Interim Moratorium u/s 96 of IBC for one of the Guarantors would not ipso facto apply against Co-Guarantor: Delhi HC [Read Order]

The Delhi High Court observed that Interim Moratorium under Section 96 of Insolvency and Bankruptcy Code, 2016 (IBC) for one of the Guarantors would not ipso facto apply against a Co-Guarantor.

In the present case, the application against the defendant, Brij Bhushan Singal has been filed under Section 95 of the IBC by State Bank of India on 28th May, 2022, as a creditor of the corporate debtor or borrower for whom the defendant stood as a guarantor. The writ petition was filed by Axis Trustee Services Limited.

In fact, as is evident from the application filed on behalf of State Bank of India, the debt of State Bank of India is several times over the combined debt owed to the plaintiffs herein. Therefore, the case is not where the insolvency application has been filed with a mala fide intention by a debtor or guarantor himself so as to take the benefit of the interim moratorium under Section 96 of the IBC.

The mandate of Section 96 of the IBC is clear. The interim moratorium under Section 96 of the IBC kicks in as soon as an application is filed under Section 94 or 95 of the IBC and the effect of such interim moratorium is that all pending legal proceedings are deemed to have been stayed. This is in contrast to the moratorium under Section 14 of the IBC, whereby the moratorium comes into effect only upon an order being passed by the National Company Law Tribunal (NCLT) declaring a moratorium.

A Single Bench consisting of Justice Amit Bansal held that “Creditors would have an independent recourse against either of the guarantors and the inability to recover against one of the guarantors would not come in the way of making recoveries against the other guarantors. Therefore, I am of the considered view that the interim moratorium under Section 96 in respect of one of the guarantors would not ipso facto apply against a co-guarantor.”

To Read the full text of the Order CLICK HERE

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