01 March 2021, Monday

6 months ago

1. Moratorium under IBC extends to set-aside petitions (Supreme Court of India)

01 March 2021 | P Mohanraj & others v. M/s Shah Brothers ISPAT Pvt Limited | RF Nariman, Navin Sinha & KM Joseph JJ | 2021 SCC OnLine SC 152


When insolvency commences, a moratorium is declared under Section 14 IBC prohibiting “suits or continuation of pending suits or proceedings against the corporate debtor.” But, in Power Grid Corporation of India Ltd. v. Jyoti Structures Ltd., 2017 SCC OnLine Del 12189, a single judge of the Delhi High Court had ruled that the moratorium does not hit a proceeding to set aside an award obtained by the corporate debtor because Section 14 IBC is intended to prohibit ‘debt recovery action’ against the corporate debtor. A challenge to an award in favour of the corporate debtor, it said, is not such an action.

The main question in Mohanraj was something else (whether the moratorium hit the institution of criminal proceedings for the dishonour of cheque). But Power Grid was cited in arguments.

Overruling Power Grid, the Supreme Court has ruled that “proceeding against the corporate debtor” covers a challenge to an award (just like an appeal filed against a suit-decree). Also, there may be a situation where an arbitral award against the corporate debtor is upheld and, as a result, monies would be payable by the corporate debtor.

Access the court's decision here and see para 74 (para 97 SCC OnLine).

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