India: Scope Of Moratorium Prohibiting The Initiation And Continuation Of All Legal Proceedings Under Section 14, Of The Insolvency & Bankruptcy Code, 2016 – An Analysis.

Last Updated: 6 April 2018
Article by Maneck Mulla

The prohibition contained in section 14 of the Insolvency and Bankruptcy Code 2016, ("the Act") against the initiation and continuation of legal proceedings, has recently been a topic of discussion in rulings of the National Company Law Appellate Tribunal ("NCLAT") and the High Court of Allahabad and has now become a moot question of law.

Based on an analysis of these judgments, it is apparent that the prohibition contained in section 14 of the Act also extends to guarantors and mortgagors, if the liability against the principal debtor has not been crystallized before the declaration of moratorium; and that Writ Petitions filed before the Supreme Court and the High Courts, and orders passed by the Supreme Court under Article 136 of the Constitution are unaffected by section 14(1)(a) of the Act.

The provisions of section 14(1)(a) of the Act are very wide and appear to be a complete bar against the institution or continuation of suits or any legal proceedings against a corporate debtor on the declaration of moratorium by the adjudicating authority. Section 14(1)(a) of the Act reads as follows:

"14. (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. ..."

Section 14(2) sets out the time limit for which the moratorium can be in effect for i.e until the completion of the corporate insolvency resolution process or on the approval of a resolution plan by the adjudicating authority or on a resolution of the committee of creditors to liquidate the corporate debtor, whichever is earlier.

As per section 12 of the Act, the corporate insolvency resolution process shall be completed within a period of one hundred and eighty days from the date of admission of the application to initiate such process, and the period can only be extended by ninety days, subject to an application being made to the adjudicating authority after a resolution is passed at a meeting of the committee of creditors by a vote of seventy-five percent of the voting shares.

Analysis: In a recent ruling of the Allahabad High Court in Sanjeev Shriya & Ors vs State Bank, it has been held that where a proceeding is stayed against the principal debtor before the crystallization of the claim by a declaration of moratorium under section 14 of the Act, then in such cases the proceedings initiated against the guarantors ought to also be stayed. This in effect broadens the extent and scope of section 14 of the Act.

In Sanjeev Shirya's case, there were proceedings initiated by the lenders before the Debt Recovery Tribunal ("DRT"), arraying guarantors as parties also. Whilst the proceedings before the DRT were pending, the Corporate Debtor (LML), voluntarily filed an application before the National Company Law Tribunal ("NCLT") for initiation of the corporate insolvency resolution process and thereby an order declaring moratorium under section 14 of the Act came to be passed. LML along with the guarantors immediately applied to the DRT seeking a stay of the proceedings. Although a stay in favour of LML was granted, a stay in favour of the guarantors was rejected, against which rejection a Writ Petition was filed by the guarantors before the Allahabad High Court. The Allahabad High Court held in favour of the guarantors.

Although the ambit of section 14 covers the initiation and continuation of any proceedings, the NCLAT has in its judgment of Canara Bank VS Deccan Chronicle Holdings Limited categorically carved out an exception holding that the moratorium will not affect any proceedings initiated or pending before the Supreme Court under Article 32 of the Constitution of India or where an order is passed under Article 136 of the Constitution of India. The NCLAT also concluded that the moratorium will not affect the powers of any High Court under Article 226 of the Constitution of India.

With the coming into effect of the Act, the Sick Industrial Companies Act, 1958 ("SICA") has been repealed. Under section 22 of SICA, the institution or continuation of suits or legal proceedings against a sick company were subject to liberty being obtained from the Board (the Adjudicating Authority under SICA). No such provision for obtaining liberty is provided under section 14 of the Act.

Based on the circumstances of each case under the SICA regime, the courts carved out a few exceptions to section 22 of SICA. For instance, in the judgment of Shree Chamundi Mopeds Ltd. Vs Church of South India Trust Association CSI Cinod Secretariat Madras, the full bench of the Supreme Court held that section 22 of SICA does not bar the prosecution of eviction proceedings filed against a sick company, in view of the fact that the occupation of a premises by the company was in the capacity of a statutory tenant (therefore protected under the Rent Act) and consequently the tenancy could not have been regarded as the property of the company. Similarly, in the case of BSI Ltd & Anr Vs. Gift Holdings Pvt Ltd & Anr the Supreme Court held that proceedings under section 138 of the Negotiable Instrument Act, 1881 were also not barred by section 22 of SICA.

Conclusion: The language of section 14 of the Act is wide enough to include legal proceedings of any nature within its ambit. The intention of the legislature in relation to section 14(1)(a) is to ensure that after the declaration of moratorium, there is a standstill period during which the creditors cannot resort to individual enforcement action which would frustrate the very object of the corporate insolvency resolution process. On the other hand, section 22 of SICA in terms provided that liberty could be obtained from the Board, which provision is absent from section 14 of the Act.

In times to come it will interesting to see if judicial pronouncements, carve out any exceptions for certain legal proceedings from the applicability of section 14(1)(a) of the Act, as in the case of Canara Bank Vs DCHL.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions