March 27, 2026 : The National Company Law Appellate Tribunal (NCLAT), New Delhi, has held that an insolvency application filed against a personal guarantor during the subsistence of an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC) is void from inception and cannot be validated merely because the earlier proceedings that triggered the moratorium were subsequently withdrawn.
The ruling arose in Sushant Chhabra & Anr. v. Catalyst Trusteeship Ltd. & Anr., where the appellate tribunal set aside the order dated 17.02.2026 passed by the National Company Law Tribunal admitting Section 95 applications against the personal guarantors. The bench comprising Justice Ashok Bhushan (Chairperson) and Technical Member Barun Mitra clarified that proceedings initiated during the currency of an interim moratorium are non-est in law and remain invalid even after the moratorium ceases.
The case concerned personal guarantors Sushant Chhabra and Verinder Kumar Chhabra, who had executed unconditional and irrevocable guarantees on 28.12.2024 in relation to debt arising from non-convertible debentures issued by UM Autocomp Pvt. Ltd., later transferred to UM Automotive Pvt. Ltd. Following default, Catalyst Trusteeship Ltd. issued a demand notice for approximately ₹36.14 crore and subsequently initiated insolvency proceedings under Section 95 of the IBC.
However, prior to these proceedings, Canara Bank had already filed Section 95 applications against the same personal guarantors on 12.01.2025, which triggered an interim moratorium under Section 96. During the subsistence of this moratorium, Catalyst Trusteeship Ltd. filed fresh Section 95 applications on 05.08.2025. Although the earlier applications filed by Canara Bank were later withdrawn on 10.11.2025, the adjudicating authority proceeded to admit the applications filed by Catalyst Trusteeship Ltd., leading to the present appeals.
Before the appellate tribunal, the personal guarantors contended that the applications filed during the subsistence of the interim moratorium were barred by law and therefore void ab initio. They argued that Section 96 creates a statutory prohibition on initiation of proceedings during the moratorium period, and any action taken in violation of such bar is non-est. It was further submitted that the subsequent withdrawal of the earlier proceedings could not retrospectively validate proceedings that were void at the time of their institution.
The financial creditor, on the other hand, argued that once the earlier proceedings were withdrawn, the interim moratorium ceased to exist and the parties stood restored to their original position as if no such proceedings had been initiated. It was contended that since the applications were admitted after the withdrawal of the earlier proceedings, there was no legal impediment at the stage of admission.
Rejecting this contention, the NCLAT undertook a detailed examination of Section 96 of the IBC and reiterated that an interim moratorium commences on the date of filing of an application under Section 94 or 95 and continues until such application is admitted, rejected, or withdrawn. During this period, creditors are statutorily barred from initiating any legal proceedings in respect of the debt. The tribunal emphasised that the statutory consequences of the interim moratorium operate fully during its subsistence, and any proceedings initiated in breach of this embargo are void from inception.
The tribunal observed that the interim moratorium triggered on 12.01.2025 was admittedly in force when Catalyst Trusteeship Ltd. filed its applications on 05.08.2025. It held that proceedings initiated during this period were non-est in law and could not acquire validity merely because the moratorium subsequently came to an end upon withdrawal of the earlier applications.
Relying on the Supreme Court’s decision in Alchemist Asset Reconstruction Company Ltd. v. Hotel Gaudavan Pvt. Ltd., the appellate tribunal reiterated that proceedings initiated after the imposition of a moratorium are void ab initio. Applying this principle, it concluded that the applications filed by Catalyst Trusteeship Ltd. were legally non-existent from the outset and incapable of being revived.
The tribunal further held that the adjudicating authority had erred in failing to consider the legal effect of the subsisting interim moratorium at the time of filing of the applications. It noted that once the personal guarantors had specifically raised the issue of maintainability based on the earlier proceedings and the resulting moratorium, the adjudicating authority was required to examine the consequences of such moratorium on the subsequent applications.
In conclusion, the NCLAT allowed the appeals, set aside the impugned order dated 17.02.2026, and dismissed the Section 95 applications filed by Catalyst Trusteeship Ltd. The tribunal, however, granted liberty to the financial creditor to initiate fresh proceedings in accordance with law, noting that the interim moratorium had already ceased after withdrawal of the earlier applications. Parties were directed to bear their own costs.
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