Court Rules Suit Filed Against Ambootia Tea Exports During Interim Moratorium Period Under Insolvency Code Invalid
In a significant ruling, the Calcutta High Court has set aside a decree passed in favor of Sri Rani Sati Abasan Private Limited against Ambootia Tea Exports Private Limited, citing the statutory embargo on filing suits for debt recovery during an interim moratorium period under the Insolvency and Bankruptcy Code, 2016. The division bench comprised of Justices Debangsu Basak and Md. Shabbar Rashidi.
The case revolves around a suit filed by Sri Rani Sati Abasan Private Limited seeking recovery of money lent to Ambootia Tea Exports Private Limited. The suit was instituted on December 12, 2022, while an interim moratorium under Section 96 of the Insolvency and Bankruptcy Code was in effect, following proceedings initiated against two directors of Ambootia Tea Exports under Section 95 of the Code.
The interim moratorium, which commenced after an appellate tribunal order on May 27, 2022, remained effective until the petition's admission on June 5, 2024. During this period, Section 96(1)(b)(ii) prohibits creditors from initiating legal actions for debt recovery against individuals or partnership firms.
The bench emphasized the statutory prohibition against accepting and adjudicating suits filed during this moratorium. It held that the learned Single Judge erred in passing a decree for a suit that was barred from being filed or entertained by the court during the moratorium period. The court clarified that the suit's filing was contrary to law, notwithstanding the respondent's claim of being unaware of the insolvency proceedings.
The judgment also addressed the issue of joint and several liabilities, noting that the suit's maintainability was affected by the interim moratorium. It rejected the plea to dissect the plaint between different defendants, stressing that when a statutory embargo is revealed, the court must act accordingly, regardless of the plaintiff's knowledge.
Ultimately, the court did not delve into whether the subject matter constituted a commercial dispute under the Commercial Courts Act, 2015, as it found the suit itself invalid due to the ongoing interim moratorium. The decision underscores the rigorous application of insolvency provisions and the importance of adhering to statutory timelines and prohibitions.
Bottom line:-
Interim moratorium under Section 96 of the Insolvency and Bankruptcy Code, 2016 prohibits the filing of suits for recovery of debts against individuals or partnership firms during its operation. A suit filed during this moratorium period is barred by law and cannot be entertained by the court.
Statutory provision(s):
Insolvency and Bankruptcy Code, 2016 Section 96, Civil Procedure Code, 1908 Order VII Rule 11(d).
