India: Taking Clue From Section 22 Of The SICA To Understand The Scope Of Moratorium Provided Under The Insolvency And Bankruptcy Code, 2016

Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as the 'Code') is enacted to consolidate and amend laws pertaining to insolvency and resolution. The Code aims to revive the corporate debtor and if there is no chance of revival then liquidation is the way out.

Revival is not an easy procedure and there are various problems which come in the way of effective implementation of revival process. To curb these problems, the Code tries to simplify the whole process and aims to make the National Company Law Tribunal (herein after referred to as the "NCLT") one stop forum. And to make the tribunal more powerful, section 14 has been enacted.


Section 14 of the Code provides moratorium. 'Moratorium' has been defined as "the suspension of a specific activity."1 Moratorium has been dealt under section 14 as follows:-

14 - Moratorium - (1) Subject to provisions of sub-sections (2) and (3), on the insolvency commencement date, the Adjudicating Authority shall by order declare moratorium for prohibiting all of the following, namely:—

  1. 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;
  2. transferring, encumbering, alienating or disposing of by the corporate debtor any of its assets or any legal right or beneficial interest therein;
  3. 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;
  4. the recovery of any property by an owner or lessor where such property is occupied by or in the possession of the corporate debtor...

From the bare reading of the aforementioned provision, it can be stated that once the application under this Code gets accepted, moratorium gets triggered and all the pending proceedings against the corporate debtor will be put on hold. Moreover, no new proceedings can be initiated against the corporate debtor. The process seems simple but the same has its own limitations like pending winding up proceedings before high court against the same corporate debtor. This very issue has been raised in the case of Union Bank of India v. Era Infra Engineering. And due to the same issue, the tribunal put a hold on the proceedings to decide the scope of section 14 of the Code. The said case is sub judice before the NCLT, Delhi. However, the same issue was dealt by NCLT Ahemdabad in the case of ICICI Bank Ltd. v. ABG Shipyard Ltd. where the tribunal has stayed the winding up petition pending before high court by the virtue of section 14. Therefore, it can be stated that the scope of section 14 still lies in grey area and the need of the hour is to bring more clarity.

In addition to this, it must be kept in mind that the Code is at its nascent stage and yet to witness the development. Thus, it would be logical to study other Statutes which have similar provisions and how courts interpret the same. On these lines, the Sick Industries Companies Act (herein after referred to as the "SICA") may be referred. Sica :-

The SICA had been enacted in the public interest to deal with the problems of industrial sickness. It contains special provisions for timely detection of sick and potentially sick industrial companies, speedy determination and enforcement of various measures with respect to such companies2. For the purpose of issue in hand, it is important to refer section 22 of the SICA.

Section 22 of the SICA, inter alia, says that no winding up proceedings can continue without the consent of the Board against the sick company where the inquiry is pending or the scheme is under preparation or the appeal is pending. Section 14 of the Code and section 22 of the SICA may not be the same, but the gist of both the provisions revolves around moratorium only. And in more than one occasion, the Apex court has discussed the scope of section 22. Thus, it will be vital to study what has been stated on the scope of section 22.

In the case of M/s. Rishabh Agro Industries Ltd. Vs. P.N.B. Capital Services Ltd.3 the Hon'ble Supreme Court has stated the following:-

"... it cannot be said that despite existence of any of the aforesaid exigencies the provision of Section 22 would not be attracted after the order of winding up of the company is passed. The words "no proceeding for winding up of the industrial company or for execution distress or the like against any of the properties of the industrial company or for the appointment of receiver in respect thereof shall lie or be proceeded with further, leave no doubt in our mind that the effect of the section would be applicable even after the winding up order is passed as no proceeding even thereafter can be proceeded ..."

In the case of Real Value Appliances Ltd. v. Canara Bank & Ors.4; the apex court held the following:-

"once the reference is registered and when once it is mandatory simultaneously to call for information/documents from the informant and such a direction is given, then inquiry under Section 16(1) must - for the purposes of section 22 - be deemed to have commenced. Section 22 and the prohibitions contained in it shall immediately come into play."

In the case of S.M. Singhvi v. Bestavision Electronics5, the Delhi High Court has relied upon the aforementioned case laws and came to similar conclusion.

Based upon the aforementioned discussion on section 22 of the SICA, it is quite clear that court had given wide interpretation to the scope of section 22 and put a hold on other proceedings which fall under the ambit of the said section. And if we refer various case laws6 dealing with the issue of scope of section 14 of the Code, it can safely be assumed that the bent of the adjudicating authority is to get abide by the mandate of section 14 of the Code and the same is very helpful because it reduces the multiplicity of the proceedings.


1 Black Law Dictionary; x ed.; pg – 1163

2 Relied upon the following link - . htm (last accessed on 09/08/2017)

3 Air 2000 SC 1583

4 AIR 1998 SC 2064

5 MANU/DE/0445/2003

6 Reliance can be placed upon the following case laws – Union Bank of India v. Era Infra Engineering; Industrial & Commerce Bank of China v. Alok Industries Ltd.; ICICI Bank Ltd. v. ABG Shipyard Ltd.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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