Introduction
The National Company Law Tribunal, which serves as the adjudicating authority under the Insolvency and Bankruptcy Code, 2016 (“IBC”), is empowered to accept applications for the start of a corporate insolvency resolution process (“CIRP”) from financial or operational creditors as well as from the corporate debtor (“CD”). A moratorium on CD is imposed under Section 14 of the IBC when the application is admitted by the Tribunal, and a similar moratorium is imposed under Section 33 (5) of the IBC following the issuance of an order of liquidation. The goal of this essay is to examine the IBC’s moratorium provisions as well as those found in the CIRP and the liquidation procedure.
Moratorium Defined
The Cambridge Dictionary’s definition of “moratorium” is “a cessation of an activity for an agreed period of time.” According to Merriam Webster, a delay is “a legally sanctioned period of time in the performance of a legal duty or the payment of a debt; a waiting period specified by an authority; or a suspension of activity.”
Moratorium under IBC
A moratorium, according to the Insolvency and Bankruptcy Code, 2016 (IBC), is a time frame in which no legal actions can be taken against a corporate debtor in order to recover money, enforce security interests, sell or transfer assets, or cancel important contracts. Section 14 of the Insolvency and Bankruptcy Code of 2016 and its related provisions describe the moratorium that is implemented upon the commencement of an insolvency proceeding.
Generally speaking, a moratorium is similar to a break in loan and rent payments. A person or business with financial difficulties that is unable to pay their debts. The moratorium only allowed them a respite to pay off all of his debts while continuing their business or restructuring it so they could pay off all of his debts. Application for a moratorium filed with the tribunal to get relief in debt collection matters.A moratorium is a specific measure that protects businesses from bankruptcy and insolvency.
An order establishing a moratorium prevents the corporate debtor from becoming the target of new lawsuits or the continuation of ongoing legal actions, including the execution of any judgments, decisions, or orders rendered by any court, tribunal, or arbitration panel. The moratorium establishes a “calm period” to ensure that the corporate debtor, who is already facing financial difficulties, maximizes asset realization and achieves a speedy settlement without having to worry about asset distribution in parallel proceedings.
A moratorium, as defined in section 14 of the IBC, prohibits the following activities against Corporate Debtor:
According to the proviso to Section 14(4) of the IBC, the moratorium will end from the day that the resolution plans or order of liquidation was approved. The goal of a moratorium is to calm the situation and prevent litigation from interfering with company reorganization. [Union of India v. Swiss Ribbons Private Limited]
However, Corporate Debtor may begin legal action through the liquidator and/or pursue litigation throughout the time of liquidation.
Conclusion
It has become clear that when a moratorium is announced, the company cannot allow any actions that could harm its money or assets. The reason for having a moratorium provision in the Insolvency and Bankruptcy Code of 2016 is to give struggling companies some time to breathe and to stop their assets and resources from getting worse. During the moratorium period, the company can figure out the best way to solve its financial problems according to the rules of the Insolvency and Bankruptcy Code and make sure they get the most value from their assets. In different legal processes, courts have said that the moratorium is really important under the Insolvency and Bankruptcy Code, using the same argument.
Written By: Anubhav Siddharth