Tribunal Upholds Debtor-Centric Nature of Section 96 Moratorium, Bars Multiple Insolvency Proceedings Against Personal Guarantor During Pendency of First Application
In a significant ruling reinforcing the protective scope of the Insolvency and Bankruptcy Code, 2016 (IBC), the National Company Law Tribunal (NCLT), Guwahati Bench, has dismissed a second insolvency petition filed by UCO Bank against the same personal guarantor, Mr. Satyawan Sarma. The bench comprising Judicial Member Mr. Rammurti Kushawaha and Technical Member Mr. Yogendra Kumar Singh held that the interim moratorium under Section 96 of the IBC is debtor-centric and prohibits the initiation of multiple insolvency proceedings against a personal guarantor while a first application under Section 95 is pending.
The case arose when UCO Bank filed Company Petition (IB) No. 24/GB/2026 under Section 95 of the Code seeking initiation of Insolvency Resolution Process against Mr. Sarma for default on repayment of over Rs. 141 crore owed by M/s Lohit Construction Pvt. Ltd., a corporate debtor for whom Mr. Sarma stood as a personal guarantor. However, Mr. Sarma objected, pointing out that UCO Bank had already filed an earlier application (CP(IB)/11/GB/2025) against him as a personal guarantor to a different corporate debtor, M/s Berial Engineers Pvt. Ltd., which was still pending adjudication.
The Tribunal analyzed Section 96(1) of the IBC which provides for an interim moratorium commencing from the date of filing an application under Section 94 or 95 and lasting until admission or rejection. This moratorium stays all legal actions and prohibits creditors from initiating any legal proceedings "in respect of any debt" against the debtor.
Rejecting the bank and Resolution Professional's argument that the moratorium applies only to the specific debt in the first application, the Tribunal emphasized the unqualified phrase "any debt" in Section 96(1)(b) and interpreted it as a deliberate legislative intent to protect the personal guarantor from multiple insolvency proceedings, irrespective of the debts arising from different corporate debtors or guarantees. The ruling highlighted that the insolvency regime for personal guarantors is designed around the individual debtor rather than any particular debt or creditor.
The Tribunal held that the filing of the second petition during the pendency of the first application triggered the interim moratorium and was barred by law. Consequently, the order appointing the Resolution Professional and all proceedings arising from the second application were declared non-est and set aside. The second petition was dismissed as non-maintainable under Section 100 of the Code.
Further, the Tribunal clarified that while the Resolution Professional's role under Section 99 is limited to verifying the completeness of the application and existence of default, the question of maintainability and jurisdiction, including the bar under Section 96, is exclusively for the Tribunal to decide at the admission stage. The Resolution Professional's report recommending admission of the second petition was found erroneous for ignoring the jurisdictional bar and was rejected.
This judgment sends a clear message that multiple insolvency proceedings cannot be initiated against the same personal guarantor for different debts during the subsistence of an interim moratorium triggered by an earlier application. It safeguards personal guarantors from harassment through parallel petitions and aligns with the legislative intent of the Insolvency and Bankruptcy Code to balance creditor rights with debtor protection.
The decision also reiterates the importance of disclosure of pendency of prior applications by creditors to ensure informed adjudication. The Tribunal noted the bank's failure to disclose the earlier pending petition was a serious omission that misled the Tribunal into appointing a Resolution Professional in the second case.
This ruling is expected to provide much-needed clarity on the scope of interim moratorium under Section 96 of the IBC and prevent multiplicity of insolvency proceedings against personal guarantors, thereby promoting judicial efficiency and fairness in insolvency resolution processes.
Bottom Line:
Insolvency and Bankruptcy Code, 2016 Section 96 Interim moratorium - Scope of interim moratorium under Section 96 is debtor-centric and not debt-specific - Filing of multiple insolvency applications under Section 95 against the same personal guarantor is barred during subsistence of interim moratorium, even if arising out of different corporate debtors or guarantees.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Sections 95, 96, 99, 100; Insolvency and Bankruptcy (Application to Adjudicating Authority for Insolvency Resolution Process for Personal Guarantors to Corporate Debtors) Rules, 2019 (Rule 7(1)); Limitation Act, 1963 Section 18
Mr. Amit Pareek, (NCLT)(Guwahati Bench) : Law Finder Doc Id # 2975294
