Interim Moratorium Under Section 96 Of Insolvency & Bankruptcy Code, 2016 Is Limited To Particular Guarantor And Will Not Protect The Other Personal Co-Guarantors Of Same Debt: Delhi High Court

Single Judge bench of Justice Amit Bansal had previously heard the parties on various occasions and reserved the judgement on 05.09.2022. Thereafter, Defendant No.1 filed an application under Order VII Rule 11 of Code of Civil Procedure on the ground that insolvency proceedings have also been filed against himself before National Company Law Tribunal, New Delhi (NCLT) after the judgement was reserved therefore, by virtue of interim moratorium under Section 96 of the Code, suit cannot proceed against any of the Defendant.

The said applications were opposed by the Plaintiffs on the ground that by virtue of Section 78 & 79 of Code, the adjudicating authority for personal guarantors is Debt Recovery Tribunal and therefore, an application under Section 95 of IBC cannot be filed before NCLT as it has no jurisdiction to entertain the same and the very same objection is also taken by the Defendants before NCLT.

It was further contended by the Defendants that interim moratorium would only apply against all debts of a particular co debtor and not any other person or co-guarantor.

The Single judge bench interpreted the provisions of Section 60(2) & Section 179 of the Code and after referring the judgment of NCLAT in the case of State Bank of India v. Mahendra Kumar Jajodia held that;

" 18. In view of the legal position elucidated above, it clear that Section 179(1), which provides the jurisdiction for the DRT with respect to insolvency matters of individuals and firms, is subject to Section 60 of the IBC. Sub-section (1) of Section 60 of the IBC provides that in relation to insolvency resolution for corporate persons, including corporate debtors and personal guarantors, the Adjudicating Authority shall be the NCLT…"

The Court also held that interim moratorium against one of the Co-guarantors will not protect the other co-guarantor even thought the liability of both the the co-guarantors arise from the same debt.

"The reference to „all the debts‟ in Section 96(1)(a) has to 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)"

But since, insolvency proceedings were also subsequently filed against the Defendant No.1 after the judgement was reserved, the High Court stayed the proceedings against both the defendants.

Case Title: Axis Trusteeship Services Limited v. Brij Bhushan Singhal & Anr.

Citation: 2022 LiveLaw (Del) 1050

Counsel for Plaintiff: Mr.DayanKrishnan, Senior Advocate with Ms. Misha, Mr.VijayantPaliwal, Ms. Moulshree Shukla, Mr. Sukrit Seth, Mr. Parth Gokhale, Ms. Megha Khandelwal and Mr.Daksh Kadian, Advocates.

Counsel for Plaintiff in 2^nd Suit: Mr. Dayan Krishnan, Senior Advocate with Ms. Shally Bhasin, Mr. Chaitanya Safaya, Mr. Prateek Yadav and Mr. Prateek Gupta, Advocates.

Counsel for Defendants: Mr. Sandeep Sethi, Senior Advocate with Ms. Ranajana Roy Gawai, Ms. Vasudha Sen, Ms. Aayushi Singh, Mr. Parminder Singh and Mr. Pranjit K. Bhattacharya, Advocates.

Click Here To Read/Download Order