IBC | Moratorium Does Not Extinguish Claim : Supreme Court

The Supreme Court has held that a moratorium declared under Section 14 of the Insolvency and Bankruptcy Code, 2016 will not extinguish a claim. The Court stated that Section 14 bars the institution/continuation of legal proceedings against the corporate debtor, transfer of assets, enforcement of security interest etc.

"If the argument that the claims of all the creditors of the Corporate Debtor are extinguished once the moratorium comes into force is accepted, no creditor would be able to file a claim. For example, if money advanced is secured by a promissory note or a negotiable instrument, a suit for recovery based on the said documents will not lie once a moratorium comes into force. But, the liability under the documents will continue to exist," observed the Court.

A bench comprising Justice Abhay S Oka and Justice Pankaj Mithal made the observation while addressing an argument that a claim based on a Deed of Hypothecation cannot lie after the declaration of moratorium.

Rejecting the argument, the Court said :

"In fact, after moratorium, no creditor can recover any dues from the Corporate Debtor. But still, there is a provision for making a claim. Hence, the argument based on moratorium deserves to be rejected."

Also from the judgment- IBC | Financial Creditor Can Submit Claim Even If There Is No Default Of Debt : Supreme Court

 Case Title : China Development Bank vs Doha Bank OPSC and others