Section 14 IBC moratorium remains effective despite NCLAT order, arbitral proceedings against corporate debtor prohibited during moratorium

Delhi HC held that moratorium under Section 14 of IBC, 2016 remains in effect as NCLAT did not stay it in its order dated 9 November 2023, only directing no further steps pursuant to NCLT's 16 October 2023 order. The court distinguished between counter-claims by corporate debtor (permissible during moratorium) and proceedings against corporate debtor (prohibited). Petition seeking institution of arbitral proceedings against respondent corporate debtor was adjourned sine die pending NCLAT proceedings or modification/lifting of moratorium, as such proceedings cannot be instituted while moratorium subsists.

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Issues:
1. Moratorium imposed by National Company Law Tribunal (NCLT) during Corporate Insolvency Resolution Process (CIRP).
2. Appeal filed before National Company Law Appellate Tribunal (NCLAT) challenging the moratorium.
3. Interpretation of the stay on moratorium by NCLAT.
4. Relevance of deposit directed by NCLAT in relation to the moratorium.
5. Comparison with a previous judgment regarding counterclaims during insolvency.
6. Petition for arbitral proceedings during the moratorium.

Analysis:
1. The High Court addressed the issue of a moratorium imposed by the NCLT during CIRP, prohibiting legal actions against the corporate debtor, including arbitral proceedings. The NCLAT was approached through an appeal challenging this moratorium, leading to a stay on further steps but not on the moratorium itself.

2. The NCLAT directed a deposit by the appellant, a former Director of the respondent, as a pre-condition for the appeal, which was deemed irrelevant to the moratorium's enforcement against legal actions on the respondent. The High Court clarified the distinction between the stay on proceedings and the moratorium itself, emphasizing the latter's continued validity.

3. Reference was made to a judgment highlighting the maintainability of counterclaims during insolvency, contrasting it with the current scenario. The High Court distinguished the nature of counterclaims by the corporate debtor from actions against the debtor, emphasizing the moratorium's scope and purpose.

4. The petitioner argued that the referral stage of the petition posed no threat to the respondent's assets, disregarding the moratorium's explicit prohibition on legal actions, including arbitral proceedings. The High Court reiterated that the moratorium's restrictions must be upheld until modified or lifted by the NCLT or NCLAT.

5. Consequently, the High Court adjourned the petition sine die, awaiting developments in the NCLAT proceedings or any alteration in the moratorium status. The parties were granted the option to seek a revival of the petition based on future events concerning the moratorium's enforcement.

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