All legal proceedings deemed stayed when moratorium under Section 96 IBC kicks in: Delhi High Court

The Delhi High Court recently held that the interim moratorium under Section 96 of the Insolvency and Bankruptcy Code (IBC) kicks in as soon as an application is filed by a creditor or debtor for insolvency proceedings under Section 94 or 95 and as a result of this all pending legal proceedings in respect of any debt are also deemed to have been stayed..Single-judge Justice Amit Bansal has held that this is in contrast with the moratorium under Section 14 of the IBC, where it comes into effect only after an order is passed by the NCLT declaring a moratorium..In the judgement pronounced on Friday, the judge further said that reference to the term “all debts” in Section 96(1)(a) must be in respect of all debts of a particular debtor.“This is clear from the language used in Section 96(1)(b)(ii) to the effect that ‘the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt’. Therefore, the effect of the interim moratorium is only in respect of the debts of a particular debtor. By no stretch of imagination can it be said to include other independent guarantors in respect of the same debt of a corporate debtor. Merely because an interim moratorium under Section 96 is operable in respect of one of the co-guarantors, the same would not apply to the other co-guarantor(s),” the Court said..Justice Bansal was dealing with two suits filed by Axis Trustee Services Limited and Norddeutsche Landesbank seeking recovery of over EUR 64 million and EUR 44 million respectively from ex-promoters of Bhushan Steel Limited (renamed Tata Steel BSL Limited).Though the arguments in suits had concluded on September 5 and the judgement was reserved and even written submissions were filed, the matter was mentioned again on October 11 stating that insolvency proceedings have been filed against both defendants..The defendants – promoters of Bhushan steel – argued that since the interim moratorium has come into effect, the suits are not maintainable before the High Court. They said that the National Company Law Tribunal (NCLT) is the appropriate forum for adjudicating the personal insolvency of the defendants.They further said that the insolvency proceedings had been initiated on May 28, 2022 when the application under Section 94/95 of IBC was filed and even if the latter date when the application was registered is to be considered, the suits still cannot proceed as the judgment was yet to be pronounced on the said date..The Court, therefore, said that in view of the insolvency proceedings initiated, the first issue that it needs to decide is whether the suit can proceed because applications have been filed against them under Section 95 of IBC.After considering the arguments, the judge said that National Company Law Tribunal (NCLT) would be the appropriate adjudicating authority in respect of insolvency proceedings initiated against the defendants in their capacity as personal guarantors for the corporate debtor, Bhushan Steel.He added that the relevant date from when the interim moratorium comes into effect is the date when an application under Section 94/95 is filed..Therefore, the judge stayed the proceedings in the suit.“In view of the discussion above and the clear statutory mandate under Section 96 of the IBC, the proceedings in the present suit are stayed against both the defendants,” the court ordered..Senior Advocate Dayan Krishnan with advocates Misha, Vijayant Paliwal, Moulshree Shukla, Sukrit Seth, Parth Gokhale, Megha Khandelwal, Daksh Kadian, Shally Bhasin, Chaitanya Safaya, Prateek Yadav and Prateek Gupta appeared for the plaintiffs.Defendants were represented through Senior Advocate Sandeep Sethi along with advocates Ranajana Roy Gawai, Vasudha Sen, Aayushi Singh, Parminder Singh and Pranjit K Bhattacharya. .[Read Judgment]