Suit Filed During Moratorium Barred by Law: Court Rejects Plaint Under CPC Rule 11

The court held that the suit filed during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) was non-maintainable as it was barred by law. The cessation of the moratorium did not revive the right to adjudicate the suit. Therefore, the plaint was rejected under Order VII Rule 11 of the Civil Procedure Code (CPC), and the related application was closed.

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Issues Involved:
1. Whether the suit filed during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) is maintainable.
2. Whether the cessation of the moratorium period revives the right to adjudicate the suit.
3. Whether the plaint should be rejected under Order VII Rule 11 of the Civil Procedure Code (CPC).

Issue-wise Detailed Analysis:

1. Whether the suit filed during the moratorium period under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) is maintainable:

The Applicant/Defendant argued that the suit was filed on 28.11.2017, during the moratorium period declared under Section 14 of the IBC, which commenced on 26.07.2017. The moratorium prohibits the institution of suits against the corporate debtor. The Respondent/Plaintiff, being an operational creditor, should have filed its claim before the Resolution Professional instead of filing the suit. The suit, therefore, is barred by law and should be dismissed.

The court highlighted that the language of Section 14(1)(a) of the IBC is peremptory, mandating a 'stand-still' period to preserve the corporate debtor's assets. The moratorium was in effect from 26.07.2017 to 15.05.2018, during which the suit was filed, making it non-est in law. The court cited the Supreme Court's judgment in Alchemist Asset Reconstruction Company Ltd. v. M/s. Hotel Gaudavan Pvt. Ltd., which held that any proceedings initiated during the moratorium period are non-est.

2. Whether the cessation of the moratorium period revives the right to adjudicate the suit:

The Respondent/Plaintiff contended that the moratorium ended with the approval of the resolution plan on 15.05.2018, thus removing any restrictions on adjudicating the suit. The purpose of the moratorium is to ensure a stand-still period to facilitate the orderly completion of the resolution process, not to bar adjudication after its completion.

The court referred to Section 14(4) of the IBC, which states that the moratorium ceases upon the approval of the resolution plan or liquidation order. However, the court noted that the cessation of the moratorium does not revive a claim filed during the moratorium period. The approved resolution plan binds all creditors, and any claims must be submitted to the Resolution Professional. The court cited the Supreme Court's judgment in Swiss Ribbons v. Union of India, which emphasized that all claims must be decided during the resolution process to avoid uncertainty for the resolution applicant.

3. Whether the plaint should be rejected under Order VII Rule 11 of the Civil Procedure Code (CPC):

The Applicant/Defendant argued that the plaint should be rejected under Order VII Rule 11(d) of the CPC as it is barred by law. The Respondent/Plaintiff contended that only the plaint's averments should be considered for rejection, and the moratorium had ended by the time of adjudication.

The court held that the institution of the suit during the moratorium period was prohibited by law, making it non-maintainable. The court emphasized that the prohibition under Section 14 of the IBC is clear, and any suit filed during this period is non-est. The court also invoked its inherent powers to reject the plaint, noting that continuing the suit serves no purpose once the resolution plan is approved.

Conclusion:

The court concluded that the suit filed during the moratorium period is barred by law and non-est. The cessation of the moratorium does not revive the right to adjudicate the suit. Consequently, the plaint was rejected under Order VII Rule 11 of the CPC, and the related application was closed.

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