What Happens to Pending Cases After Moratorium Is Declared Under IBC?

Atishay Jain March 24, 2026 ·19 writeups ·joined May 2025

6 min read

When insolvency proceedings are initiated under the Insolvency and Bankruptcy Code, 2016 (IBC), one of the most significant legal consequences is the declaration of a moratorium under Section 14. This raises a critical question for creditors, litigants, and businesses alike: What happens to ongoing or pending cases once the moratorium kicks in?

Understanding this is essential for anyone involved in insolvency proceedings.

Understanding the Concept of Moratorium Under IBC

A moratorium is a legal pause imposed by the Adjudicating Authority (NCLT) once the Corporate Insolvency Resolution Process (CIRP) begins. During this period, the corporate debtor is protected from various legal actions to ensure a smooth resolution process.

If you want a deeper legal breakdown, you can explore how the moratorium under IBC applies to all proceedings and its broader implications.

What Happens to Pending Civil Cases?

Once the moratorium is declared:

All civil suits pending against the corporate debtor are stayed.
Courts cannot continue hearings or pass execution orders.
Any fresh filing of suits is also prohibited.

This ensures that no creditor gets an unfair advantage during CIRP.

Impact on Execution and Recovery Proceedings

Moratorium has a strong impact on recovery mechanisms:

Ongoing execution proceedings are halted immediately
Recovery actions under laws like SARFAESI Act are suspended
Enforcement of judgments or decrees is not allowed

This creates a “calm period” where the debtor’s assets are preserved.

What About Arbitration Proceedings?

Arbitration proceedings are also covered:

Pending arbitrations are stayed
New arbitration proceedings cannot be initiated
Awards cannot be enforced during the moratorium

Courts have consistently held that arbitration falls within the scope of “proceedings” under Section 14.

Treatment of Criminal Proceedings

Not all proceedings are affected:

Criminal proceedings are generally not stayed
Cases involving fraud, misrepresentation, or offences continue
However, recovery-oriented criminal cases may be indirectly impacted

This distinction is crucial — moratorium protects against civil liability, not criminal accountability.

Cheque Bounce Cases Under Section 138 NI Act

This is a commonly debated area:

Proceedings under Section 138 (Negotiable Instruments Act) may continue
However, enforcement or recovery aspects may be restricted
Courts have taken nuanced positions depending on facts

What Happens to Proceedings Against Guarantors?

Moratorium does not extend to personal guarantors (as clarified by courts)
Creditors can initiate or continue proceedings against guarantors

This ensures creditors still have alternate recovery routes.

Effect on Tax and Regulatory Proceedings

Some regulatory proceedings may continue
Tax authorities may proceed with assessment
However, coercive recovery actions are restricted

Key Judicial Interpretations

Courts have played a crucial role in defining the scope:

Moratorium applies broadly to “proceedings” including suits, arbitration, and recovery actions
It is not absolute — exceptions exist for criminal and certain regulatory matters
The objective is to maintain the corporate debtor as a going concern

Why Staying Pending Cases Is Important

The suspension of pending cases serves multiple purposes:

Prevents asset depletion
Ensures equal treatment of creditors
Centralizes claims under CIRP
Enables effective resolution planning

Without this, insolvency proceedings would become chaotic and fragmented.

Conclusion

Once a moratorium is declared under IBC, most pending civil, arbitration, and recovery proceedings against the corporate debtor are put on hold. However, exceptions exist, especially in criminal and guarantor-related matters.

For a detailed legal interpretation, you can refer to this guide on how the moratorium under IBC applies to all proceedings and understand its complete scope.