Whether the interim moratorium under Section 96 of IBC pertaining to personal insolvency proceedings will bar the proceedings under Section 7 against Corporate Debtor(Principal Borrower) – Furnace Fabrica (India) Ltd. Vs. State Bank of India – NCLT Kochi Bench
In this case, application filed by Corporate Debtor to stay CIRP proceedings u/s 7 of IBC, in view of the interim moratorium continuing in the matter of personal insolvency resolution of the guarantors of the Corporate Debtor.
NCLT Kochi Bench held that:
(i) Moratorium u/s 96 will only affect the debts of the personal guarantor.
(ii) The cause of action for section 7 is the default in loan repayment by CD whereas the cause of action of section 95 is the non-payment of debt on invocation of guarantee. Both are separate contracts governed under the contract act and remedy under one contract shall not extinguish the other in law.
(iii) The word “in relation to” and “any” in Section 96 which is the primary contention of the applicant cannot be stretched to mean that the debt of guarantor which are also debts of the CD in first instance, and all the proceedings which arise out of these debts come under moratorium.
(iv) Any action against the particular guarantor/debtor pertaining to these debts shall be in moratorium. It does not curtail the right of cause of action from separate contractual arrangements.
(v) The moratorium under section 96 is having larger scope than moratorium under section 14 but the liability falls from different persons in the eye of law.
(vi) The FC has the right to move against either or both the CD and personal guarantor simultaneously, independently or jointly. Any other interpretation of the word ‘moratorium’ will defeat the purpose envisaged in IBC.
(vii) The moratorium under section 96 and 101 of the Code cannot be meant to prohibit the right to action under section 7 or 9 or 10 of IBC which lie against a company or body corporate and not against an individual as under PIRP.
