Section 95 Insolvency Plea Filed During Interim Moratorium Void Ab Initio Even after Case Withdrawal: NCLAT Quashes Insolvency Pleas [Read Order]

In a recent ruling, the National Company Law Appellate Tribunal (NCLAT) quashed the insolvency plea and held that insolvency applications filed during the subsistence of an interim moratorium are void ab initio even if the original proceedings are later withdrawn.

The financial creditor, Catalyst Trusteeship Ltd., had initiated proceedings against the guarantors following a ₹36.14 crore default on non-convertible debentures (NCDs) issued by UM Automotive Pvt. Ltd. The guarantors had executed irrevocable personal guarantees dated 28 December 2024.

Both appellants had executed unconditional and irrevocable personal guarantees in respect of non-convertible debentures issued by the corporate debtor, and they challenged the NCLT’s order admitting Section 95 applications filed by Catalyst Trusteeship Ltd. against them.

The appellants, Sushant Chhabra and Verinder Kumar Chhabra, argued that the Section 95 applications filed on 5 August 2025 were barred due to an interim moratorium triggered by earlier applications filed by Canara Bank on 12 January 2025. They contended that the appointment of a Resolution Professional (RP) and subsequent proceedings were void ab initio.

The respondent argued that the guarantors’ objections were baseless, since the debt and default stood clearly established and remained uncontroverted. The guarantors ignored statutory notices and failed to honor their guarantees despite repeated opportunities. Also, the maintainability challenge based on pending Canara Bank applications was termed malicious, as those petitions had already been withdrawn on 10.11.2025.

After considering both submissions, the appellate tribunal noted that the withdrawal of Canara Bank’s applications on 10 November 2025 nullified the moratorium’s legal effect. Citing precedents from the Supreme Court and High Courts, the Tribunal emphasized that a withdrawn proceeding has no residual legal existence and cannot bar subsequent actions.

The bench, led by Justice Ashok Bhushan(chairperson)and Barun Mitra(technical member) also relied on its own ruling in Union Bank of India v. P.K. Balasubramanian, reiterating that the IBC does not contemplate multiple simultaneous insolvency applications against the same personal guarantor, but clarified that once a prior application is withdrawn, the bar under Section 96 ceases to operate.

They observed that “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. “

Accordingly, the appeals were dismissed.

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