Tribunal Declares Invocation of Pledged Securities Void Amid CIRP, Upholds Moratorium Under IBC, 2016
In a significant ruling, the Mumbai Bench of the National Company Law Tribunal (NCLT) has ordered the restoration of 3,62,000 equity shares of Flexituff Ventures International Limited to the demat account of Sunrise Properties Private Limited, the corporate debtor, after they were wrongfully invoked by Swan Finance Limited during the moratorium period. The tribunal, comprising Ms. Lakshmi Gurung, Member (Judicial) and Sh. Charanjeet Singh Gulati, Member (Technical), delivered the judgment on June 25, 2026, emphasizing the inviolability of the moratorium under Section 14 of the Insolvency and Bankruptcy Code (IBC), 2016.
The issue arose when Swan Finance Limited, a financial creditor, invoked the pledged securities on May 20, 2025, despite the moratorium declared on October 24, 2024, following the initiation of the Corporate Insolvency Resolution Process (CIRP) for Sunrise Properties. The tribunal noted that such an invocation constitutes an enforcement of security interest, which is expressly prohibited during the moratorium period under Section 14(1)(c) of the IBC.
Mr. Shouvik Kumar Roy, the Resolution Professional for Sunrise Properties, argued that the pledge was enforced in direct contravention of the moratorium, undermining the integrity of the CIRP. The tribunal agreed, ruling that the invocation was void ab initio and mandated the restoration of the status quo ante, ordering the transfer of the pledged securities back to the corporate debtor's account within 15 days.
Despite the breach, the tribunal did not impose penalties under Section 74 of the IBC, acknowledging the lack of malafide intent from Swan Finance, which had not sold the shares and had shown willingness to reverse the transaction. The tribunal emphasized the statutory moratorium's supremacy over contractual rights, reiterating its critical role in safeguarding the CIRP estate.
This ruling underscores the importance of adhering to the moratorium provisions under the IBC, ensuring that the assets of a corporate debtor are protected during insolvency proceedings, thereby facilitating an orderly resolution process.
Bottom line:-
Invocation of pledged securities during the moratorium period under Section 14(1)(c) of the Insolvency and Bankruptcy Code, 2016 is prohibited, and such actions are void ab initio and non-est in law.
Statutory provision(s): Section 14(1)(c), Section 74 of the Insolvency and Bankruptcy Code, 2016
Shouvik Kumar Roy v. Swan Finance Limited, (NCLT)(Mumbai Bench) : Law Finder Doc id # 2935807
