Bombay High Court
Il And Fs Financial Services Limited. vs Serveall Constructions Private … on 6 April, 2026
2026:BHC-OS:8100
1-SJ-12-2019.docx
Swapnil IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
SUMMONS FOR JUDGMENT NO. 12 OF 2019
IN
COMMERCIAL SUMMARY SUIT NO. 238 OF 2019
IL & FS Financial Services Limited ...Applicant
(Org. Plaintiff)
IN THE MATTER BETWEEN
IL & FS Financial Services Limited, a
Company incorporated under the
provisions of the Companies Act, 1956
and having its Registered Officer at the
IL & FS Financial Centre, Plot C-22, G
Block, Bandra-Kurla Complex, Bandra
(East), Mumbai 400 051. ...Plaintiff
VERSUS
1. Serveall Constructions Private
Limited, A-20, Kailash Colony,
New Delhi - 110 048.
Also at :
HDIL Towers, 9th Floor, Anant
Kanekar Marg, Station Road,
Bandra (E), Mumbai 400 051.
2. Housing Development and
Infrastructure Limited, 9-01, HDIL
Towers, Anant Kanekar Marg,
Bandra East, Mumbai - 400 051.
1/38
1-SJ-12-2019.docx
3. Mr. Rakesh Wadhawan,
Wadhawan House, Plot No. 32/A, Union Park
Road, Bandra (W), Mumbai - 400 050.
Also at :
HDIL Towers, 9th Floor, Anant
Kanekar Marg, Station Road, Banra
(E), Mumbai 400 051.
4. Mr. Sarang Wadhwan,
Wadhwan House, Plot No. 32/A, Union Park
Road, Bandra (W), Mumbai - 400 050.
Also at:
HDIL Towers, 9th Floor, Anant
Kanekar Marg, Station Road, Banra
(E), Mumbai 400 051. ...Defendants
Mr. Rohan Savant, Mr. Aman Saraf a/w. Mr. Sachin
Chandarana and Ms. Aishwarya Mehta i/b. Manilal Kher
Ambalal and Co., for the Plaintiff.
CORAM : GAURI GODSE J.
RESERVED ON: 2nd DECEMBER 2025
PRONOUNCED ON: 6th APRIL 2026
JUDGMENT:
1. This summary suit is filed to recover a sum of Rs.
203,66,31,506/- arising out of and in respect of the term loan
facilities, availed by defendant no.1 and guaranteed by
2/38
1-SJ-12-2019.docx
defendant nos. 2 to 4. Pursuant to a query made by the court
as recorded in order dated 17 th September 2025, in the
summons for judgment, an additional affidavit is filed by the
plaintiff to place on record the order dated 20 th August 2019,
passed by the National Company Law Tribunal (“NCLT”),
Mumbai Bench under Section 7 read with Section 14 of the
Insolvency and Bankruptcy Code 2016 (‘IB Code’) against
defendant no.2. The plaintiff has also placed on record copy
of the case status of petition filed against defendant nos. 3
and 4 before the NCLT, which refers to the order against
defendant no.3. A separate order under Section 95 under the
IB Code against defendant no.4 is also placed on record.
2. Learned counsel for the plaintiff submitted that despite
the said orders, the summons for judgment can proceed qua
defendant no.1, who is the principal borrower. Hence, the
plaintiff has filed the additional affidavit stating that the
plaintiff seeks to proceed only against defendant no. 1 at this
stage and shall not press any interim relief against defendant
nos. 2 to 4 at this stage, by reserving the right to proceed
after the moratorium ceases to operate against them.
3. Heard learned counsel for the plaintiff on this preliminary
point. None appeared for the defendants, though served.
3/38
1-SJ-12-2019.docx
4. The plaintiff is a non-banking financial company engaged
in financial and advisory services. Defendant no.1 is a
company incorporated and registered under the provisions of
the Companies Act, 1956. Defendant no.1 has been arrayed
in the present summary suit in its capacity as the borrower
pursuant to the facilities availed by it from the plaintiff.
Defendant no.2 is a company incorporated and registered
under the provisions of the Companies Act, 1956 and is the
Corporate Guarantor. Defendant nos. 3 and 4 are the
personal guarantors. Defendant nos. 2 to 4 have been
arrayed in the summary suit in their capacity as guarantors to
the facilities availed by defendant no.1 from the plaintiff.
5. By an Order dated 20th August 2019, passed by the
NCLT and confirmed by the NCLAT by order dated 13 th July
2020, a moratorium under Section 14 of the IB Code has
come into effect against defendant no. 2. On 18 th December
2021, applications under Section 95 of the IB Code were filed
against defendant nos. 3 and 4. Consequently, an interim
moratorium under Section 96 of the IB Code has come into
effect. The company petition against defendant no. 3 was
reserved for orders on 24 th July 2025. The Company Petition
against defendant no. 4 is sub judice.
