Once a petition under the IBC is admitted against the Corporate Debtor, a moratorium under Section 14 of IBC follows in favor of Corporate Debtor. The moratorium under IBC kicks in on the Insolvency Commencement date and is in force till the Corporate Insolvency Resolution Process (‘CIRP’) period and during such period no judicial proceedings for recovery, enforcement of security interest, sale or transfer of assets, or termination of essential contracts can take place against the Corporate Debtor. The language of Section 14 is clear and the moratorium in favor of the Corporate Debtor is also absolute. The issue whether the moratorium will suspend or stay all the proceedings against the Corporate Debtor has already reached court doors. However, before coming to the interpretation adopted by the tribunals, it is necessary to understand the intent of the legislature behind such moratorium which is to grant a calm period for insolvency resolution where a Debtor can negotiate in the assessment of viability without any fear of recovery enforcement mechanisms adopted by the Creditors.
Track your NCLT / NCLAT cases or orders in your apple iOS / Google Android smartphones. Available for free trial period of 15 days.
Under Section 74 of the IBC, officials of the corporate debtor who violate provisions of moratorium can be imprisoned for a minimum of three years, which may be extended up to five years. Such officials will also be fined a minimum of Rs 100,000 but not more than Rs 300,000. Officials of creditors who knowingly and willfully authorize or permit such contravention can be jailed for a minimum of one year, with a maximum tenure of five years. Such officials will also be fined a minimum of Rs 100,000, with the maximum penalty of up to Rs 10 million. Further, the Hon’ble National Company Law Appellate Tribunal, vide its recent judgment has also held that in case any Director withdraws money from the account of the company during the moratorium period, he will be held liable for the criminal offences of misappropriation and breach of trust.
EXCLUSIONS UNDER MORATORIUM:
- Cash deposits made in High Court
- Due under GST for PRE CIRP-period
- CRIMINAL PROCEEDINGS or any penal action taken pursuant to the criminal proceedings or any act having essence of crime or crime proceeds
- Arbitration proceedings
- Counter claim
- Personal and individual assets of directors
- Suit or case under Article 32 before supreme court or an order passed under Article 136 by Supreme Court or proceedings under Article 226 before a High Court
- SEBI or Stock Exchange cannot recover any amount or sell any asset of corporate debtor moratorium
