AI Drafter 
TaxTMI 
TaxTMI 
2026 (4) TMI 616
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....B Code') against defendant no.2. The plaintiff has also placed on record copy of the case status of petition filed against defendant nos. 3 and 4 before the NCLT, which refers to the order against defendant no. 3. A separate order under Section 95 under the IB Code against defendant no. 4 is also placed on record. 2. Learned counsel for the plaintiff submitted that despite the said orders, the summons for judgment can proceed qua defendant no. 1, who is the principal borrower. Hence, the plaintiff has filed the additional affidavit stating that the plaintiff seeks to proceed only against defendant no. 1 at this stage and shall not press any interim relief against defendant nos. 2 to 4 at this stage, by reserving the right to proceed after the moratorium ceases to operate against them. 3. Heard learned counsel for the plaintiff on this preliminary point. None appeared for the defendants, though served. 4. The plaintiff is a non-banking financial company engaged in financial and advisory services. Defendant no. 1 is a company incorporated and registered under the provisions of the Companies Act, 1956. Defendant no. 1 has been arrayed in the present summary suit in its capaci....
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....rs. The moratorium covers other entities only in respect of those debts where the individual under insolvency is the principal debtor. He submits that this is the object and purpose of Section 96 and also in line with the principles of subrogation under Section 140 of the Indian Contract Act, 1872. To support his submissions, the learned counsel for the plaintiff relied upon the decision of the Delhi High Court in Axis Trustee Services Ltd. v. Brij Bhushan Singal 2022 SCC Online Del 3634, and the decision of the Apex Court in Saranga Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth (2025) 4 SCC 629. 8. Learned counsel for the plaintiff submitted that a proceeding filed or continued against the principal debtor or guarantors in respect of those debts where the individual debtor is a guarantor and not the principal borrower would only enure to the benefit of the individual debtor and would not affect his rights, whereas if proceedings were allowed to be filed or continued in cases where the individual debtor was a principal borrower then, if, any recovery was made rom a guarantor, such guarantor would step into the shoes of the creditor and be entitled to claim such amounts from the ....
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.... 435. Hence, according to the learned counsel for the plaintiff, the observations of the Delhi High Court in Axis Trustee, in paragraphs 35 and 37, would hold the field. Therefore, he submitted that, despite the moratorium order under Section 14 in the proceedings pending against defendant no. 2, who is the corporate guarantor in this suit, and under Section 96 against defendants nos. 3 and 4, who are personal guarantors in this suit, the present suit can proceed against defendant no. 1. He submits that defendant no. 1 is the principal borrower in this suit and no proceedings under the IB Code are initiated against it; hence, this suit can proceed against defendant no. 1. Point for consideration: 13. The question to be decided in the present suit is whether the order of moratorium under Section 14 of the IB Code in the proceedings initiated against defendant no. 2, who is the corporate guarantor in this suit and the interim moratorium imposed under Section 96 of the IB Code in the proceedings initiated against defendant nos. 3 and 4, who are the personal guarantors in this suit, would apply qua defendant no. 1, who is the principal borrower in this suit against whom no insolv....
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....um order cannot prohibit the continuation of the suit against defendant no. 1 18. So far as the effect on the present suit by the interim moratorium imposed in view of Section 96 of the IB Code pursuant to the application under Section 95 of the IB Code against defendant nos. 3 and 4 are concerned, it is necessary to understand the provision of Section 96 of the IB Code, which reads thus: "96. Interim-moratorium. - (1) when an application is filed under section 94 or section 95 - (a) an interim-moratorium shall commence on the date of the application in relation to all the debts and shall cease to have effect on the date of admission of such application; and (b) during the interim-moratorium period - (i) any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed; and (ii) the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt. (2) Where the application has been made in relation to a firm, the interim-moratorium under sub-section (1) shall operate against all the partners of the firm as on the date of the application. (3) The provisi....
