NCLAT Rejects Personal Guarantor’s Section 94 Plea, Says Interim Moratorium Cannot Be Used to Stall SARFAESI
The National Company Law Appellate Tribunal (NCLAT) has dismissed an appeal by personal guarantor Pankaj Chhabildas Sheth and upheld the rejection of his second insolvency application under Section 94 of the Insolvency and Bankruptcy Code, 2016. The order, dated September 7, 2026, is significant for lenders, insolvency professionals and advisers because the tribunal treated the timing and conduct surrounding repeated Section 94 filings as evidence that the statutory interim moratorium was being used to stall secured-creditor recovery rather than to pursue a genuine repayment plan.
What the dispute involved
Sheth was a director and personal guarantor of Veer Wires Private Limited, which had obtained three term loans of ₹18.90 lakh, ₹5.50 lakh and ₹24 lakh from Abhyudaya Co-operative Bank under a January 4, 2020 sanction. The company later obtained a cash-credit facility of ₹3.50 crore under a March 2, 2021 sanction. The loan accounts were classified as non-performing assets on July 31, 2021.
The bank issued a demand notice under Section 13(2) of the SARFAESI Act on December 31, 2021, demanding ₹3,84,87,979.73 and invoking the personal guarantee. Recovery steps continued, including possession measures. Separately, an arbitral award dated June 23, 2023 held the corporate debtor and guarantors jointly and severally liable for ₹4,20,94,708.73 as of July 31, 2022, together with interest at 14.5% per annum from August 1, 2022 until realisation.
Two Section 94 petitions came close to possession action
The first Section 94 application was filed on November 1, 2023. It remained on record until October 13, 2025, when it was withdrawn because the guarantee deed had not been annexed. NCLAT noted that the filing had given the appellant the benefit of the interim moratorium under Section 96 for about two years.
After that moratorium ended, the court commissioner issued a possession notice on January 10, 2026 fixing February 6, 2026 for physical possession of a secured flat. Sheth filed a second Section 94 petition on February 1, 2026. A resolution professional later recommended admission, but the NCLT Mumbai Bench-I rejected the petition on May 11, 2026, holding that its purpose was not genuine insolvency resolution but frustration of the possession process. Sheth challenged that decision before NCLAT.
NCLAT focused on bona fides, not merely the existence of SARFAESI proceedings
The appellate tribunal did not state that a personal guarantor loses the right to use Section 94 merely because SARFAESI recovery has started. Instead, it reiterated that the adjudicating authority must examine the facts of each case, especially the stage of recovery, timing of the insolvency filing and the debtor's conduct. The order referred to earlier NCLAT decisions including Ashwani Kumar Oberoi v. State Bank of India and Syed Sirajis Salikin Khadri v. Edelweiss Asset Reconstruction Company Ltd., where timing and conduct were relevant to assessing whether Section 94 was being invoked for resolution or to obstruct enforcement.
On the facts before it, NCLAT noted that the appellant had not attempted repayment during the two years after the bank's demand notice or during the first personal insolvency process. It also observed that both Section 94 filings closely followed possession action. In relation to the second filing, the tribunal noted that an email dated February 2, 2026 informed the bank that the Section 96 interim moratorium had commenced, just days before the scheduled possession date.
Why the appeal was dismissed
NCLAT concluded that the two petitions were not bona fide attempts to resolve the personal guarantor's insolvency but were aimed at obtaining the interim moratorium and frustrating possession of the secured asset. The tribunal said Section 94 is intended for personal guarantors genuinely interested in insolvency resolution and submitting a repayment plan, and cannot be used merely as a shield against enforcement of security interest.
The appeal was therefore dismissed, with no order as to costs, and pending applications were disposed of. The September 7 order leaves the NCLT's May 11 rejection intact.
Practical implications for lenders, guarantors and advisers
- Timing matters: A Section 94 filing made immediately before possession, auction or other advanced recovery action may attract close scrutiny of the applicant's objective.
- A resolution professional's recommendation is not conclusive: The adjudicating authority can still examine conduct and bona fides before admitting the process.
- Section 96 protection is not a standalone recovery shield: The interim moratorium is linked to a genuine personal insolvency process, not a device to indefinitely interrupt secured enforcement.
- Document the repayment case: Advisers assisting personal guarantors should ensure that a filing is supported by a credible repayment proposal, financial disclosures and conduct consistent with resolution rather than tactical delay.
- SARFAESI and IBC can run into difficult overlaps: The order reinforces a fact-specific approach rather than a blanket rule that one statute automatically displaces the other.
For Chartered Accountants, insolvency professionals and finance teams advising promoters or guarantors, the immediate takeaway is to evaluate the commercial and procedural purpose of a Section 94 application before filing. A petition may be legally available, but its timing, repayment conduct and connection with ongoing enforcement can determine whether the tribunal treats it as a genuine resolution effort or an abuse of the insolvency framework.
Official source: View the official source document
Key takeaway
NCLAT dismissed Pankaj Chhabildas Sheth’s appeal, finding repeated Section 94 filings were aimed at invoking the Section 96 interim moratorium to obstruct SARFAESI possession rather than pursue genuine insolvency resolution.
