Interim Moratorium

IBC, 2016 — Section 96

In personal insolvency proceedings under Part III of the IBC, an automatic moratorium comes into effect from the date an application is filed against an individual or partnership. This protects the debtor from debt enforcement during the resolution process. Distinguished from the corporate moratorium under Section 14 IBC which applies only to corporate debtors.

In practice, the interim moratorium is the personal-insolvency counterpart to the corporate freeze, and it bites the moment an application under Part III of the IBC, 2016 is filed against an individual or partnership, by force of Section 96. For a personal guarantor who is being chased simultaneously in the DRT, before a SARFAESI 17 application, and under a Section 138 complaint, the timing of an insolvency application can stay pending debt-enforcement proceedings and buy breathing space for a resolution. For a creditor, it is a trap to watch: a guarantor who files first can stall recovery, so counsel monitor whether an interim moratorium has been triggered before pressing ahead. The distinction from the corporate moratorium under Section 14 — which protects only corporate debtors — is what trips parties up, because the two regimes have different start points and scope. Parties confirm which moratorium, if any, is in force before continuing enforcement.