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....in a separate IRP proceedings initiated by different creditors against them as debtors, a moratorium is imposed under Section 96 of the IB Code. In view of Section 96(1)(a) of the IB Code, an interim moratorium commences in relation to all the debts and shall cease to have effect on the date of admission of the application. In view of Section 96(1)(b), during the interim moratorium period, any legal action or proceeding pending in respect of any debt shall be deemed to have been stayed, and the creditors of the debtor shall not initiate any legal action in respect of any debt. Therefore, in the present case, it is necessary to examine whether the benefit of the interim moratorium in view of the IRP proceedings for the guarantors can also be extended to defendant no. 1, who is the principal borrower, against whom no proceedings under the IB Code are initiated. POSITION OF LAW: 23. To understand the applicability of the interim moratorium contemplated under Section 96 of the IB Code, in the present case, it is necessary to correctly understand the well-established legal principles. 24. In SBI Vs. V. Ramakrishnan, the point for consideration before the Hon'ble Apex Court was ....
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....e IB Code before the Apex Court. The Hon'ble Apex Court observed that the crucial words which are used both in clause (b)(i) and clause (b)(ii) of sub-section (1) of Section 96 are "in respect of any debt". These words indicate that the interim moratorium, which is intended to operate by the legislature, is primarily in respect of a debt as opposed to a debtor. It is held that in paragraph 58 as under: "58. This must be contra-distinguished from the provisions for moratorium which are contained in Section 14 in relation to CIRP under Part II. Section 14(1)(a) provides that on the insolvency commencement date, the institution of suits or continuation of pending suits or proceedings against the corporate debtor, including proceedings in execution shall stand prohibited by an order of the adjudicating authority. Clause (b) of sub-section (1) of Section 14 empowers the adjudicating authority to declare a moratorium restraining the transfer, encumbrance, alienation or disposal by the corporate debtor of any of its assets or any legal right or beneficial interest therein. Significantly, the moratorium under Section 14 operates on the order passed by an adjudicating authority. Th....
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.... respect of all debts of a particular debtor, which is clear from the language used in section 96(1)(b)(ii) to the effect that "the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt". Therefore, the effect of the interim moratorium is limited to the debts of a particular debtor. It was observed that in the judgment of V. Ramakrishnan, the observations made by the Supreme Court were in the context of a moratorium under section 101 applying to guarantors of debts of individuals and firms. The Delhi High Court relied upon the legal principles settled by the Apex Court in Embassy Property Developments Pvt. Ltd. and held that the NCLT would be the appropriate Adjudicating Authority in respect of insolvency proceedings initiated against the defendants in their capacity as personal guarantors for the corporate debtor and the interim moratorium under section 96 would be operable only for defendant no. 2 in view of the insolvency proceedings against defendant no. 2 under section 95 of the IB Code. 30. In the decision of this court in Tata Capital Ltd., one SMC, a proprietary concern, was the principal borrower. Mr. Tarun Kapoor, the proprie....
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....n it defines "debt", states it to be a liability or obligation in respect of a claim which is due from "any person". The very use of the expression "any person", would mean that no distinction can be drawn on the basis of, from whom the debt is due, a principal borrower or a guarantor. Section 96 of the Insolvency and Bankruptcy Code, also uses the expression "all the debts", in clause (a) of sub-section (1) and "any debt", in sub-clauses (i) and (ii) of clause (b) of sub-section (1). When Section 96 of the Insolvency and Bankruptcy Code, speaks of a moratorium in respect of "any debt", the same would mean the entire debt, irrespective from whom it is due." 32. This court relied upon the legal principles settled by the Apex Court in Dilip Jiwrajka. It is held that the protection mandate of Section 96 of the IB Code is in respect of the "debt", and not the debtor. It is further held that the observations by the Delhi High Court in Axis Trustee Services Ltd. will have to be read in the context of what has been said about Section 96 of the IB Code in Dilip Jiwrajka. Thus, this court approved the legal principles settled by the Delhi High Court in reference to the Apex Court's decis....
