The National Company Law Appellate Tribunal has held that a personal guarantor cannot invoke Section 94 of the Insolvency and Bankruptcy Code merely to obtain an interim moratorium under Section 96 and stall lawful SARFAESI possession proceedings, particularly where the guarantor has already enjoyed moratorium benefits for an extended period without proposing a genuine repayment plan.
Background & Facts
The Dispute
The appellant, Pankaj Chhabildas Sheth, a director and personal guarantor of M/s Veer Wires Private Limited (the corporate debtor), challenged the order dated 11 May 2026 passed by the National Company Law Tribunal, Mumbai Bench-I, dismissing his application under Section 94 of the Insolvency and Bankruptcy Code, 2016. The Adjudicating Authority held that the application was filed not for genuine insolvency resolution but to frustrate the possession-taking process initiated by the financial creditor, Abhyudaya Co-Operative Bank Ltd.
Key Facts
- The corporate debtor availed term loan facilities TL1 (₹18,90,000), TL2 (₹5,50,000), and TL3 (₹24,00,000) vide sanction letter dated 04 January 2020
- The appellant executed a personal guarantee deed dated 31 January 2020 undertaking joint and several liability
- Additional cash credit facility CC/383 of ₹3,50,00,000 was sanctioned vide letter dated 02 March 2021
- Loan accounts classified as NPA on 31 July 2021
- Demand notice under Section 13(2) of the SARFAESI Act, 2002 issued on 31 December 2021 for outstanding dues of ₹3,84,87,979.73
- Possession notice dated 11 March 2022 issued for ₹3,96,86,417.73, directing delivery of possession on 25 March 2022
- Three recall notices issued on 20 April 2022
- Arbitration proceedings initiated under Section 84 of the Multi-State Cooperative Societies Act, 2002; award dated 23 June 2023 held CD and guarantors jointly and severally liable for ₹4,20,94,708.73 as on 31 July 2022 with interest at 14.50% per annum from 01 August 2022
- Court commissioner appointed on 24 May 2023 under Section 14 of SARFAESI Act; possession notice issued 30 October 2023 fixing possession date as 21 November 2023
Procedural History
- 01 November 2023: First Section 94 application filed (CP (IB) No. 1054/2023)
- 13 October 2025: First application dismissed as withdrawn for non-production of guarantee deed; appellant enjoyed interim moratorium under Section 96 for approximately two years
- 10 January 2026: Court commissioner issued possession notice fixing physical possession of flat number 304 on 06 February 2026
- 01 February 2026: Second Section 94 application filed
- 02 February 2026: Email sent by appellant to financial creditor intimating commencement of interim moratorium under Section 96
- 11 May 2026: Adjudicating Authority dismissed the second application under Section 100, holding intent was to frustrate possession proceedings
- 07 September 2026: NCLAT pronounced judgment dismissing the appeal
Relief Sought
The appellant sought setting aside of the impugned order dated 11 May 2026, admission of the Section 94 application, initiation of the personal insolvency resolution process, and appointment of a resolution professional to consider a repayment plan.
The Legal Issue
The central questions were: (1) Whether the second Section 94 application is barred by res judicata given the withdrawal of the first application on technical grounds; (2) Whether filing a Section 94 application after SARFAESI possession proceedings have substantially advanced constitutes an abuse of process; (3) Whether the principles in Syed Sirajis Salikin Khadri v. Edelweiss ARC and Getz Cables Pvt. Ltd. v. State Bank of India apply to the facts of this case.
Arguments Presented
For the Appellant
- The first application (CP (IB) No. 1054/2023) was genuine and bona fide, withdrawn solely on the technical ground of non-production of the original guarantee deed despite sincere efforts
- Res judicata does not apply as no issue was framed or decided on merits in the first application; reliance placed on Ebix Singapore Pvt. Ltd. v. Committee of Creditors of Educomp Solutions Ltd. (Civil Appeal No. 3224 of 2020)
- The principle in Syed Sirajis Salikin Khadri is distinguishable: there, SARFAESI proceedings were pending since 2012 and Section 94 was filed 13 years later; here, the guarantee was invoked on 31 December 2021 and the first application filed on 01 November 2023, well within limitation
- The appellant undertakes to satisfy debt to the extent of ₹3 Crore against aggregate outstanding of ₹19,74,97,585.95 across the corporate debtor and related group entities (with 5-7 co-guarantors)
- No prejudice to the financial creditor as Section 110(2), (3) and (5) of the Code preserves the creditor's right to decline the repayment plan and independently enforce security
For the Respondent
- The respondent did not appear; appearance not marked
- The Adjudicating Authority relied on Syed Sirajis Salikin Khadri v. Edelweiss ARC (CA (AT) (Ins) No. 455 of 2025) to hold the application was an abuse of process filed to stall SARFAESI proceedings
The Court's Analysis
The Appellate Tribunal examined the timing and conduct of the appellant in filing two successive Section 94 applications. It relied on its recent decision in Ashwani Kumar Oberoi v. State Bank of India (CA (AT) (Ins) No. 741 & 742 of 2026), where it held that where a Section 94 application is instituted after recovery proceedings have substantially progressed - particularly after auction conclusion and creation of third-party rights - the timing and conduct of the personal guarantor are relevant in determining whether the process is invoked for resolution or merely to stall lawful recovery.
