Pre-existing civil suit and insolvency moratorium: later insolvency proceedings cannot justify partial rejection of a composite plaint.

A civil suit instituted before applications under the Insolvency and Bankruptcy Code were filed could not be rejected under Order VII Rule 11(d) on the basis of the interim moratorium under Section 96, because that bar operates only from the filing of the insolvency application and does not extinguish a suit already pending. Section 231 did not create a blanket ouster of civil court jurisdiction for a pre-existing declaratory claim concerning personal guarantees. The court also held that Order VII Rule 11 does not permit rejection of a plaint in part against only some defendants where the pleading discloses a composite cause of action. The rejection order was therefore set aside and the matter remitted.

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Issues: (i) whether a civil suit filed before an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 could be rejected under Order VII Rule 11(d) of the Code of Civil Procedure, 1908 on the basis of Sections 96, 101, 231 and 238 of the Insolvency and Bankruptcy Code, 2016; (ii) whether the plaint could be rejected in part only against those defendants who had initiated insolvency proceedings.

Issue (i): whether a civil suit filed before an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 could be rejected under Order VII Rule 11(d) of the Code of Civil Procedure, 1908 on the basis of Sections 96, 101, 231 and 238 of the Insolvency and Bankruptcy Code, 2016.

Analysis: The suit was instituted before the Section 95 applications were filed. Section 96 operates only upon filing of an application under Section 94 or 95, and its interim moratorium cannot justify rejection of a suit that was already pending on the date of initiation of insolvency proceedings. Section 231 does not create an en masse ouster of civil court jurisdiction merely because insolvency proceedings are subsequently commenced. On a meaningful reading of the plaint, the declaratory relief sought in respect of personal guarantees was within civil court jurisdiction at the time of institution, and the bar under Section 96 was not attracted when the plaint was presented.

Conclusion: the suit could not be rejected under Order VII Rule 11(d) on the ground of bar under the Insolvency and Bankruptcy Code, 2016.

Issue (ii): whether the plaint could be rejected in part only against those defendants who had initiated insolvency proceedings.

Analysis: Order VII Rule 11 does not permit rejection of a plaint in part. The plaint disclosed a composite cause of action against all defendants, and the court could not sustain rejection only against some defendants while allowing the suit to proceed against others on the same pleading.

Conclusion: partial rejection of the plaint was impermissible.

Final Conclusion: the impugned order rejecting the suit was unsustainable and was set aside, with the matter remitted to the trial court for disposal in accordance with law.

Ratio Decidendi: A civil suit instituted before the filing of an application under Section 95 of the Insolvency and Bankruptcy Code, 2016 cannot be rejected under Order VII Rule 11(d) merely because later insolvency proceedings trigger statutory moratorium, and a plaint cannot be rejected in part.

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