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....s are stayed against some of the parties and proceed against others. The arbitration proceedings will have to be decided in their entirety against all the parties, and the claimant's entitlement and the respondents' liabilities will be determined on the basis of evidence that may be led therein, which cannot be on a piecemeal basis. Thus, the arbitral tribunal's order staying the proceedings in view of the moratorium imposed under Section 96 of the IB Code was confirmed. 34. In Laxmi Pat Surana, the question for consideration before the Apex Court was whether an action under Section 7 of the IB Code can be initiated by the financial creditor against a corporate person (being a corporate debtor) concerning a guarantee offered by it in respect of a loan account of the principal borrower, who had committed default and is not a "corporate person" within the meaning of the Code. The Apex Court held that the obligation of the guarantor is coextensive and coterminous with that of the principal borrower to defray the debt, as predicated in Section 128 of the Contract Act. It is held that there is no reason to limit the width of Section 7 IBC, for the liability and obligation of ....
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.... Contract Act, the liability of the principal borrower and surety is coextensive; the IBC permits separate or simultaneous proceedings to be initiated under Section 7 by a financial creditor against the corporate debtor and the corporate guarantor. In the facts of the case, it was held that, by virtue of the CIRP process for the corporate guarantor, the corporate debtor does not obtain a discharge, and its liability to repay the loan amount to the extent it is not recovered from the corporate guarantor is not extinguished. 38. In Saranga Anilkumar Aggarwal, the point for consideration was whether execution proceedings under Section 27 of the Consumer Protection Act, 1986, can also be stayed during an interim moratorium under Section 96 IB Code. The Apex Court held that a moratorium under Section 96 of the IB Code is distinct from a corporate moratorium under Section 14 of the IB Code. Section 96 applies to individuals and personal guarantors and provides that during the interim moratorium period, "any legal action or proceedings relating to any debt shall be deemed to have been stayed", and it applies only to "debt" as defined under the IB Code and not to regulatory penalties im....
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....wer and two sets of guarantors. In the said case, an interim moratorium under Section 96 was imposed in the IRP proceedings against the principal borrower and one of the guarantors. 41. The legal principles settled by the Delhi High Court in Axis Trustee Services Ltd. are discussed in detail in the above paragraphs. The Delhi High Court held that the reference to "all the debts" in section 96(1)(a) has to be in respect of all debts of a particular debtor, which is clear from the language used in section 96(1)(b)(ii) to the effect that "the creditors of the debtor shall not initiate any legal action or proceedings in respect of any debt". It is therefore held that the effect of the interim moratorium is limited to the debts of a particular debtor, and the interim moratorium under Section 96 in respect of one co-guarantor would not ipso facto apply to the other co-guarantor. 42. The Apex Court in Embassy Property Developments Pvt. Ltd observed that the NCLT is not a civil court, which has jurisdiction by virtue of Section 9 of the Code of Civil Procedure to try all suits of a civil nature excepting suits, of which their cognisance is either expressly or impliedly barred. It is ....
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....of the interim moratorium when IRP proceedings are initiated under Sections 94 or 95. In view of the legal principles, as discussed above, the liability of a guarantor and the principal borrower is coextensive; hence, a resolution plan approved in the IRP proceedings of the guarantor will enure to the benefit of only the guarantor, and he may be discharged of his liability under the terms of the guarantee. However, the principal borrower against whom no proceedings are initiated under the IB Code will not have its liability discharged under the resolution plan of the guarantor. The adjudication of the liability of the principal borrower would therefore fall within the jurisdiction of the civil court when no proceedings under the IB Code are initiated against the principal borrower. The company law tribunal would not have any jurisdiction to adjudicate the liability of a principal borrower when no proceedings under the IB Code are initiated against the principal borrower. Hence, the words "any debt" used in Section 96 of the IB Code cannot be stretched to benefit the debt of the principal borrower, against whom no proceedings under the IB Code are initiated. Therefore, the benefit o....