As soon as the application of Corporate Insolvency Resolution Process (CIRP) is admitted under Section 7, 9 or 10 of the Insolvency and Bankruptcy Code (IBC/Code), a moratorium in terms of Section 14 of the Code is to be declared by the Adjudicating Authority and a public announcement under Section 13 is made declaring the commencement of CIRP qua Corporate Debtor  along with the last date for submission of claims and other important details. Endeavour of the instant article is to highlight few aspects related to moratorium and issuance of sale certificate for the processes initiated prior to CIRP, while the CIRP qua Corporate Debtor is ongoing.

Moratorium  refers to the period, during which, any institution of fresh suits or proceedings is prohibited by law and the existing suits and proceedings are stayed. The main idea of the moratorium is to facilitate the continuation of business operations, without any further interruptions. The period of moratorium shall continue till the completion of the CIRP , if the Adjudicating Authority approves the resolution plan and the same is ready to be implemented, or till the Adjudicating Authority orders for liquidation of the insolvent entity. Hence the order of moratorium shall cease to exist, on the date such approval or order is made. The Hon’ble Supreme Court, in the matter of P. Mohanraj & Ors. v. M/s. Shah Brothers Ispat Pvt. Ltd. (2021) ibclaw.in 24 SC [1]., held that the provisions of the moratorium are very wide, since the institutions, judgments, suits, including arbitration, all are stayed by the court order.

With the advent of IBC and due to the concept of moratorium there have been many instances where the Banks/ Financial Institutions have already taken recourse under available remedial mechanisms thereafter before such an action could fetch fruitful results for the lenders, moratorium is put in place whereby leaving the lenders as well as the Insolvency Professional so appointed by Adjudicating Authorities in a confused state of mind. There have been situations where the lenders have already taken recourse by way of an auction sale of the property of the borrower and before such a sale could conclude, CIRP qua the Corporate Debtor is initiated thereby putting the moratorium in motion.

To understand it more meaningfully, it is worth extrapolating that Rule 7 of the Security Interest (Enforcement) Rules, 2002, which broadly talks about the Issuance of Sale Certificate. While it is very well established that the sale certificate is the prima facie evidence of title of the purchaser, it is pertinent to note that the title would be passed over only after: i) receipt of the full consideration; and ii) issuance of Sale Certificate.

Section 14(1) of IBC clearly provides that…

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