4/38
1-SJ-12-2019.docx
6. Learned counsel for the plaintiff submitted that Section
96 of the IB Code is part of Part III of the IB Code, which
applies to matters relating to individuals and partnership
firms, in terms of Section 78 of the IB Code. The provisions
of the moratorium contained in Section 96 of the IB Code
would not apply to a corporate debtor. Insolvency
proceedings in respect of a personal guarantor for a
corporate debtor are covered separately under Section 60 of
the IB Code. Section 60(1) and (2) provide that the NCLT
would have jurisdiction in respect of the insolvency of
personal guarantors. The insolvency of a corporate debtor
and a personal guarantor falls under Part II of the IB Code.
As opposed to this, Section 179 of the IB Code provides that
the DRT shall have jurisdiction in relation to insolvency
matters of individuals and firms. To support his submissions,
the learned counsel for the plaintiff relied upon the decision
of the Apex Court in Embassy Property Developments v.
State of Karnataka1.
7. Learned counsel for the plaintiff submitted that the
expression ‘debt’ appearing in Section 3(11) provides that
“unless the context otherwise requires”, which is required to
1 (2020) 13 SCC 308.
5/38
1-SJ-12-2019.docx
be interpreted in the context of Section 96, the object of
which is the protection to individuals and partnership firms
and not to other personal guarantors, corporate guarantors
or corporate debtors. The moratorium covers other entities
only in respect of those debts where the individual under
insolvency is the principal debtor. He submits that this is the
object and purpose of Section 96 and also in line with the
principles of subrogation under Section 140 of the Indian
Contract Act, 1872. To support his submissions, the learned
counsel for the plaintiff relied upon the decision of the Delhi
High Court in Axis Trustee Services Ltd. v. Brij Bhushan
Singal2, and the decision of the Apex Court in Saranga
Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth 3.
8. Learned counsel for the plaintiff submitted that a
proceeding filed or continued against the principal debtor or
guarantors in respect of those debts where the individual
debtor is a guarantor and not the principal borrower would
only enure to the benefit of the individual debtor and would
not affect his rights, whereas if proceedings were allowed to
be filed or continued in cases where the individual debtor
was a principal borrower then, if, any recovery was made
2 2022 SCC Online Del 3634
3 (2025) 4 SCC 629
6/38
1-SJ-12-2019.docx
from a guarantor, such guarantor would step into the shoes
of the creditor and be entitled to claim such amounts from the
individual debtor on principles of subrogation. To support his
submissions, the learned counsel for the plaintiff relied upon
the decision of the Apex Court in BRS Ventures Investment
Ltd. v. SREI Infrastructure4.
9. Learned counsel for the plaintiff submitted that in the
context of maintainability of proceedings under Section 7 of
the IB Code against a corporate debtor in respect of a
principal borrower who was an individual, i.e. a sole
proprietary concern, the Hon’ble Apex Court gave a
harmonious and purposive interpretation to Section 5(5-A)
defining “corporate guarantor” and observed that the
corporate guarantor can also be a company guaranteeing the
loan of an individual. To support his submissions, the learned
counsel for the plaintiff relied upon the decision in Laxmi Pat
Surana v. Union of India & Anr.5.
10. Learned counsel for the plaintiff referred to the judgment
in the case of Tata Capital v. Geeta Passi & Ors 6. In the
facts of that case, an application under Section 95 of the IB
4 (2025) 1 SCC 456.
5 (2021) 8 SCC 481.
6 2024 SCC Online Bom 1897
7/38
1-SJ-12-2019.docx
Code was filed by some other creditor against the principal
borrower and one of the personal guarantors. The question
that arose was whether arbitration proceedings could be
continued against the heirs of the deceased personal
guarantor, against whom no proceedings were filed under
the IB Code. In this context, it was observed that a distinction
cannot be carved out with respect to the ‘debt’, and the
consideration was that the debt of the principal borrower was
the subject matter of the application under Section 95 of the
IB Code.
11. According to the learned counsel for the plaintiff, the said
decision does not consider a case where the debt is that of a
corporate entity, i.e., a corporate debtor as defined in Section
3(8) IB Code. The IB Code distinguishes between a
corporate debtor, a corporate guarantor under Section 5(5-
A), a person under Section 3(23), and a personal guarantor
under Section 5(22). He submitted that there is a marked
distinction between a debtor and a guarantor, and more so
when an individual is a guarantor.
12. Learned counsel for the plaintiff submitted that in Tata
Capital, it was observed that the decision in Axis Trustee
8/38
1-SJ-12-2019.docx
will have to be read in the context of what has been said
regarding Section 96 of the IB Code in Dilip B. Jiwrajka Vs
Union of India7. Hence, according to the learned counsel for
the plaintiff, the observations of the Delhi High Court in Axis
Trustee, in paragraphs 35 and 37, would hold the field.
Therefore, he submitted that, despite the moratorium order
under Section 14 in the proceedings pending against
defendant no. 2, who is the corporate guarantor in this suit,
and under Section 96 against defendants nos. 3 and 4, who
are personal guarantors in this suit, the present suit can
proceed against defendant no. 1. He submits that defendant
no. 1 is the principal borrower in this suit and no proceedings
under the IB Code are initiated against it; hence, this suit can
proceed against defendant no. 1.
