Moratorium (IBC)
Under Section 14 of the Insolvency and Bankruptcy Code, a moratorium is a statutory freeze on all legal proceedings, enforcement actions, and asset transfers against the corporate debtor from the date of CIRP commencement until either the resolution plan is approved or the company goes into liquidation.
The moratorium under Section 14 of the IBC is one of its most powerful features, providing the corporate debtor with a breathing space to conduct an orderly resolution without the disruption of piecemeal creditor actions. From the NCLT's order of CIRP commencement, the moratorium takes immediate effect and prohibits: (a) institution or continuation of any suits or proceedings against the corporate debtor including execution of any judgment, decree, or order; (b) transfer, encumbrance, alienation, or disposal of the corporate debtor's assets; (c) any action to foreclose, recover, or enforce any security interest created by the corporate debtor; and (d) recovery of any property by an owner or lessor where such property is in the possession of the corporate debtor.
The initial moratorium period runs for 180 days from the commencement of CIRP. The NCLT may extend it by up to 90 days on application by the RP, subject to CoC approval by 66 percent vote. The 2019 amendment inserted a hard cap: the total CIRP period including litigation time was capped at 330 days, after which the company must mandatorily go into liquidation if no resolution plan has been approved.
The moratorium does not cover criminal proceedings or regulatory actions. The Supreme Court in the Jet Airways case and other rulings clarified that SEBI investigations, Enforcement Directorate proceedings under PMLA, and CBI investigations can continue during the moratorium. The moratorium also does not prevent the filing of FIRs or initiation of proceedings under the Prevention of Money Laundering Act.
A key controversy involved supply of essential goods and services. Section 14(2A) (inserted by amendment) provides that the moratorium shall not apply to a surety in a contract of guarantee to a corporate debtor — meaning guarantors (personal or corporate) of the defaulting company's loans remain liable and can be proceeded against even during the moratorium. This provision was heavily litigated, with the Supreme Court in the Lalit Kumar Jain vs Union of India (2021) case upholding creditors' rights to enforce personal guarantees during CIRP.
For lenders, the moratorium creates certainty: they cannot race to seize assets individually, but they also gain protection from the debtor disposing of assets. For the equity investor community, the moratorium period is typically marked by suspension of share trading on stock exchanges (where applicable) or significant price depression, as the existing equity is likely to be extinguished under the resolution plan. Resolution proceedings under CIRP historically resulted in near-total wipe-out of existing equity holders unless the resolution plan provided specific treatment for shareholders.