Effect Of Moratorium Enshrined In IBC, 2016

The primary rationale of Section 14 of IBC is to try and maximize the value of the corporate debtor such that it may continue its operations while its future survival is being apprised by the insolvency resolution process

The Bankruptcy Law Reforms Committee, in its Report, recommended 2 (two) phases of resolution, upon commencement of the insolvency resolution process. Firstly, a combined intercession to evaluate the viability of the debt during a ‘calm period’ where the creditors’ interest is preserved, without impeding the running of the corporate debtor. It was proposed that the said ‘calm period’ may be implemented by passing a ‘moratorium’ on all recovery actions or filing of new claims against the corporate debtor and by enabling an insolvency professional to manage and operate the corporate debtor. Consequently, it was suggested that if the deliberations do not result in a feasible solution, the corporate debtor would be considered as unviable and would be deemed bankrupt.

Legal Position

The above proposals found their rightful place as laws in the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as IBC). The ‘calm period’ referred to above was introduced in IBC by way of Section 14, which provides that ‘on the insolvency commencement date, the National Company Law Tribunal (NCLT), shall, by order declare moratorium in relation to:

(a) the institution of suits or continuation of pending suits or proceedings against the corporate debtor including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority;

(b) transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;

(c) any action to foreclose, recover or enforce any security interest created by the corporate debtor in respect of its property including any action under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;