Point for consideration:
13. The question to be decided in the present suit is whether
the order of moratorium under Section 14 of the IB Code in
the proceedings initiated against defendant no. 2, who is the
corporate guarantor in this suit and the interim moratorium
imposed under Section 96 of the IB Code in the proceedings
initiated against defendant nos. 3 and 4, who are the
7 (2024) 5 SCC 435
9/38
1-SJ-12-2019.docx
personal guarantors in this suit, would apply qua defendant
no. 1, who is the principal borrower in this suit against whom
no insolvency proceedings have been initiated?
Analysis:
14. The insolvency proceedings of defendant no. 2
(corporate guarantor in the present suit), i.e. Housing
Development and Infrastructure Ltd., is a Corporate
Insolvency Resolution Process (“CIRP”) initiated by Bank of
India under Section 7 of the IB Code on the ground that
Housing Development and Infrastructure Ltd., i.e. the
Corporate Debtor, committed default in repayment of the
facilities. NCLT admitted the application and ordered a
moratorium under Section 14.
15. A company petition under Section 95 is filed by Unity
Small Finance Bank Ltd., the creditor, against its debtors,
defendant nos. 3 and 4 (personal guarantors in this suit) for
initiating the Insolvency Resolution Process (“IRP”). Hence,
an interim moratorium has commenced pursuant to Section
96 of the IB Code.
16. Thus, the CIRP proceedings against defendant no. 2,
who is the corporate guarantor in the present suit and the
10/38
1-SJ-12-2019.docxIRP proceedings against defendants nos. 3 and 4, who are
the personal guarantors in this suit, initiated by the respective
creditors, shall enure to their benefit. Defendant no. 1 is the
principal borrower against whom no proceedings are initiated
under the IB Code. Therefore, if the resolution plan is
approved in the CIRP and IRP proceedings, the guarantors
in this suit may get a discharge from their liability under the
guarantee. However, it will not amount to the discharge of
the principal borrower, i.e. defendant no. 1, from the liability
to repay the debts as claimed in this suit by its creditor, i.e.
the plaintiff.
17. In view of Section 14(1)(a) of the IB Code, the order of
moratorium prohibits the institution or continuation of pending
suits or proceedings against the corporate debtor, including
execution of any judgment, decree, or order in any Court of
law, tribunal, arbitration, panel, or other authority. Thus, the
prohibition on continuing the pending suit applies only to the
corporate debtor. The CIRP proceedings are initiated against
defendant no. 2 as a corporate debtor. In the present suit,
defendant no. 2 is the corporate guarantor for the financing
provided by the plaintiff to defendant no. 1, who is the
principal borrower. No proceedings are initiated against
11/38
1-SJ-12-2019.docxdefendant no. 1 under the IB Code. Therefore, the
moratorium ordered under Section 14 would not apply to
defendant no. 1, and the moratorium order cannot prohibit
the continuation of the suit against defendant no. 1
18. So far as the effect on the present suit by the interim
moratorium imposed in view of Section 96 of the IB Code
pursuant to the application under Section 95 of the IB Code
against defendant nos. 3 and 4 are concerned, it is
necessary to understand the provision of Section 96 of the IB
Code, which reads thus:
“96. Interim-moratorium. – (1) when an application is filed
under section 94 or section 95 –
(a) an interim-moratorium shall commence on the date of
the application in relation to all the debts and shall
cease to have effect on the date of admission of such
application; and
(b) during the interim-moratorium period –
(i) any legal action or proceeding pending in respect
of any debt shall be deemed to have been
stayed; and
12/38
1-SJ-12-2019.docx
(ii) the creditors of the debtor shall not initiate any
legal action or proceedings in respect of any
debt.
(2) Where the application has been made in relation to
a firm, the interim-moratorium under sub-section (1)
shall operate against all the partners of the firm as
on the date of the application.
(3) The provisions of sub-section (1) shall not apply to
such transactions as may be notified by the Central
Government in consultation with any financial sector
regulator.”
19. In Section 96(1)(a), the words used are “in relation to all
the debts” and in Section 96(1)(b), the words used are “any
debt”. Section 96(1)(b)(ii) says “the creditors of the debtor
shall not initiate any legal action or proceedings in respect of
any debt”. Therefore, it needs to be ascertained to whom and
for which debt the benefit of the interim moratorium would
apply.
20. Sections 94 and 95 are included in Part III of the IB
Code, which applies to IRP proceedings for individuals and
partnership firms. An interim moratorium under Section 96 is
13/38
1-SJ-12-2019.docx
imposed when an application is filed under Section 94 or 95
of the IB Code. An application under Section 94 is made by a
debtor. As per sub-section (3) of Section 94, an application
shall be submitted only in respect of debts which are not
excluded debts. The definitions for Part III are provided in
Section 79 of Chapter I of Part III. Section 79(15) defines
“excluded debt”. An application under Section 95 is made by
the creditor. As per sub-section (4)(a) of Section 95, an
application shall be accompanied with details and documents
relating to the debts owed by the debtor to the creditor.
21. Part I of the IB Code provides for the definitions in
Section 3 applicable to the IB Code. As per Section 3(8) of
the IB Code, a ” corporate debtor” means a corporate person
who owes a debt to any person. A “corporate person” is a
company as defined under Section 3(7) of the IB Code.
