Justice Gauri Godse pronounced the order on 6th April 2026 in the commercial summary suit filed by IL&FS. The court made it clear that insolvency moratoriums protecting guarantors do not stop the lender from pursuing the principal borrower.

Simple Breakdown of the Case

• Lender: IL&FS Financial Services Limited
• Main Borrower (Defendant 1): Serveall Constructions Private Limited – the company that actually took the term loan.
• Corporate Guarantor (Defendant 2): Housing Development and Infrastructure Limited (HDIL) – the well-known real estate developer currently under insolvency.
• Personal Guarantors (Defendants 3 & 4): Rakesh Wadhawan and Sarang Wadhawan (promoters of HDIL).

The total amount claimed is ₹203,66,31,506 (roughly ₹204 crore).

HDIL has been under Corporate Insolvency Resolution Process (CIRP) since 20 August 2019, with a moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC) in place. The two Wadhawans also face personal insolvency proceedings under Section 95, triggering an interim moratorium under Section 96.

IL&FS told the court it wants to proceed only against Serveall Constructions right now and will wait for the moratoriums on HDIL and the Wadhawans to end before going after them.

What the Judge Decided

Justice Godse held that:

• The moratorium protecting HDIL (as corporate guarantor) does not give any shield to the actual borrower — Serveall Constructions.
• The interim moratorium on the personal guarantors (Wadhawans) also does not extend to the principal borrower.
• Lenders can continue recovery action against the main borrower even if guarantors are under IBC protection.

The court distinguished this from earlier cases and relied on Supreme Court rulings to explain that the protection under IBC is for the specific debtor under insolvency, not for everyone connected to the debt.

Final Order: The summary suit will now proceed only against Serveall Constructions Private Limited. Proceedings against HDIL and the two Wadhawans remain stayed until their moratoriums end. IL&FS can revive claims against the guarantors later.

This ruling is seen as helpful for banks and financial institutions, as it prevents borrowers from indirectly escaping liability just because their guarantors have filed for insolvency.

Also Read: Further Trouble For HDIL Builders.

The post Bombay HC Lets IL&FS Chase HDIL’s ₹204 Crore Loan from Main Borrower Despite Insolvency Shield appeared first on Square Feat India.

The case — Sanjeev Divekar vs. Pegasus Assets & Ors. (WP 16679/2025) — involved a flat in a project in Navi Mumbai (flat No. 701 at “Sea Palace”, as per the order), originally sold by the petitioner to homebuyers in 2014.

Background & What Happened

• The original buyers had taken a housing loan (sanctioned by a bank) and later defaulted. The loan account was assigned to Pegasus Assets Reconstruction Company Ltd. (the secured creditor). The creditor initiated recovery proceedings under SARFAESI, seeking to auction the flat in question.
• The flat-seller (the petitioner) claimed that he was not a borrower, guarantor or mortgagor, and that he had refunded the entire amount received from the buyers (plus financing cost) between February and June 2018, when it became clear that the flat did not have approved residential-unit status.
• Despite the refund, the secured creditor continued with recovery proceedings and moved to take possession of the flat. The debtor-recovery case passed through the Debts Recovery Tribunal (DRT) and later the Debt Recovery Appellate Tribunal (DRAT), which had directed the petitioner — despite being a non-borrower — to deposit 25% (part of pre-deposit requirement) of the amount claimed by the creditor. The DRAT later dismissed the appeal for non-compliance with the deposit directive.

High Court’s Decision & Legal Findings

• The High Court observed that under Section 18(1) of SARFAESI read with Section 2(1)(f), the pre-deposit requirement applies only to “borrower” (or guarantor/mortgagor) defined under the Act — and not to an unrelated third-party such as a former seller or flat-seller who had refunded the full sale amount.
• Since the petitioner was neither borrower nor guarantor, the court held that the requirement of 25% (or 50%) pre-deposit for entertaining an appeal was not applicable. The earlier DRAT orders mandating pre-deposit were therefore unconstitutional in his case.
• The court quashed those DRAT orders and restored the appellant’s appeal — directing the DRAT to hear the matter on merits by 15 February 2026. All contentions of the parties remain open.

What This Means for Home-buyers, Sellers and Real-Estate Stakeholders

• The ruling offers protection to sellers / developers / flat-sellers who have refunded amounts to buyers in cases where the sale agreement was cancelled or the flat lacked valid approval — shielding them from being dragged under SARFAESI loan-recovery actions.
• It draws a clear distinction between actual borrowers (who took loan) and unrelated third-parties, asserting that recovery mechanisms under SARFAESI cannot be expanded indiscriminately.
• Lenders and asset-reconstruction firms must now exercise caution before issuing recovery notices or demanding pre-deposits from persons who are not loan parties.

What Remains Unclear / Pending

• The public order does not name the flat-buyers. The project name appears only as “Sea Palace, Navi Mumbai” (flat No. 701), but the builder / developer’s name is not specified.
• The exact amount claimed by the secured creditor — which triggered the 25% pre-deposit demand — is also not stated in the order summary.
• The case is back before the DRAT for adjudication on merits; hence, the ultimate outcome (possession, sale, refund, etc.) is still pending.

Why It Matters

For everyday home-buyers: this judgment underscores that only those who took the loan are liable under recovery laws — not sellers or third-parties.
For developers/sellers: a cautionary note to ensure that if they refund sale consideration (or cancel deals) they maintain records — to avoid being wrongly dragged into recovery suits.
For lenders / ARCs: — to practice due diligence before sending notices; broad-brush recovery against all associated parties may no longer hold.

Also Read: Bombay High Court: Borrowers Can’t Force Banks to Settle Defaulted Loans

The post High Court Rules: Those Who Didn’t Take Home Loan Cannot Be Forced to Pay appeared first on Square Feat India.