Moratorium Under Insolvency & Bankruptcy Proceedings

Read on to understand implications of moratorium on lenders who have taken certain forms of collateral/security interest, including security of assets of corporate debtor against whom insolvency proceedings have been initiated…

A moratorium in general parlance refers to a delay or suspension of activity or law for a certain period of time. In the legal context, it may refer to the temporary suspension of a law to allow a certain legal challenge or proceeding to be carried out without any disruption on account of interplay of overlapping legal processes.

Under the newly enacted Insolvency and Bankruptcy Code, 2016 (“the Code”), the National Company Law Tribunal (“the Adjudicating Authority/NCLT”) on the date of admission of the application filed for initiating corporate insolvency resolution process under Section 7 or Section 9 or Section 10 of the Code (called insolvency commencement date), shall, by an order, declare a moratorium for prohibiting all of the following, namely:

(a) 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 Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor1.