Suit Filed Prior to Insolvency Proceedings Maintained; Interim Moratorium Under Section 96 of IBC Not Applicable
In a significant ruling, the Calcutta High Court has set aside the dismissal of a civil suit filed by Sri Vineet Mohan Gupta and another against Canara Bank and others, emphasizing that civil suits initiated prior to insolvency proceedings under the Insolvency and Bankruptcy Code (IBC), 2016, are maintainable. The Division Bench, comprising Justices Debangsu Basak and Md. Shabbar Rashidi, delivered the judgment on July 2, 2026, allowing the appeal against the Commercial Court's order which had earlier dismissed the suit under Order VII Rule 11(d) of the Civil Procedure Code, 1908.
The appellants, who had provided personal guarantees for credit facilities extended to a company, filed a suit seeking a declaration that their guarantees were discharged and sought injunctions against the banks from enforcing these guarantees. The suit was initially dismissed by the trial court, citing a bar under Section 95 of the IBC, 2016.
The High Court clarified that Section 96 of the IBC, which deals with interim moratorium, is operational only after an application under Section 94 or 95 is filed before the National Company Law Tribunal (NCLT). The Court noted that the appellants had filed their suit on November 6, 2024, well before any insolvency proceedings were initiated on January 15, 2025. Thus, the interim moratorium under Section 96 could not retroactively affect the maintainability of the suit.
Further, the Court highlighted that the jurisdiction of civil courts is not ousted by the IBC in cases where proceedings were initiated before the insolvency process. It emphasized the specific scenarios under Sections 96 and 101 of the IBC that provide for a stay of proceedings and noted that these provisions do not mandate the dismissal of suits filed prior to such proceedings.
The judgment also addressed the principles for rejecting a plaint under Order VII Rule 11, stating that it is a stringent power to be exercised cautiously. The Court reiterated that the rejection of a plaint cannot be partial and must be based solely on the content of the plaint, excluding any subsequent developments or defenses raised by the respondents.
The ruling underscores the balance between the rights of guarantors and the procedural requirements of the IBC, affirming that civil courts retain jurisdiction in disputes initiated before insolvency proceedings unless explicitly barred by law. The case has been remanded to the trial court for further proceedings in light of the judgment.
Bottom line:-
Civil suit seeking declaration and injunction regarding personal guarantees is maintainable in civil courts even if proceedings under Section 95 of the Insolvency and Bankruptcy Code, 2016 are subsequently initiated, provided the suit is filed prior to such proceedings.
Statutory provision(s): Insolvency and Bankruptcy Code, 2016 - Sections 95, 96, 101, 231, 238; Civil Procedure Code, 1908 - Order VII Rule 11
Sri Vineet Mohan Gupta v. Canara Bank, (Calcutta)(DB) : Law Finder Doc id # 2933553
