Moratorium under insolvency law stops parallel recovery proceedings against guarantors and mortgagors during corporate resolution process.

A moratorium under the Insolvency and Bankruptcy Code barred continuation of parallel recovery proceedings against a corporate debtor's guarantors and mortgagors before the Debt Recovery Tribunal. The insolvency regime's overriding effect, together with the scheme of Sections 14, 31, 33 and 60, was treated as preventing split proceedings on the same cause of action once the corporate insolvency resolution process had begun. In these circumstances, the pending DRT proceedings could not continue and were stayed until completion of the insolvency process, approval of a resolution plan, or liquidation, as applicable.

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Issues: Whether proceedings before the Debt Recovery Tribunal could continue against the guarantors and mortgagors when a moratorium had been ordered under the Insolvency and Bankruptcy Code, 2016 against the corporate debtor.

Analysis: The dispute arose from recovery proceedings under Section 19(3) of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993 against the company and its guarantors. The company had already moved the National Company Law Tribunal under Section 10 of the Insolvency and Bankruptcy Code, 2016, and a moratorium under Section 14 had been declared. The legal effect of the moratorium, the overriding operation of the insolvency regime, and the scheme of Sections 31, 33 and 60 of the Code were considered. The Court held that the insolvency process was already in motion, the bank had participated in those proceedings, and sufficient safeguards existed under the Code and the regulations. In these circumstances, split and parallel proceedings on the same cause of action were found to be inappropriate.

Conclusion: The proceedings pending before the Debt Recovery Tribunal could not continue and were stayed until completion of the corporate insolvency resolution process or until approval of the resolution plan or passing of a liquidation order, as the case may be.

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