Abstract
When a company is drowning in debt, should the law step in to hold off the chaos or let the storm hit? The concept of a moratorium under bankruptcy law is straightforward: pause everything, take a deep breath, and try to fix what’s broken. Its goal is to offer companies a fighting chance without having to deal with lawsuits or creditors tearing them apart in the middle of their recovery. However, what occurs if judges overextend this pause, protecting parties other than the company?
That’s when the moratorium starts drifting from its core purpose, creating confusion, delaying justice for creditors, and raising tough questions about fairness. The moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 was introduced as a safeguard for the value of a corporate debtor’s assets throughout the process of bankruptcy resolution. However, as time has passed, court interpretations have broadened their application in ways that can contradict their original intent. This essay examines how courts have expanded or improved the moratorium’s parameters through significant decisions, such as those pertaining to attachments under the Prevention of Money Laundering Act, personal guarantors, and check bounce actions. While these decisions attempt to balance creditor and debtor rights, they also expose inconsistencies in how the moratorium is applied in different areas.
The article shows clearer boundaries and a return to the moratorium’s original role, which is a temporary and well-defined protection to facilitate effective insolvency resolution.
Keywords: Moratorium, Judicial Expansion, Corporate Insolvency Resolution Process, Overriding Effect.
Introduction:
The Insolvency and Bankruptcy Code, 2016, is one of the most important reforms in the Indian economy. Before the enactment of this Law, there were multiple laws that dealt with the resolution process of a company’s insolvency, such as Sick Industrial Companies (Special Provisions) Act, 1985, which failed due to its backward approach in dealing with Bankruptcy issues, The Recovery of Debts due to Banks and Financial Institutions Act, 1993,which has only focused on Debt Recovery and not Insolvency Resolution, and it had a limited scope under which only the financial creditors like Banks could initiate recovery proceedings.[1]
This created confusion and prolonged delays for banks, companies, and other creditors attempting to recover their dues. Due to all these Reasons, the Indian Parliament enacted the Insolvency and Bankruptcy Code, 2016, to provide a time-bound process for resolving insolvency and bankruptcy, aiming to maximize asset value and ensure ease of doing business. The code was passed by both houses of Parliament in May 2016 and received presidential assent on May 28, 2016.
Section 4 of the Insolvency and Bankruptcy Code, 2016defines that it shall include matters relating to the insolvency and liquidation of corporate debtors where the minimum amount of the default is one crore rupees.[2] This protects companies from being dragged into insolvency for small, insignificant dues and ensures the process is used only for genuine cases of financial distress.Section 14 of the Insolvency and Bankruptcy Code, 2016, lays down the concept of moratorium under the Corporate Insolvency Resolution Process (CIRP).
This article explores how the courts have expanded the scope of moratorium under Section 14 of the IBC, while sometimes stretching it beyond its purpose and thus affecting the balance between the protection of the debtors and the rights of the creditors
[1]Saloni Mathur, ‘Comparative Analysis of the laws on Insolvency before and after the enactment of the Insolvency and the Bankruptcy Code’(iPleaders Blog, January 30, 2019) <https://blog.ipleaders.in/laws-on-insolvency-before-and-after-the-ibc/> accessed 1st August, 2025
[2] THE INSOLVENCY AND BANKRUPTCY CODE, 2016, s 4