Section 3(11) of the IB Code defines a “debt” as a liability or
obligation in respect of a claim due from any person, and
includes both financial and operational debt. Therefore, the
words “any debt” used in Section 96 of the IB Code need to
be construed in the context of an application made under
Sections 94 or 95 of the IB Code, read with the other
provisions governing applications for the IRP proceeding.
14/38
1-SJ-12-2019.docx
The application under Sections 94 or 95 can be admitted or
rejected. If admitted, the moratorium under Section 101 shall
be imposed, and the ultimate result would be a repayment
plan and a discharge order after following the procedure as
contemplated under Chapter III of Part III of the IB Code.
22. Defendant nos. 3 and 4 are the personal guarantors in
the present suit, and in a separate IRP proceedings initiated
by different creditors against them as debtors, a moratorium
is imposed under Section 96 of the IB Code. In view of
Section 96(1)(a) of the IB Code, an interim moratorium
commences in relation to all the debts and shall cease to
have effect on the date of admission of the application. In
view of Section 96(1)(b), during the interim moratorium
period, any legal action or proceeding pending in respect of
any debt shall be deemed to have been stayed, and the
creditors of the debtor shall not initiate any legal action in
respect of any debt. Therefore, in the present case, it is
necessary to examine whether the benefit of the interim
moratorium in view of the IRP proceedings for the guarantors
can also be extended to defendant no. 1, who is the principal
borrower, against whom no proceedings under the IB Code
are initiated.
15/38
1-SJ-12-2019.docx
POSITION OF LAW:
23. To understand the applicability of the interim moratorium
contemplated under Section 96 of the IB Code, in the present
case, it is necessary to correctly understand the well-
established legal principles.
24. In SBI Vs. V. Ramakrishnan, the point for consideration
before the Hon’ble Apex Court was whether the moratorium
imposed under Section 14 in the CIRP proceedings initiated
by the corporate debtor under Section 10 of the IB Code
would also apply to a personal guarantor to the corporate
debtor. The Hon’ble Apex Court held that a plain reading of
the section leads to the conclusion that the moratorium
referred to in Section 14 can have no manner of application
to personal guarantors of a corporate debtor. The Apex Court
held that the object of the Code is not to allow such
guarantors to escape from an independent and co-extensive
liability to pay off the entire outstanding debt, which is why
Section 14 is not applied to them. However, insofar as firms
and individuals are concerned, guarantees are given in
respect of individual debts by persons who have unlimited
liability to pay them, and thus the moratorium mentioned in
16/38
1-SJ-12-2019.docx
Section 101 would cover such persons, i.e. who have given a
guarantee, as such moratorium is in relation to the debt and
not the debtor.
25. In Embassy Property Developments Pvt. Ltd., before
the Apex Court, one of the respondents was a financial
creditor who had moved an application before the NCLT
under Section 7 of the IB Code against the corporate debtor,
who was also one of the respondents before the Apex Court.
NCLT admitted the application and declared a moratorium
under Section 14 of the IB Code. The question that arose for
consideration was whether the High Court could, under
Articles 226/227 of the Constitution, interfere with an order
passed by NCLT in a proceeding under the IB Code, despite
the availability of a statutory alternative remedy of appeal
to NCLAT. The Apex Court observed that the NCLT is not
even a civil court, which has jurisdiction by virtue of Section 9
of the Code of Civil Procedure to try all suits of a civil nature
excepting suits, of which their cognisance is either expressly
or impliedly barred. It is thus held that NCLT can exercise
only such powers within the contours of jurisdiction as
prescribed by the statute, the law in respect of which it is
called upon to administer. In the facts of that case, it was
17/38
1-SJ-12-2019.docx
held that NCLT did not have jurisdiction to entertain an
application against the Government for a direction to execute
supplemental lease deeds for the extension of the mining
lease.
26. In Dilip B. Jiwrajka, the petitioners challenged the
constitutional validity of Sections 95 to 100 of the IB Code
before the Apex Court. The Hon’ble Apex Court observed
that the crucial words which are used both in clause (b)(i)
and clause (b)(ii) of sub-section (1) of Section 96 are “in
respect of any debt”. These words indicate that the interim
moratorium, which is intended to operate by the legislature,
is primarily in respect of a debt as opposed to a debtor. It is
held that in paragraph 58 as under:
“58. This must be contra-distinguished from the provisions for
moratorium which are contained in Section 14 in relation to
CIRP under Part II. Section 14(1)(a) provides that on the
insolvency commencement date, the institution of suits or
continuation of pending suits or proceedings against the
corporate debtor, including proceedings in execution shall
stand prohibited by an order of the adjudicating authority.
