IL AND FS FINANCIAL SERVICES LIMITED. v. SERVEALL CONSTRUCTIONS PRIVATE LIMITED. AND 3 ORS.
Moratorium under Sections 14 and 96 of IB Code against Guarantors does not halt Summary Suit proceedings against the Principal Borrower.
Court: Bombay High Court
Citation: 2026:BHC-OS:8100
Decision Date: 06-04-2026
List of Laws
Insolvency and Bankruptcy Code, 2016; Indian Contract Act, 1872; Commercial Courts Act, 2015; Code of Civil Procedure, 1908
- Facts: The plaintiff, a non-banking financial company, filed a commercial summary suit to recover approximately Rs. 203.66 crores from the principal borrower (Defendant No. 1), the corporate guarantor (Defendant No. 2), and two personal guarantors (Defendant Nos. 3 and 4). During the pendency of the suit, the National Company Law Tribunal (NCLT) initiated a Corporate Insolvency Resolution Process (CIRP) against the corporate guarantor, triggering a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IB Code). Additionally, insolvency proceedings were initiated against the personal guarantors under Section 95, leading to an interim moratorium under Section 96 of the IB Code. The plaintiff sought to proceed with the suit specifically against the principal borrower (Defendant No. 1), against whom no insolvency proceedings were pending.
- Procedural Posture: The matter came before the Bombay High Court as a Summons for Judgment in a Commercial Summary Suit. The court had to determine the preliminary maintainability of the suit against the principal borrower in light of the moratoria affecting the other defendants.
- Issue: Whether a moratorium under Section 14 or an interim moratorium under Section 96 of the IB Code, initiated against corporate or personal guarantors, extends to protect the principal borrower against whom no insolvency proceedings have been initiated.
- Holding: No, the moratoria under Sections 14 and 96 do not protect the principal borrower. The suit can proceed against the principal borrower independently.
- Reasoning: The court reasoned that Section 14 of the IB Code specifically prohibits proceedings "against the corporate debtor" for whom the CIRP is initiated. Regarding Section 96, the court noted that while the interim moratorium applies to "any debt", this must be construed within the context of the specific debtor undergoing insolvency. Relying on Supreme Court precedents like "SBI v. V. Ramakrishnan" and "Dilip B. Jiwrajka v. Union of India", the court emphasized that the liability of a principal borrower and a guarantor is co-extensive and distinct under the Indian Contract Act. The court held that the legislative intent of the IB Code is to provide a protective umbrella to the specific debtor in insolvency, not to allow other solvent parties to escape their independent contractual obligations. Since no insolvency proceedings were initiated against Defendant No. 1, the civil court retains jurisdiction to adjudicate its liability.
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