Bank Cannot Take Over Project for Absence of Security Over Business Assets: Delhi HC

Union Bank of India Vs Delhi Jal Board & Ors. (Delhi High Court)

The Delhi High Court examined a writ petition filed by a secured creditor bank challenging the termination of a contract and an Operation and Maintenance (O&M) Agreement relating to an interceptor sewer project. The project was originally awarded in 2011 to a consortium, with a tripartite agreement executed for design, construction, and maintenance. The petitioner bank had extended loans exceeding ₹500 crore to the lead member of the consortium and created a security interest primarily over project receivables and related assets.

Subsequently, insolvency proceedings were initiated against the borrower under the Insolvency and Bankruptcy Code, 2016, leading to liquidation in February 2021. During liquidation, an O&M Agreement was executed in June 2021, and the bank later initiated action under the SARFAESI Act, including taking possession of project assets and appointing an administrator. The authority issued multiple show-cause notices in 2025 highlighting deficiencies in performance, including infrastructure and operational shortcomings, and ultimately terminated the contract on 12 November 2025.

The petitioner bank challenged the termination, asserting rights as a secured creditor under the IBC and SARFAESI Act, including the right to enforce security interests and manage the project. It also argued violation of natural justice, claiming that the termination exceeded the scope of the show-cause notice.