Clause (b) of sub-section (1) of Section 14 empowers the
18/38
1-SJ-12-2019.docxadjudicating authority to declare a moratorium restraining the
transfer, encumbrance, alienation or disposal by the
corporate debtor of any of its assets or any legal right or
beneficial interest therein. Significantly, the moratorium under
Section 14 operates on the order passed by an adjudicating
authority. The purpose of the moratorium under Section
96 is protective. The object of the moratorium is to
insulate the corporate debtor from the institution of legal
actions or the continuation of legal actions or
proceedings in respect of the debt.”
emphasis applied by me
27. In the decision of the Delhi High Court in Axis Trustees
Services Ltd, the defendants were the ex-promoters of the
corporate debtor against whom CIRP proceedings were
initiated by another creditor. The defendants had given a
personal guarantee for the facility given to the corporate
debtor. As part of the resolution plan, amounts were paid,
and the financial creditors were given the right to recover any
outstanding financial debt owed by the borrower from the
guarantors under the personal guarantee issued by them.
The due amount was not paid to the financial creditors.
19/38
1-SJ-12-2019.docx
Hence, the suits were filed. The issue thus arose as to
whether the suits could proceed against the defendants in
view of applications under section 95 of the IB Code against
both defendants. The application against defendant no. 1
was filed under section 95 of the IB Code as a creditor of the
corporate debtor/borrower for whom defendant no. 1 stood
as a guarantor. Therefore, the proceedings in the suits were
liable to be stayed in respect of defendant no. 1.
28. Before the Delhi High Court, the defendants were both
independent guarantors in respect of the corporate debtor,
with joint and several liability. It was thus held that the
creditors would have an independent recourse against either
of the guarantors, and the inability to recover against one of
the guarantors would not come in the way of making
recoveries against the other guarantors. Even in terms of
section 43 of the Indian Contract Act, 1872, a plaintiff can
choose to proceed against one of the co-promisors. Further,
sections 44 and 138 of the Contract Act provide that
discharge of one of the parties/sureties does not amount to
discharge of the other party/ surety. Therefore, it was held
that the interim moratorium under section 96 in respect of
20/38
1-SJ-12-2019.docx
one of the guarantors would not ipso facto apply against a
co-guarantor.
29. The Delhi High Court has held that the language of
section 96(1) of the IB Code cannot be stretched to include
all co-guarantors within the ambit of the interim moratorium.
The reference to “all the debts” in section 96(1)(a) has to be
in respect of all debts of a particular debtor, which is clear
from the language used in section 96(1)(b)(ii) to the effect
that “the creditors of the debtor shall not initiate any legal
action or proceedings in respect of any debt”. Therefore, the
effect of the interim moratorium is limited to the debts of a
particular debtor. It was observed that in the judgment of V.
Ramakrishnan, the observations made by the Supreme
Court were in the context of a moratorium under section 101
applying to guarantors of debts of individuals and firms. The
Delhi High Court relied upon the legal principles settled by
the Apex Court in Embassy Property Developments Pvt.
Ltd. and held that the NCLT would be the appropriate
Adjudicating Authority in respect of insolvency proceedings
initiated against the defendants in their capacity as personal
guarantors for the corporate debtor and the interim
21/38
1-SJ-12-2019.docx
moratorium under section 96 would be operable only for
defendant no. 2 in view of the insolvency proceedings
against defendant no. 2 under section 95 of the IB Code.
30. In the decision of this court in Tata Capital Ltd., one
SMC, a proprietary concern, was the principal borrower. Mr.
Tarun Kapoor, the proprietor, was the guarantor. Mrs. Pavan
Kapoor, Mr. B.L. Passi and Rameshwar Sweets and
Namkeens Pvt. Ltd. also stood as guarantors. Tata Capital
Ltd. initiated arbitration proceedings against the borrower
and the guarantors, as the borrower had committed a default.
Mr. B.L. Passi passed away; his heirs were made parties to
the arbitration. Pending the said arbitration proceedings,
another creditor, Volkswagen Finance Pvt. Ltd., filed
proceedings in NCLT against SMC and one of the personal
guarantors, Mrs. Pavan Kapoor, and an interim moratorium
was imposed under Section 96. Therefore, on an application
made by Mr. Tarun Kapoor and Mrs. Pavan Kapoor, the
arbitral tribunal stayed the arbitration proceedings initiated by
Tata Capital Ltd qua them and directed to continue the
proceedings against the other two guarantors. One of the
legal heirs of Shri. B.L. Passi applied before the learned
22/38
1-SJ-12-2019.docx
Arbitrator to stay the proceedings in view of the moratorium
under Section 96. Accordingly, the learned Arbitrator stayed
the proceedings during the moratorium period. Thus, in the
facts of this case, there were two different debts due to two
different creditors against the same debtor, who was the
principal borrower in the arbitration proceedings. The interim
moratorium was imposed in the IRP proceedings of the
principal borrower. The said order of stay passed by the
arbitral tribunal is confirmed by the Bombay High Court.
31. This court in Tata Capital Ltd. referred to the legal
principles settled by the Apex Court in SBI vs. V.
