The Insolvency and Bankruptcy Code, 2016 (IBC), incorporates the pivotal concept of a moratorium period during insolvency proceedings, effectively halting all actions against the corporate debtor. This pause not only provides a protective shield for the debtor but also creates an environment conducive to restructuring and resolution efforts.

1.1 The moratorium under the IBC is a critical mechanism designed to facilitate the insolvency resolution process. Its primary objectives are:

2.1 The moratorium is primarily governed by Section 14of the IBC for corporate debtors and Section 96 for individuals and personal guarantors.

Section 14: Corporate Debtors

2.2 Trigger: The moratorium is imposed upon the admission of a Corporate Insolvency Resolution Process (CIRP) application by the National Company Law Tribunal (NCLT).

2.3 Prohibitions:

2.4 Exceptions:

2.5 Duration: The moratorium remains in effect until the CIRP is completed, a resolution plan is approved, or a liquidation order is passed(Section 14(4)).

Section 96: Individuals and Personal Guarantors

3.1 For Creditors

3.2 For Debtors

Mohanraj v. Shah Brothers Ispat Pvt. Ltd. (2021):

The Hon'ble Supreme Court has clarified that Section 14 of the Insolvency and Bankruptcy Code (IBC) extends to proceedings under Sections 138 and 141 of the Negotiable Instruments Act, 1881, but only in relation to the corporate debtor. Consequently, cheque bounce proceedings against the corporate debtor are stayed during the moratorium period. However, such proceedings can still be initiated or continued against the directors of the corporate debtor.

China Development Bank vs Doha Bank OPSC and others:

The Supreme Court has ruled that a moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code, 2016, does not extinguish a claim. The Court clarified that Section 14 prohibits the initiation or continuation of legal proceedings against the corporate debtor, the transfer of assets, the enforcement of security interests, and similar actions.

Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd:

Courts have clarified that the moratorium does not apply to proceedings initiated by the corporate debtor if such proceedings are beneficial to the debtor's financial position.

Indian Overseas Bank v. RCM Infrastructure Ltd. (2021):

The NCLAT clarified that the moratorium prohibits the institution or continuation of suits or proceedings against the corporate debtor, SARFAESI proceedings cannot be continued against Corporate Debtor once CIRP starts and Moratorium is ordered including execution of judgments or decrees.

The moratorium under the IBC is a cornerstone of the insolvency resolution framework, balancing the interests of creditors and debtors. It ensures the preservation of the corporate debtor's assets and provides a collective resolution mechanism. The practice also reveals that a moratorium does not always accelerate restructuring; in some cases, it leads to delays. However, judicial interpretations and recent developments have highlighted the need for greater clarity and potential legislative amendments to address ambiguities and prevent misuse.