Moratorium under Insolvency code applies only to Corporate Debtor

The Government by a notification dated 17th August 2018, has amended the Insolvency and Bankruptcy Code to keep a surety in a contract of guarantee to a corporate debtor out of the ambit of the Moratorium declared under Section 14 of the Code.

It is interesting to note that in STATE BANK OF INDIA vs V. RAMAKRISHNAN decided on 14th August 2018, the Supreme Court had already stated that the moratorium should not apply to  such guarantors. The said judgment made some important observations. 

The Court said that the scheme of Section 60(2) and (3) is thus clear – the moment there is a proceeding against the corporate debtor pending under the 2016 Code, any bankruptcy proceeding against the individual personal guarantor will, if already initiated before the proceeding against the corporate debtor, be transferred to the National Company Law Tribunal or, if initiated after such proceedings had been commenced against the corporate debtor, be filed only in the National Company Law Tribunal. However, the Tribunal is to decide such proceedings only in accordance with the Presidency-Towns Insolvency Act, 1909 or the Provincial Insolvency Act, 1920, as the case may be.

In the judgment the court also referred to Sections 96 and 101 of the Code though the same has not been notified yet. The Court said that the moratorium mentioned in Section 101 is in relation to the debt and not the debtor and hastened to add that it is open to us to mark the difference in language between Sections 14 and 96 and 101, even though Sections 96 and 101 have not yet been brought into force. For this the court referred to State of Kerala and Ors. v. Mar Appraem Kuri Co. Ltd. and Anr., where it has been held, that a law ‘made’ by the Legislature is a law on the statute book even though it may not have been brought into force. Thus, for the purpose of interpretation, it is certainly open for us to contrast Section 14 with Sections 96 and 101, as Sections 96 and 101 are laws made by the Legislature, even though they have not yet been brought into force.

The Court also referred judgments in CIT v. Shelly Products and CIT v. Vatika Township and to the then proposed amendment of the Code which was to bring ensure that guarantors role after Moratorium and stated the Insolvency Law Committee, appointed by the Ministry of Corporate Affairs, by its Report dated 26.03.2018, made it clear that the object of the amendment was to clarify and set at rest what the Committee thought was an overbroad interpretation of Section 14. That such clarificatory amendment is retrospective in nature.