Section 96 of IBC : Section 96: Interim Moratorium

Explanation using Example

Imagine a situation where a small business owner, Mr. Sharma, is struggling to pay off his business debts due to a downturn in the market. His creditors are constantly pressuring him for repayment, and some have even threatened legal action. To address this situation, Mr. Sharma decides to file an application under section 94 of the Insolvency and Bankruptcy Code, 2016, seeking relief and time to reorganize his finances.

As soon as Mr. Sharma files the application:

• An interim moratorium begins, which means that from the date of his application, all his debts are put on hold, and his creditors cannot demand repayment until the application is admitted by the adjudicating authority.
• If any of his creditors had already filed a lawsuit for debt recovery, those proceedings would be deemed to have been stayed, effectively pausing the legal process.
• During this interim moratorium period, new legal actions or proceedings related to his debts cannot be initiated by the creditors, giving Mr. Sharma some breathing space to plan his next steps.

Furthermore, if Mr. Sharma's business was a partnership firm, this interim moratorium would also protect his business partners from legal actions by the creditors in relation to the firm's debts.

However, certain transactions specified by the Central Government, after consultation with financial regulators, may be exempt from this interim moratorium, and creditors could still pursue legal actions for those transactions.