Ramakrishnan. This court held that in respect of the
difference of moratorium as to what is contemplated by
Sections 14 and 96 of the IB Code, the Apex Court
categorically distinguished between the moratorium under
Section 14 vis-à-vis Section 96 to hold that the protection of
the moratorium under Section 96 is far greater than that of
Section 14, in which pending legal proceedings in respect of
the “debt” and not the debtor are stayed, as such moratorium
is in relation to the debt and not the debtor. This Court held in
paragraph 9 as under:
23/38
1-SJ-12-2019.docx
“9. A ‘debt’ is defined in Section 3(11) of the Insolvency and
Bankruptcy Code to mean a liability or obligation in respect of
a claim which is due from any person and includes a financial
debt and operational debt. It is material to note that Section
3(11) of the Insolvency and Bankruptcy Code when it defines
“debt”, states it to be a liability or obligation in respect of a
claim which is due from “any person”. The very use of the
expression “any person”, would mean that no distinction can
be drawn on the basis of, from whom the debt is due, a
principal borrower or a guarantor. Section 96 of the
Insolvency and Bankruptcy Code, also uses the expression
“all the debts”, in clause (a) of sub-section (1) and “any debt”,
in sub-clauses (i) and (ii) of clause (b) of sub-section (1).
When Section 96 of the Insolvency and Bankruptcy Code,
speaks of a moratorium in respect of “any debt”, the same
would mean the entire debt, irrespective from whom it is
due.”
32. This court relied upon the legal principles settled by the
Apex Court in Dilip Jiwrajka. It is held that the protection
mandate of Section 96 of the IB Code is in respect of the
“debt”, and not the debtor. It is further held that the
24/38
1-SJ-12-2019.docx
observations by the Delhi High Court in Axis Trustee
Services Ltd. will have to be read in the context of what has
been said about Section 96 of the IB Code in Dilip Jiwrajka.
Thus, this court approved the legal principles settled by the
Delhi High Court in reference to the Apex Court’s decision in
Dilip Jiwrajka. In the facts of the case, this court concluded
as under:
” 10. Once this is so, then when the National Company Law
Tribunal granted a moratorium under Section 96 of the
Insolvency and Bankruptcy Code in favour of Mr Tarun
Kapoor who was the principal borrower being the proprietor
of SMC and Mrs Pavan Kapoor, being the guarantor, the
same will have to be construed as a moratorium in respect of
the entire “debt”. It is the “debt”, and its entitlement which has
been claimed to be put before the learned arbitrator, for
decision, in the arbitration proceedings. The claim does not
make any distinction between a “debt”, vis-à-vis Mr Tarun
Kapoor as a principal debtor, or the other parties thereto as
the guarantors or even considering their co-extensive liability.
The “debt”, is the debt of SMC/Tarun Kapoor as principal
borrowers as well as of the guarantors. The “debt”, for the
25/38
1-SJ-12-2019.docxpurpose of the moratorium, cannot be severed into the “debt”
of the principal borrower or for that matter of one of the
guarantors on the one hand, and the debt of the other
guarantors, in this case the legal heirs of original Respondent
4, Mr B.L. Passi. Though it can be said that the liability of
original Respondent 4, late Mr B.L. Passi, was co-terminus
with the principal borrower and the other guarantors, the
liability of the present respondents, would be restricted to the
assets of late Shri B.L. Passi, to the extent to which they
would inherit the same. Be that as may, a distinction cannot
be carved out, in respect of the “debt”, award in respect of
which is claimed in the arbitration proceedings, for the
purpose of continuation of the arbitral proceedings, between
the liability of the principal borrower/guarantor who have
been granted a moratorium and the others who have not
approached the National Company Law Tribunal, as the
word “debt”, as used in Section 96 of the National Company
Law Tribunal, has to be held to be the “debt”, in its entirety
and not otherwise.”
33. It is important to note that in the facts of the decision in
Tata Capital Ltd., the IRP proceedings were initiated for the
26/38
1-SJ-12-2019.docx
principal borrower and one of the personal guarantors. This
Court further held that there is no provision in the Arbitration
and Conciliation Act, 1996, for splitting up arbitration
proceedings by conceiving of a situation in which the
arbitration proceedings are stayed against some of the
parties and proceed against others. The arbitration
proceedings will have to be decided in their entirety against
all the parties, and the claimant’s entitlement and the
respondents’ liabilities will be determined on the basis of
evidence that may be led therein, which cannot be on a
piecemeal basis. Thus, the arbitral tribunal’s order staying
the proceedings in view of the moratorium imposed under
Section 96 of the IB Code was confirmed.
34. In Laxmi Pat Surana, the question for consideration
before the Apex Court was whether an action under Section
7 of the IB Code can be initiated by the financial creditor
against a corporate person (being a corporate debtor)
concerning a guarantee offered by it in respect of a loan
account of the principal borrower, who had committed default
and is not a “corporate person” within the meaning of the
Code. The Apex Court held that the obligation of the
27/38
1-SJ-12-2019.docx
guarantor is coextensive and coterminous with that of the
principal borrower to defray the debt, as predicated in
Section 128 of the Contract Act. It is held that there is no
reason to limit the width of Section 7 IBC, for the liability and
obligation of the guarantor to pay the outstanding dues would
get triggered coextensively.
35. In BRS Ventures Investments Ltd., the successful
resolution applicant was the appellant before the Apex Court.
