Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 2016 ("IBC, 2016") and the Regulations made thereunder in this regard

CS Professional · Insolvency and Bankruptcy - Law and Practice · PYQS · June 2025
Read the following and answer the questions below based on the relevant case laws and the applicable provisions of the Insolvency and Bankruptcy Code, 2016 ("IBC, 2016") and the Regulations made thereunder in this regard. Facts of the case Thakur Engineering Products Private Limited ["the company"] engaged in the business Industrial Machinery supplies. It got Machinery supplies worth ₹ 21,10,11,054/- from a supplier ('Respondent'), which was due and payable by the company. Several cheques were issued by the company in favour of the respondent towards amounts payable for supplies, all of which were returned dishonoured for the reason "funds insufficient". As a result, the respondent issued a statutory demand notice under Section 138 read with Section 141 of the Negotiable Instruments Act, 1881 ("NI Act"), calling upon the company and its three Directors, to pay the amount within 15 days of the receipt of the notice. Subsequently, two cheques for a total amount of ₹ 90,80,123/- presented by the respondent for encashment were returned dishonoured for the reason "funds insufficient". A second demand notice was therefore issued under the same Sections by the respondent, calling upon the company and the appellants to pay this amount within 15 days of the receipt of the notice. Since no payment was forthcoming pursuant to the two statutory demand notices, two criminal complaints, were filed by the respondent against the company and the appellants under Section 138 read with Section 141 of the Negotiable Instruments Act before the Additional Chief Metropolitan Magistrate ["ACMM"]. Summons were issued by the ACMM to the company and the appellants in both the criminal complaints. Meanwhile, as a statutory notice under Section 8 of the IBC, 2016 had been issued by the respondent to the company, and an order was passed by the Adjudicating Authority admitting the application under Section 9 of the IBC and directing commencement of the corporate insolvency resolution process with respect to the company, a moratorium in terms of Section 14 of the IBC was ordered. Pursuant thereto, the Adjudicating Authority stayed further proceedings in the two criminal complaints pending before the ACMM. In an appeal filed to the National Company Law Appellate, Tribunal ("NCLAT"), the NCLAT set aside this order, holding that Section 138, being a criminal law provision, cannot be held to be a "proceeding" within the meaning of Section 14 of the IBC, 2016. In an appeal filed before the Court, the Court ordered a stay of further proceedings in the two complaints pending before the learned ACMM. Subsequent thereto, since a resolution plan submitted by the promoters of the company had been approved by the committee of creditors, the Adjudicating Authority approved such plan as a result of which, the moratorium order ceased to have effect. It may only be added that at present, an application for withdrawal of approval of this resolution plan has been filed by the financial creditors of the company before the Adjudicating Authority. Equally, an application to extend time for implementation of this plan has been filed by the resolution applicant before the Adjudicating Authority. Both these applications have yet to be decided by the Adjudicating Authority. On the above background, referring the provisions of IBC, 2016 and applicable case laws answer following questions: If a personal guarantor for Thakur Engineering Products Private Limited had also issued a cheque which had bounced, would the Section 14 moratorium apply to the personal guarantor? Why or why not?

Answer & Explanation:

No, the Section 14 of the Insolvency and Bankruptcy Code moratorium would not apply to the personal guarantor. The moratorium applies specifically to the corporate debtor. Personal guarantors are separate legal entities, and the moratorium does not extend to their liabilities. The legal impediment contained in Section 14 of the Insolvency and Bankruptcy Code would make it impossible for such proceeding to continue or be instituted against the corporate debtor. Thus, for the period of moratorium, since no Section 138/141 Negotiable Instruments Act proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Section 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 of the Insolvency and Bankruptcy Code would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act. The question that came before the Supreme Court in SBI v. V. Ramakrishnan was whether Section 14 Insolvency and Bankruptcy Code, which establishes a temporary moratorium, would also apply to a personal guarantor of a corporate debtor. The Supreme Court made it clear that personal guarantors are not covered by the moratorium; rather, it only applies to the corporate debtor.

Topics: Moratorium under IBC

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