Moratorium

IBC, 2016 — Section 14

Under Section 14 of the IBC, upon admission of a CIRP petition, an automatic moratorium is imposed. During moratorium, no suits, proceedings, or enforcement actions (including SARFAESI proceedings) can be initiated or continued against the corporate debtor. The moratorium does not affect criminal proceedings against individuals. Duration: from NCLT admission order until the resolution plan is approved or liquidation is ordered.

The Section 14 IBC moratorium is the single most disruptive event for a recovery effort. The moment the NCLT admits a CIRP petition, an automatic moratorium freezes all suits, proceedings and enforcement actions against the corporate debtor, including SARFAESI possession and sale and pending DRT recovery. A secured creditor mid-way through a Section 13(4) sale must stop; an auction held in breach is liable to be set aside. For creditors this changes strategy entirely: the recovery battle shifts from enforcement to filing a claim, joining the Committee of Creditors, and influencing the resolution plan. Critically, the moratorium protects the corporate debtor only, not the individual guarantors or directors, and it does not bar criminal proceedings against them, so cheque-bounce and fraud actions and guarantor enforcement can continue. Getting this wrong, by proceeding against the company after admission, invites contempt and reversal. Well-advised creditors verify the NCLT admission date before continuing any action.