The appellant had paid the amount to the financial creditor, in
full and final settlement of all its dues and demands
submitted in the resolution plan. The financial creditor filed
an application under Section 7 of the IB Code against the
corporate debtor for the balance amount payable to the
financial creditor under the loan facility. The adjudicating
authority admitted the application, which the appellant
challenged before NCLAT. A suspended Director of the
corporate debtor also preferred an appeal against the said
order of the adjudicating authority. By the judgment
impugned before the Apex Court, both appeals were
dismissed.
28/38
1-SJ-12-2019.docx
36. The Hon’ble Apex Court in BRS Ventures Investments
Ltd., held that the liability of the surety and the principal
debtor is coextensive, and the creditor has remedies to
recover the amount payable by the principal borrower by
proceeding against either or both of them. Sections 133 to
139 of the Contract Act deal with the discharge of surety, and
without proceeding to recover the debt against the principal
debtor, the creditor can proceed against the surety unless
there is a contract to the contrary. The Apex Court referred to
and relied upon the decision of the Apex Court in Lalit
Kumar Jain v. Union of India8, where the Apex Court dealt
with the legal effect of approving the resolution plan in CIRP
of the corporate debtor on the liability of the surety. In the
context of Section 135 of the Contract Act, it was held that
the contract between the creditor and the surety is
independent; therefore, the approval of the resolution plan of
the principal borrower will not amount to the discharge of the
surety. It is further held that the same principles will apply
when the resolution plan is approved in the CIRP of the
surety, and it will not amount to the discharge of the principal
borrower.
8 (2021) 9 SCC 321
29/38
1-SJ-12-2019.docx
37. It is held in BRS Ventures Investments Ltd. that there
is a separate and distinct obligation on the borrower to pay
the amount to the creditor, and such a transaction creates a
right in favour of the creditor to proceed against the
guarantor and borrower for recovery. It is thus held that,
consistent with the basic principles of the Contract Act, the
liability of the principal borrower and surety is coextensive;
the IBC permits separate or simultaneous proceedings to be
initiated under Section 7 by a financial creditor against the
corporate debtor and the corporate guarantor. In the facts of
the case, it was held that, by virtue of the CIRP process for
the corporate guarantor, the corporate debtor does not obtain
a discharge, and its liability to repay the loan amount to the
extent it is not recovered from the corporate guarantor is not
extinguished.
38. In Saranga Anilkumar Aggarwal, the point for
consideration was whether execution proceedings under
Section 27 of the Consumer Protection Act, 1986, can also
be stayed during an interim moratorium under Section 96 IB
Code. The Apex Court held that a moratorium under Section
96 of the IB Code is distinct from a corporate moratorium
30/38
1-SJ-12-2019.docx
under Section 14 of the IB Code. Section 96 applies to
individuals and personal guarantors and provides that during
the interim moratorium period, “any legal action or
proceedings relating to any debt shall be deemed to have
been stayed”, and it applies only to “debt” as defined under
the IB Code and not to regulatory penalties imposed for non-
compliance with consumer protection laws. It is further held
that the interim moratorium applicable to individuals and
personal guarantors under Section 96 IBC is more limited in
its scope, staying only “legal actions or proceedings in
respect of any debt”. It thus held that, unlike the CIRP
proceedings, which aim for a comprehensive resolution of
the company’s liabilities, the IRP proceedings are designed
primarily to restructure personal debts and provide relief to
the debtor.
Conclusions:
39. The Apex Court in Dilip Jiwrajka held that the purpose
of the moratorium under section 96 is protective and that the
object of the moratorium is to insulate the corporate debtor
from the institution of legal actions or the continuation of legal
actions or proceedings in respect of the debt. By referring to
31/38
1-SJ-12-2019.docxthese legal principles, this Court in Tata Capital Ltd held that
the protection mandate of Section 96 of the IB Code is in
respect of the debt, not the debtor. This Court further held
that in the Arbitration Act, there was no provision for splitting
up the proceedings against some of the parties and going
ahead against some and the arbitration proceedings will
have to be decided in their entirety against all the parties and
the entitlement of the claimant and the liabilities of the
respective response will have to be determined on the basis
of evidence which may be there which cannot be on a
piecemeal basis.
40. This Court, however, held that the decision of the Delhi
High Court in Axis Trustee Services Ltd will therefore have
to be read in the context of what has been said about Section
96 of the IB code, in Dilip Jiwrajka. This Court in Tata
Capital Ltd further held that a distinction cannot be carved
out in respect of the debt award in respect of which is
claimed in the arbitration proceedings for the purpose of
continuation of the arbitral proceedings between the liability
of the principal borrower/guarantor who has been granted a
moratorium and the others who have not approached the
32/38
1-SJ-12-2019.docxNCLT as the word debt as used in Section 96 has to be held
to be the debt in its entirety and not otherwise. Thus, the
observations of this Court in Tata Capital Ltd are in the
context of the facts of that case, where the applicability of the
interim moratorium under Section 96 was considered to stay
the arbitration proceedings against the principal borrower
and two sets of guarantors. In the said case, an interim
moratorium under Section 96 was imposed in the IRP
proceedings against the principal borrower and one of the
guarantors.
