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Nishith Desai Associates <nda@ndalaw.com>
Subject
Insolvency and Bankruptcy Hotline: Dissecting the Insolvency Code - Scope and
Impact of Interim Moratorium for Individuals
Nishith Desai Associates

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INSOLVENCY AND BANKRUPTCY HOTLINE

June 08, 2023


DISSECTING THE INSOLVENCY CODE – SCOPE AND IMPACT OF INTERIM MORATORIUM FOR
INDIVIDUALS

INTRODUCTION

Part III of the Insolvency and Bankruptcy Code, 2016 (“Code”) deals with the
insolvency resolution and bankruptcy process for individuals and partnership
firms. Section 96(1) provides that upon the filing of an application to initiate
the insolvency resolution process either by a debtor,1 or a creditor,2 an
interim moratorium comes into effect. During the interim moratorium period:

(i) any ongoing legal proceedings pertaining to any debt are deemed to have been
stayed, and

(ii) the creditors of the debtor cannot initiate any legal proceedings or take
any legal action in respect of any debt.

The interim moratorium ceases on the date on which the insolvency application is
admitted or rejected by the Adjudicating Authority.3 If the insolvency
application is admitted, another moratorium commences for a period of 180 days
from the date of admission or the date on which the Adjudicating Authority
passes an order on the repayment plan under Section 114, whichever is earlier.4

In this article, we have discussed the scope of protection provided to
individuals during an interim moratorium under Section 96 of the Code.

 

[continue reading.......]


– Adimesh Lochan, Arjun Gupta & Sahil Kanuga

You can direct your queries or comments to the authors

--------------------------------------------------------------------------------

1Section 94, Insolvency and Bankruptcy Code, 2016.

2Section 95, Insolvency and Bankruptcy Code, 2016.

3Section 100, Insolvency and Bankruptcy Code, 2016.

4Section 101, Insolvency and Bankruptcy Code, 2016.

5Adarsh Jhunjhunwala v. State Bank of India & Anr., 2021 SCC OnLine Cal 3351,
14.

6Clause 2.1.3 Wilful Default, Master Circular on Wilful Defaulters

A ‘wilful default’ would be deemed to have occurred if any of the following
events is noted: a. The unit has defaulted in meeting its payment / repayment
obligations to the lender even when it has the capacity to honour the said
obligations.

b. The unit has defaulted in meeting its payment / repayment obligations to the
lender and has not utilised the finance from the lender for the specific
purposes for which finance was availed of but has diverted the funds for other
purposes.

c. The unit has defaulted in meeting its payment / repayment obligations to the
lender and has siphoned off the funds so that the funds have not been utilised
for the specific purpose for which finance was availed of, nor are the funds
available with the unit in the form of other assets.

d. The unit has defaulted in meeting its payment / repayment obligations to the
lender and has also disposed off or removed the movable fixed assets or
immovable property given for the purpose of securing a term loan without the
knowledge of the bank / lender.

72021 SCC OnLine Cal 3351.

8Para 15

9(2021) 6 SCC 258, 27.

102022 SCC OnLine NCLAT 460 9.

11Personnel to extend cooperation to interim resolution professional

12Fraudulent trading or wrongful trading

13Proceedings under section 66

14(2018) 17 SCC 394, 26, 26.1.

15https://www. mca.gov.in/ content/da m/mca/pdf/ IBC-2016-20 230118.pdf

--------------------------------------------------------------------------------

DISCLAIMER

The contents of this hotline should not be construed as legal opinion. View
detailed disclaimer.

This Hotline provides general information existing at the time of preparation.
The Hotline is intended as a news update and Nishith Desai Associates neither
assumes nor accepts any responsibility for any loss arising to any person acting
or refraining from acting as a result of any material contained in this Hotline.
It is recommended that professional advice be taken based on the specific facts
and circumstances. This Hotline does not substitute the need to refer to the
original pronouncements.

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