Section 14 of IBC – Insolvency and Bankruptcy Code, 2016 : Moratorium

Section 14: Moratorium of CHAPTER II Corporate Insolvency Resolution Process(CIRP) of PART II Insolvency Resolution and Liquidation for Corporate Persons of The Insolvency and Bankruptcy Code, 2016

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The Insolvency and Bankruptcy Code, 2016

Part-II Insolvency Resolution and Liquidation for Corporate Persons

Chapter-II Corporate Insolvency Resolution Process

Section 14: MoratoriumJ1.

*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:—

(a) the institutionJ2 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 Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002;

(d) the recovery of any property by an owner or lessor where such property is occupied by or in the possession ofJ3 the corporate debtor.

1[Explanation.-For the purposes of this sub-section, it is hereby clarified that notwithstanding anything contained in any other law for the time being in force, a license, permit, registration, quota, concession, clearances or a similar grant or right given by the Central Government, State Government, local authority, sectoral regulator or any other authority constituted under any other law for the time being in force, shall not be suspended or terminated on the grounds of insolvency, subject to the condition that there is no default in payment of current dues arising for the use or continuation of the license, permit, registration, quota, concession, clearances or a similar grant or right during the moratorium period;]

(2) The supply of essential goods or services to the corporate debtor as may be specified shall not be terminated or suspended or interrupted during moratorium period.

1[(2A) Where the interim resolution professional or resolution professional, as the case may be, considers the supply of goods or services critical to protect and preserve the value of the corporate debtor and manage the operations of such corporate debtor as a going concern, then the supply of such goods or services shall not be terminated, suspended or interrupted during the period of moratorium, except where such corporate debtor has not paid dues arising from such supply during the moratorium period or in such circumstances as may be specified.]

2[(3) The provisions of sub-section (1) shall not apply to —

3[(a) such transactions, agreements or other arrangements as may be notified4 by the Central Government in consultation with any financial sector regulator or any other authority;]

(b)J4 a surety in a contract of guarantee to a corporate debtor.]

(4) The order of moratorium shall have effect from the date of such order till the completion of the corporate insolvency resolution process:

Provided that where at any time during the corporate insolvency resolution process period, if the Adjudicating Authority approves the resolution plan under sub-section (1) of section 31 or passes an order for liquidation of corporate debtor under section 33, the moratorium shall cease to have effect from the date of such approval or liquidation order, as the case may be.


Reference

*Effective from 01.12.2016.

1. Ins. by the Insolvency and Bankruptcy Code (Amendment) Act, 2020, w.e.f. 28.12.2019.

2. Subs. by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018, w.e.f. 06.06.2018(Such clarificatory amendment is retrospective in nature, see State Bank of India Vs. V. Ramakrishnan & Anr. (2018) ibclaw.in 29 SC), for sub-section:

“(3) The provisions of sub-section (1) shall not apply to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.”

3. Subs. by the Insolvency and Bankruptcy Code (Amendment) Act, 2020, w.e.f. 28.12.2019, for the clause:

“(a) such transaction as may be notified by the Central Government in consultation with any financial regulator;”.

4. (a) The provisions of Section 14(1) shall not apply where the corporate debtor has entered into any of the following transactions, arrangements or agreements, namely: –

(i) the Production Sharing Contracts, Revenue Sharing Contracts, Exploration Licenses and Mining Leases made under the Oilfields (Regulation and Development) Act, 1948 (53 of 1948) and rules made thereunder; and

(ii) any transactions, arrangements or agreements, including Joint Operating Agreement, connected or ancillary to the transactions, arrangements or agreements referred to in clause (i). [Refer Notification No. S.O. 2660(E) dated 14.06.2023]

(b) The provisions of Section 14(1) shall not apply to transactions, arrangements or agreements, under the Convention and the Protocol, relating to aircraft, aircraft engines, airframes and helicopters. [Refer Notification No. S.O. 4321(E) dated 03.10.2023]


Judicial Pronouncements: 

J1. Interpretation of the expressions used in Section 14, application of the Noscitur A Sociis, the Interplay between Section 14 and Section 32A, natural persons covered by Section 14, Section 138/141 proceeding against a corporate debtor is covered by Section 14(1)(a) etc. refer P. Mohanraj and Ors. v. Shah Brothers Ispat Pvt. Ltd. (2021) ibclaw.in 24 SC.

J2. The effect of Section 14(1)(a) is that the arbitration that has been instituted after the moratorium is non est in law. [Alchemist Asset Reconstrution Company Ltd. v. Hotel Gaudavan Pvt. Ltd. & Ors. (2017) ibclaw.in 09 SC]

J3. For interpretation of Section 14(1)(d), refer Rajendra K. Bhutta v. Maharashtra Housing and Area Development Authority and Anr. (2020) ibclaw.in 27 SC.

J4. For analysis of application of moratorium on personal guarantor and contrast Section 14 with Sections 96 and 101, refer State Bank of India v. V. Ramakrishnan and Anr. (2018) ibclaw.in 29 SC.

J5. The tax demand notices to seek enforcement of custom dues during the moratorium period would clearly violate the provisions of Sections 14 or 33(5) of the IBC, as the case may be. This is because the demand notices are an initiation of legal proceedings against the Corporate Debtor. Respondent could only initiate assessment or reassessment of the duties and other levies. They cannot transgress such boundary and proceed to initiate recovery in violation of Sections 14 or 33(5) of the IBC. [Sundaresh Bhatt, Liquidator of ABG Shipyard v. Central Board of Indirect Taxes and Customs (2022) ibclaw.in 103 SC]

 



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