8.2.

The moratorium under Section 14 is intended to keep the corporate debtor’s assets together
during the insolvency resolution process and facilitating orderly completion of the processes
envisaged during the insolvency resolution process and ensuring that the company may continue as
a going concern while the creditors take a view on resolution of default. Keeping the corporate
debtor running as a going concern during the CIRP (The Corporate Insolvency Resolution
Process) helps in achieving resolution as a going concern as well, which is likely to maximize value
for all stakeholders. In other jurisdictions too, a moratorium may be put in place on the advent of
formal insolvency proceedings, including liquidation and reorganization proceedings. The UNCITRAL
Guide notes that a moratorium is critical during reorganization proceedings since it facilitates the
continued operation of the business and allows the debtor a breathing space to organize its affairs,
time for preparation and approval of a reorganization plan and for other steps such as shedding
unprofitable activities and onerous contracts, where appropriate.

Section 14 in relation to other Moratorium Sections in the IBC.

The Hon'ble Supreme Court noted that the scope of Section 14 is much wider than other provisions
for moratorium under Sections 96 and 101. The expression "transaction" used in Section 14 is much
wider than the term "debt" used in Section 85. It was also observed that the term "proceedings"
used by the legislature in Section 14(1)(a) was not curtailed by the word "legal". This, coupled with
the fact that Section 14 is not limited to 'recovery' of any debt, would indicate that any legal
proceedings even indirectly related to the recovery of any debt would be covered. The Hon'ble
Supreme Court held that the expression "proceedings" cannot be cut down by way of a narrow
interpretation and must be given a fair meaning aligned with the object of Section 14. Therefore, a
legal action or proceeding in respect of any debt would, on its plain reading, would include a Section
138 proceeding.

A bench comprising Justices RF Nariman, Navin Sinha and KM Joseph delivered the judgment on a
batch of petitions(P Mohanraj and others v M/s Shah Brothers Ispat Ltd and connected cases) which
challenged the continuation of criminal trial under Section 138 NI Act during the pendency of
liquidation proceedings in the National Company Law Tribunal(NCLT).

...for the period of moratorium, since no Section138/141 proceeding can continue or be initiated
against the corporate debtor because of a statutory bar, such proceedings can be initiated or
continued against the persons mentioned in Section 141(1) and (2) of the Negotiable Instruments
Act. This being the case, it is clear that the moratorium provision contained in Section 14 of the IBC
would apply only to the corporate debtor, the natural persons mentioned in Section 141continuing
to be statutorily liable under Chapter XVII of the Negotiable Instruments Act"

Brief Facts

The respondent in the instant matter supplied steel products to the corporate debtor (Corporate
Debtor), for which the Corporate Debtor was required to pay INR 24,20,91,054. The Corporate
Debtor issued several cheques in favour of the respondent, all of which were returned dishonoured
for insufficient funds. The respondent issued multiple statutory demand notices under Section 138
of the NI Act. Since the Corporate Debtor continued not to pay the due amounts, criminal
complaints were filed by the respondent against the Corporate Debtor and the appellants under
Section 138 of the NI Act.
In the meantime, a statutory notice under Section 8 of the Insolvency and Bankruptcy Code, 2016
was issued by the respondent against the Corporate Debtor wherein the adjudicating authority
passed an order admitting the application. The adjudicating authority directed for the
commencement of the Corporate Insolvency Resolution Process (CIRP), and a moratorium under
Section 14 of the IBC was ordered. In pursuance of the order passed, the adjudicating authority
stayed further proceedings in the criminal complaints filed under the NI Act. The National Company
Law Appellate Tribunal (NCLAT), in an appeal, set aside the order of the adjudicating authority
holding that Section 138 being a criminal law proceeding could not be deemed to be a "proceeding"
within the meaning of Section 14 of the IBC.

In the present appeal before the Hon'ble Supreme Court of India, the moot question was whether
the institution or continuation of a proceeding under Section 138/141 of the NI Act can be covered
by a moratorium provision under Section 14 of the IBC.