ petition before the Bombay High Court, the February 4 DRT order “should operate.”

Following this, counsel for Suryoday, after taking instructions, stated that without prejudice to the bank’s rights and contentions, vacant and peaceful possession would be handed back to the petitioners by August 12, 2026.

The Supreme Court directed that the petitioners would retain possession until the Bombay High Court finally decides the proceedings and adjudicates the parties’ rights. They have undertaken not to create any third-party rights in the property during this period. If the proceedings ultimately end in Suryoday’s favour, the petitioners have undertaken to return possession to the bank.

IMPORTANT: SUPREME COURT HAS NOT FINALLY DECIDED SECTION 96 QUESTION

The distinction is critical. The August 5 order should not be read as a final Supreme Court ruling that Section 96 of the IBC universally prohibits a secured creditor or DRT from proceeding with possession under SARFAESI.

The Supreme Court has expressly directed that the Bombay High Court decide the writ petition uninfluenced by observations contained either in the impugned orders or in the Supreme Court’s present order, and has left all contentions between the parties open.

Thus, while the immediate result strongly favours the personal guarantors — possession goes back to them pending adjudication — the larger legal issue concerning the precise reach of the Section 96 interim moratorium remains alive.

That question could have significant consequences for banks, NBFCs and personal guarantors across the country.

THE BIG QUESTION

Can a secured creditor continue SARFAESI enforcement and take possession of a personal guarantor’s secured property after a Section 95 IBC application triggers the Section 96 interim moratorium?

The Bombay High Court’s eventual determination could therefore become important precedent on the relationship between:

IBC personal insolvency
Section 96 interim moratorium
SARFAESI enforcement
DRT jurisdiction
Secured creditor rights
Personal guarantor protection

The Supreme Court, for the moment, has ensured that possession remains with the guarantor while that battle is fought.

APPEARANCES

For the petitioners/personal guarantors, the Supreme Court order records Ms. Eshna Kumar, Advocate; Ms. Sabri, Advocate; and Mr. Anand Dilip Landge, AOR.

For Suryoday Small Finance Bank, it records Mr. Archit Virmani, Advocate; Mr. Abhinav Hansaria, AOR; Ms. Richa Shukla, Advocate; and Mr. Daneel Pancras, Advocate.