41. The legal principles settled by the Delhi High Court in
Axis Trustee Services Ltd. are discussed in detail in the
above paragraphs. The Delhi High Court held that the
reference to “all the debts” in section 96(1)(a) has to be in
respect of all debts of a particular debtor, which is clear from
the language used in section 96(1)(b)(ii) to the effect that “the
creditors of the debtor shall not initiate any legal action or
proceedings in respect of any debt”. It is therefore held that
the effect of the interim moratorium is limited to the debts of a
particular debtor, and the interim moratorium under Section
96 in respect of one co-guarantor would not ipso facto apply
to the other co-guarantor.
33/38
1-SJ-12-2019.docx
42. The Apex Court in Embassy Property Developments
Pvt. Ltd observed that the NCLT is not a civil court, which
has jurisdiction by virtue of Section 9 of the Code of Civil
Procedure to try all suits of a civil nature excepting suits, of
which their cognisance is either expressly or impliedly
barred. It is thus held that NCLT can exercise only such
powers within the contours of jurisdiction as prescribed by
the statute, the law in respect of which it is called upon to
administer.
43. The Apex Court in BRS Ventures Investments Ltd.
referred to and relied upon the decision of the Apex Court, in
in Lalit Kumar Jain, where the Apex Court dealt with the
legal effect of approving the resolution plan in CIRP of the
corporate debtor on the liability of the surety in the context of
Section 135 of the Contract Act. It was held that the contract
between the creditor and the surety is independent;
therefore, the approval of the resolution plan of the principal
borrower will not amount to the discharge of the surety. It is
thus held that the same principles will apply when the
resolution plan is approved in the CIRP of the surety. In such
a case, the surety gets a discharge from his liability under the
guarantee by operation of law or by involuntary process, and
34/38
1-SJ-12-2019.docx
it will not amount to the discharge of the principal borrower. It
is thus held that in a loan transaction secured by a
guarantee, the guarantor has an obligation to repay the loan
amount to the creditor, and there is a separate and distinct
obligation on the borrower to pay the amount to the creditor.
Such a transaction creates a right in favour of the creditor to
proceed against the guarantor and borrower for recovery. It
is thus held that, consistent with the basic principles of the
Contract Act, the liability of the principal borrower and surety
is coextensive; the IBC permits separate or simultaneous
proceedings to be initiated under Section 7 by a financial
creditor against the corporate debtor and the corporate
guarantor.
44. The Apex Court further held that if the surety pays the
entirety of the amount payable under the guarantee to the
creditor, Section 140 of the Contract Act provides a remedy
to the surety to recover the entire amount paid by him in the
discharge of his obligations. Therefore, the surety is invested
with the rights of the creditor to recover from the principal
debtor the amount paid under the guarantee. If the surety
pays only a part of the amount payable to the creditor, the
35/38
1-SJ-12-2019.docx
equitable right the surety gets under Section 140 of the
Contract Act will be confined to the debt he cleared.
45. Thus, the same basic principles under the Contract Act
would apply to ascertain the benefit of the interim moratorium
when IRP proceedings are initiated under Sections 94 or 95.
In view of the legal principles, as discussed above, the
liability of a guarantor and the principal borrower is
coextensive; hence, a resolution plan approved in the IRP
proceedings of the guarantor will enure to the benefit of only
the guarantor, and he may be discharged of his liability under
the terms of the guarantee. However, the principal borrower
against whom no proceedings are initiated under the IB Code
will not have its liability discharged under the resolution plan
of the guarantor. The adjudication of the liability of the
principal borrower would therefore fall within the jurisdiction
of the civil court when no proceedings under the IB Code are
initiated against the principal borrower. The company law
tribunal would not have any jurisdiction to adjudicate the
liability of a principal borrower when no proceedings under
the IB Code are initiated against the principal borrower.
Hence, the words “any debt” used in Section 96 of the IB
36/38
1-SJ-12-2019.docx
Code cannot be stretched to benefit the debt of the principal
borrower, against whom no proceedings under the IB Code
are initiated. Therefore, the benefit of the interim moratorium
under Section 96 in the IRP proceedings for the personal
guarantor cannot be extended to a principal borrower in a
summary suit for recovery of amounts when no proceedings
under the IB Code are initiated against such borrower.
46. Hence, in the present case, the interim moratorium
imposed under Section 96 of the IB Code in the IRP
proceedings initiated for defendants nos. 3 and 4, who are
personal guarantors in the present suit, would not apply to
defendant no. 1, who is the principal borrower in the present
suit against whom no proceedings have been initiated under
the IB Code. Hence, this suit shall remain stayed only
against defendants nos. 2 to 4 until the respective
moratorium orders are operative.
47. I have already recorded reasons in the above
paragraphs that the prohibition in view of the moratorium
order under Section 14 of the IB Code in the CIRP
proceedings of defendant no.2 would not apply to defendant
no. 1 in the present suit, who is the principal borrower
37/38
1-SJ-12-2019.docx
against whom no proceedings are initiated under the IB
Code.
48. The suit shall therefore proceed against defendant no. 1.
[GAURI GODSE, J.]
38/38