IBC moratorium against guarantors does not stay proceedings against a principal borrower not in insolvency.

The Plaintiff, a non-banking financial company, filed a summary suit to recover Rs. 203,66,31,506/- based on term loan facilities extended to Defendant No. 1 (Principal Borrower)

Defendant No. 2 (HDIL) acted as the corporate guarantor, while Defendant Nos. 3 and 4 were personal guarantors

On August 20, 2019, the NCLT initiated Corporate Insolvency Resolution Process (CIRP) against Defendant No. 2, triggering a moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IB Code)

Subsequently, insolvency applications under Section 95 were filed against Defendant Nos. 3 and 4, triggering an interim moratorium under Section 96 of the IB Code

No insolvency proceedings were initiated against Defendant No. 1

The Plaintiff sought to proceed with the summons for judgment specifically against Defendant No. 1 while staying the suit against the other defendants

Whether the moratorium under Section 14 of the IB Code against a corporate guarantor and the interim moratorium under Section 96 against personal guarantors apply to a principal borrower against whom no insolvency proceedings are initiated.

The court applied Section 14 of the IB Code, which prohibits the continuation of suits against the "corporate debtor" during CIRP

It interpreted Section 96, which mandates an interim moratorium "in relation to all the debts" of a debtor upon filing an application under Section 94 or 95

The court relied on the Supreme Court's ruling in SBI v. V. Ramakrishnan, which held that Section 14 does not protect personal guarantors

It further applied Dilip B. Jiwrajka v. Union of India, clarifying that the Section 96 moratorium is "debt-centric" to insulate the specific debtor from legal actions

Legal principles from the Indian Contract Act, 1872, were integrated, specifically Section 128 (co-extensive liability) and Section 140 (subrogation)

The court also distinguished the Delhi High Court's view in Axis Trustee Services Ltd. v. Brij Bhushan Singal and the Supreme Court’s ruling in BRS Ventures Investment Ltd. v. SREI Infrastructure regarding the independent nature of obligations between borrowers and sureties

The court reasoned that under Section 14, the moratorium is strictly limited to the corporate debtor in CIRP (Defendant No. 2) and does not extend to the principal borrower (Defendant No. 1)

Regarding Section 96, the court analyzed the phrase "in relation to all the debts" and concluded that this protection is intended to benefit only the specific individual or firm undergoing insolvency

The court distinguished its previous decision in Tata Capital v. Geeta Passi, noting that in that case, the moratorium was triggered by the principal borrower, which necessitated a stay for guarantors to avoid piecemeal adjudication

Conversely, where the moratorium is triggered by a guarantor, the principal borrower remains liable to independent adjudication in Civil Court

The court emphasized that under the Contract Act, a creditor’s right to proceed against a borrower is distinct from its right against a guarantor

Since the NCLT lacks jurisdiction to adjudicate the liability of a borrower not in insolvency, the term "any debt" in Section 96 cannot be stretched to stay suits against such borrowers

The Court ordered that the summary suit shall remain stayed only against Defendant Nos. 2, 3, and 4 while the respective moratoriums are operative, but the suit shall proceed against Defendant No. 1