IBC Moratorium Not Automatic, Applies Only After Express Order: NCLT Mumbai

The National Company Law Tribunal (NCLT) at Mumbai recently held that a moratorium under the Insolvency and Bankruptcy Code does not commence automatically on the insolvency commencement date and can take effect only when it is expressly declared by the adjudicating authority.

On this basis, the tribunal dismissed applications filed by Patanjali Foods Ltd., formerly Ruchi Soya Industries Ltd., which came under Patanjali following approval of a resolution plan, seeking retrospective application of the moratorium against ICICI Bank and reversal of debits amounting to Rs 65.83 crore from the corporate debtor's bank accounts.

A coram of Judicial Member Sushil Mahadeorao Kochey and Technical Member Prabhat Kumar held that Sections 13 and 14 of the Code require a specific order declaring moratorium and that such protection cannot be inferred merely from the admission of an insolvency petition.

“This also makes it clear that the declaration of moratorium has to be express and can not commence automatically on the insolvency commencement date on the date of admission or cannot be inferred to have commenced, in case this Tribunal fails to expressly do so,” the bench observed.

The case arose from the insolvency proceedings of Ruchi Soya Industries. Insolvency petitions against the company were admitted on December 8, 2017. While a short order recording admission was passed that day, the detailed order declaring moratorium and appointing the interim resolution professional was pronounced on December 8, 2017 and delivered later, on December 15, 2017.

The tribunal noted that the corporate insolvency resolution process was consistently conducted on the footing that the moratorium commenced only upon delivery of the detailed order. Claims were admitted, the information memorandum was prepared, and the resolution process progressed on that basis.

Patanjali Foods argued that the insolvency commencement date was December 8, 2017 and that the moratorium should be treated as operating from that date, rendering debits made by ICICI Bank thereafter violative of Section 14. It also argued that the company's assets were under the court's control from the date the insolvency petition was admitted, relying on earlier appellate proceedings and official records.

Rejecting this argument, the tribunal held that although the law requires a moratorium to be declared after an insolvency petition is admitted, the absence of an express declaration does not mean the moratorium had automatically come into effect. Transactions carried out before an express moratorium order, it held, could not be retrospectively invalidated.

The bench further noted that the entire insolvency resolution process, including approval and implementation of Patanjali's resolution proceeded on the premise that the moratorium commenced on December 15, 2017. Holding that Patanjali Foods was bound by the approved resolution plan, the tribunal dismissed its application and allowed ICICI Bank's plea opposing the reliefs.