Interim moratorium u/s 96 of IBC in respect of Guarantors wouldn’t ipso facto apply against other co-guarantor(s): Delhi HC

Case Details: Axis Trustee Services Ltd. v. Brij Bhushan Singal - [2022] 144 taxmann.com 139 (HC-Delhi)

Judiciary and Counsel Details

• • Amit Bansal, J.
  • Dayan Krishnan, Sr. Adv. Ms Misha, Vijayant Paliwal, Ms Moulshree Shukla, Sukrit Seth, Parth Gokhale, Ms Megha Khandelwal & Daksh Kadian, Advs. for the Plaintiff.
  • Sandeep Sethi, Sr. Adv. Ms Ranajana Roy Gawai, Ms Vasudha Sen, Ms Aayushi Singh, Parminder Singh & Pranjit K. Bhattacharya, Advs. for the Defendants.

Facts of the Case

In the instant case, a summary suit was filed on behalf of Axis Trustee Services Limited seeking recovery of a certain amount from defendants no.1 and 2. Both defendants were the ex-promoters of Bhushan Steel Limited.

A Facility Agreement was executed between Bhushan Steel and various financial creditors. The repayment obligations of Bhushan Steel were secured by way of a personal guarantee given jointly by the guarantors, defendants no.1 and 2.

Later, Corporate Insolvency Resolution Process (CIRP) was initiated against Bhushan Steel before the NCLT, wherein the Financial Creditors had filed a claim for the outstanding amounts in terms of the Facility Agreement, which was later admitted as financial debt. Pursuant thereto, a Demand Notice was issued by the financial creditors demanding payment from the defendants. No reply to the said notice was received, nor was the due amount paid to the financial creditors.

Plaintiff believed that the defendants could not claim any moratorium based on an application filed under Section 95 of the IBC before the NCLT, which has no jurisdiction to entertain the same. Section 60 only contemplates a situation where the CIRP in respect of the corporate debtor is pending. Resultantly, the benefit of Interim Moratorium shall not be available to the defendants. Accordingly, the present suit was filed seeking recovery.

High Court Held

Hon’ble High Court was of the view that the Interim moratorium kicks in as soon as an application is filed under of IBC and effect of such interim moratorium is that all pending legal proceedings are deemed to have been stayed. This is in contrast to the moratorium, whereby a moratorium comes into effect only upon an order being passed by NCLT declaring a moratorium.

Subsequently, High Court held that Effect of the interim moratorium is only in respect of the debts of a particular debtor. By no stretch of the 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 other co-guarantor(s).