Insolvency Plea Against Personal Guarantor Filed During Interim Moratorium Is Void Even if Earlier Case Is Withdrawn: NCLAT

The National Company Law Appellate Tribunal (NCLAT) at Delhi on Friday held that a fresh insolvency application against a personal guarantor filed during the subsistence of an interim moratorium triggered by an earlier application under the Insolvency and Bankruptcy Code is void from the outset and cannot be validated even if the earlier proceedings are later withdrawn.

A bench of Chairperson Justice Ashok Bhushan and Technical Member Barun Mitra said, “The interim moratorium in Section 96 has statutory consequences, which interim moratorium although shall come to an end when application is either dismissed or admitted or withdrawn, but during the period when interim moratorium is operating, any initiation of proceeding shall be non-est in law."

Relying on the Supreme Court's ruling in Alchemist Asset Reconstruction Company Ltd. v. Hotel Gaudavan Pvt. Ltd. & Ors., the tribunal reiterated that proceedings initiated after a moratorium are void from inception.

It observed, “Thus, the proceeding, which was initiated by Financial Creditor during the currency of interim moratorium, were non-est from the very beginning, cannot become legal proceeding after interim moratorium is withdrawn on 10.11.2025.”

The ruling came in appeals filed by personal guarantors Sushant Chhabra and Verinder Kumar Chhabra against an order of the National Company Law Tribunal, New Delhi, which had admitted insolvency applications filed by Catalyst Trusteeship Ltd.

The guarantors had executed unconditional and irrevocable personal guarantees for debt arising from non-convertible debentures issued by UM Autocomp Pvt. Ltd., whose liabilities were later novated to UM Automotive Pvt. Ltd. After a default, Catalyst Trusteeship issued a demand notice on April 1, 2025.

Canara Bank had, in fact, moved first by filing insolvency applications against the guarantors on January 12, 2025, which triggered the interim moratorium under Section 96 of the Code. While that moratorium was still in force, Catalyst Trusteeship filed its own set of applications on August 5, 2025.

By the time the matter came up for consideration, the Canara Bank proceedings had been withdrawn on November 10, 2025. The guarantors, however, maintained that this did not alter the morotorium. Since the Catalyst applications were filed when the moratorium was in force, they argued, the proceedings were not maintainable from the outset. The adjudicating authority did not accept this contention and proceeded to admit the applications.

Allowing the appeals, the appellate tribunal held that the Adjudicating Authority failed to consider the effect of the subsisting interim moratorium at the time of filing.

It observed, “When the personal guarantors raised objection to the application and has pointed out that earlier application under Section 95 by the Canara Bank has already been filed, which was noticed by Adjudicating Authority to be withdrawn on 10.11.2025, the Adjudicating Authority committed error in not considering the effect and consequences of triggering of interim moratorium on filing of the application by the Canara Bank and the effect of the said moratorium on the application filed by Catalyst Trusteeship Ltd. on 05.08.2025. We, thus, are of the view that the order of the Adjudicating Authority admitting Section 95 application cannot be sustained.”

The tribunal set aside the NCLT's order dated February 17, 2026, dismissed the applications filed by Catalyst Trusteeship Ltd., and granted liberty to the financial creditor to file fresh applications in accordance with law.