2025 (3) TMI 203 - HC - IBC

Seeking restoration of the suit - Exclusion of period of moratorium under Section 14 of the Insolvency and Bankruptcy Code 2016 (IBC) for filing an application under Order IX Rule 9 of the Code of Civil Procedure 1908 (CPC) for restoration of suits dismissed for non-prosecution - HELD THAT - The proceedings under the IBC were initiated by the appellant/plaintiff i.e. the erstwhile Corporate Debtor on 29.01.2018. Thus there is no merit in the plea that the application under Order IX Rule 9 of the CPC was filed by the same set of counsels for the simple reason that the moratorium that crept in on filing of the proceedings under the IBC left no legal right or power in the Ex-Directors/Management to continue with the civil suit. The plea by the learned counsel for the respondent that the order dated 14.05.2018 applied moratorium only to suits or legal proceedings instituted against the Corporate Debtor and not to those initiated by the Corporate Debtor is only recorded to be rejected. This Court finds merit in the plea advanced by the learned counsel for the appellant/plaintiff that the period of moratorium i.e. from 14.05.2018 to 28.11.2019 must be excluded. It is during such period that the two suits were dismissed for non-prosecution on 04.06.2018. The fact that the application was filed on 06.12.2018 despite instructions from the IRP on 05.10.2018 does not carry significant weight especially considering that the appellant/plaintiff was entangled in the Corporate Insolvency Resolution Process which was eventually successful and resulted in the revival of the company. The said delay if any ought to be condoned. Conclusion - The period of moratorium under Section 14 of the IBC must be excluded when computing the limitation period for filing restoration applications under Order IX Rule 9 of the CPC. The impugned order set aside - matter is remanded back to the learned Trial Court for further trial of the matter in accordance with law - appeal allowed.

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered by the Court in this judgment include:

Whether the period of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) should be excluded when computing the period of limitation for filing an application under Order IX Rule 9 of the Code of Civil Procedure, 1908 (CPC) for restoration of suits dismissed for non-prosecution.
Whether the trial court's dismissal of the appellant's applications for restoration of suits was justified given the financial difficulties and subsequent insolvency proceedings initiated by the appellant.
The applicability and interpretation of Section 60(6) of the IBC in the context of the appellant's delay in filing the restoration applications.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Exclusion of Moratorium Period under IBC

Relevant Legal Framework and Precedents: The legal framework involves Section 14 and Section 60(6) of the IBC. Section 14 imposes a moratorium on suits or proceedings against the corporate debtor, while Section 60(6) allows the exclusion of the moratorium period when computing limitation periods for suits or applications by or against the corporate debtor.
Court's Interpretation and Reasoning: The Court interpreted Section 60(6) to mean that the period of moratorium should be excluded from the limitation period for filing restoration applications, even if the suits were initiated by the corporate debtor. The Court relied on the Supreme Court's interpretation in the case of New Delhi Municipal Council v. Minosha India Limited, which clarified that the moratorium period is excluded in computing limitation for suits or applications by the corporate debtor.
Key Evidence and Findings: The Court noted the initiation of insolvency proceedings by the appellant on 29.01.2018 and the appointment of an Insolvency Resolution Professional (IRP) on 14.05.2018. The Court also considered the email dated 07.11.2017 instructing the counsel to hold proceedings due to financial constraints.
Application of Law to Facts: The Court applied Section 60(6) of the IBC to exclude the moratorium period from the limitation period for the appellant's restoration applications, finding that the delay in filing was justified given the insolvency proceedings.
Treatment of Competing Arguments: The respondent argued that the moratorium only applied to suits against the corporate debtor, not those initiated by it. The Court rejected this argument, emphasizing the exclusion of the moratorium period as per Section 60(6).
Conclusions: The Court concluded that the moratorium period must be excluded, and the delay in filing the restoration applications should be condoned.

Issue 2: Justification for Dismissal by Trial Court

Relevant Legal Framework and Precedents: Order IX Rule 9 of the CPC pertains to the restoration of suits dismissed in default. The trial court dismissed the applications based on the appellant's failure to prosecute the suits and lack of timely communication regarding financial difficulties.
Court's Interpretation and Reasoning: The Court found that the trial court's dismissal was not justified, as it failed to consider the impact of the moratorium under the IBC and the appellant's financial constraints.
Key Evidence and Findings: The Court acknowledged the appellant's financial difficulties and the instructions from the IRP to file restoration applications, which were delayed due to the insolvency process.
Application of Law to Facts: The Court applied the principles of the IBC to find that the trial court should have considered the exclusion of the moratorium period and the appellant's financial situation before dismissing the applications.
Treatment of Competing Arguments: The respondent's argument that the applications were filed beyond the limitation period was countered by the Court's interpretation of Section 60(6) of the IBC.
Conclusions: The Court concluded that the trial court's dismissal was not sustainable, and the restoration applications should be allowed.

3. SIGNIFICANT HOLDINGS

The Court held that the period of moratorium under Section 14 of the IBC must be excluded when computing the limitation period for filing restoration applications under Order IX Rule 9 of the CPC.
The Court emphasized the principle that the moratorium period provides a "period of calm" for the corporate debtor, during which the management is displaced and the resolution professional takes over, thereby justifying the exclusion of this period from limitation calculations.
The Court set aside the trial court's order dismissing the restoration applications and remanded the matter for further trial, recognizing the impact of the insolvency proceedings on the appellant's ability to prosecute the suits.
Final determinations included the direction for the parties to appear before the trial court for further proceedings, with the exclusion of the moratorium period from the limitation period being a key factor in the decision.

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