"In the facts of the case as noticed above, we are of the view that initiation of proceeding under Section 94 by the personal guarantor was not with object of resolution of insolvency of the personal guarantor rather it was only with the intent to somehow create hurdles in the conclusion of the proceedings initiated by the Bank for recovery of its debts when auction was already held... filing of the application... clearly was not bona fide application and the application was an abuse of process of Court."
The Tribunal also analysed Syed Sirajis Salikin Khadri v. Edelweiss ARC (CA (AT) (Ins) No. 455 of 2025), where it was held that filing a Section 94 application within weeks of a possession notice, after failing to secure relief from the DRT, revealed the intention to stall recovery by taking undue benefit of the moratorium. The Tribunal in that case distinguished Getz Cables on the ground of a "yawning time-gap of more than a decade" between SARFAESI initiation and the Section 94 filing, coupled with a chain of litigation to derail recovery.
Applying these principles, the Tribunal noted:
- The first Section 94 application was filed on 01 November 2023, shortly after the court commissioner's possession notice of 30 October 2023 fixing possession for 21 November 2023
- The appellant enjoyed the interim moratorium under Section 96 for approximately two years (November 2023 to October 2025)
- No repayment was attempted during this period or during the first PIRP
- The second application was filed on 01 February 2026 immediately after the court commissioner's notice of 10 January 2026 fixing possession for 06 February 2026
- An email was sent on 02 February 2026 intimating the commencement of moratorium
The Tribunal concluded that both petitions were filed not for genuine resolution but to misuse the interim moratorium to stall SARFAESI proceedings and shield the secured asset. The ratio of Syed Sirajis Salikin Khadri was held squarely applicable.
The Verdict
The appeal was dismissed. The NCLAT upheld the Adjudicating Authority's order dated 11 May 2026 rejecting the Section 94 application. No order as to costs was made. Pending interlocutory applications were disposed of. The appellant's attempt to invoke Section 94 twice - first to obtain a two-year moratorium without proposing a repayment plan, and second immediately upon a fresh possession notice - was held to be a clear abuse of process.
What This Means For Similar Cases
Timing of Section 94 Filing Is Critical
- Practitioners must advise personal guarantors that filing a Section 94 application after possession proceedings have substantially advanced (particularly after court commissioner appointment and possession notices) will be scrutinised for mala fide intent
- The proximity between the possession notice and the Section 94 filing is a key factor: in this case, the first application was filed two days after the court commissioner's possession notice; the second was filed the day after a fresh possession notice
- A gap of two years enjoying moratorium without any repayment attempt or concrete plan weighs heavily against bona fides
Res Judicata Does Not Bar Second Application On Technical Withdrawal
- The Tribunal accepted that withdrawal of the first application on the technical ground of non-production of the guarantee deed (without adjudication on merits) does not attract res judicata
- However, this procedural victory is hollow if the second application suffers from the same mala fide intent
- Practitioners should ensure the guarantee deed and all supporting documents are ready at the time of first filing to avoid technical dismissals that expose the guarantor to adverse findings on conduct
Section 96 Moratorium Is A Shield, Not A Sword
- The interim moratorium under Section 96 is intended to protect the resolution process, not to indefinitely stall secured creditor enforcement
- Courts will examine whether the guarantor has actually engaged in resolution efforts (proposing a plan, negotiating with creditors, making payments) during the moratorium period
- Section 110(2), (3) and (5) preserves the secured creditor's right to reject the plan and enforce security independently - this does not diminish the requirement that the application itself be bona fide
- The Getz Cables principle (Section 94 not barred merely because SARFAESI initiated) applies only where the application is filed in close proximity to SARFAESI initiation and with genuine resolution intent
Practical Takeaways for Practitioners
- File early: Advise guarantors to consider Section 94 at the first sign of financial distress, not as a last-minute reaction to possession notices
- Document bona fides: Maintain records of repayment attempts, correspondence with creditors, and concrete plan proposals before and during the moratorium
- Avoid serial filings: A second application after enjoying moratorium for years without progress will be viewed as abusive
- Distinguish precedents carefully: Getz Cables protects genuine early filings; Syed Sirajis Salikin Khadri and Ashwani Kumar Oberoi condemn late, tactical filings
