Interplay Between IBC Moratorium and Arbitration Proceedings

Vikrant D. Shetty

Oct 11

9 min read

Updated: Oct 21

When the National Company Law Tribunal admits an insolvency petition against a corporate debtor, the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 takes immediate effect. From that moment, no suit or proceeding can be instituted or continued against the corporate debtor. The text of Section 14 is broad, and its application to arbitration proceedings has been a significant source of litigation since the IBC came into force.

The intersection raises questions that matter to every party in a commercial arbitration where one side subsequently faces insolvency: Can an ongoing arbitration continue after CIRP admission? Can a new arbitration be commenced during the moratorium? What happens to arbitral awards made before or during the moratorium? And what becomes of arbitration claims that are not resolved by the time a resolution plan is approved?

What Section 14 Says

Section 14(1) of the IBC declares a moratorium on the date of admission of an insolvency application. The moratorium prohibits, among other things, the institution or continuation of suits or proceedings against the corporate debtor. Section 14(1)(a) specifically refers to suits or proceedings in any court of law, including proceedings for enforcement of any judgment, decree, or order in any court or tribunal.

The phrase 'any court or tribunal' has been the subject of extended judicial debate. Arbitral tribunals are not courts in the strict constitutional sense, but they are quasi-judicial bodies. The question of whether an arbitral tribunal falls within the ambit of Section 14 has been answered differently by different benches over the years before achieving greater clarity.

The Supreme Court's Position on Arbitration and Moratorium

Are Arbitration Proceedings Stayed During the IBC Moratorium?

The weight of judicial authority holds that arbitration proceedings are covered by the Section 14 moratorium. The reasoning is that the moratorium is designed to preserve the assets of the corporate debtor and prevent a race among creditors to establish claims and enforce them individually. Allowing arbitration to proceed during CIRP would undermine this collective purpose: each claimant in an arbitration would be able to get an award during the moratorium and then assert priority in the CIRP based on that award.

Courts have therefore held that pending arbitration proceedings against the corporate debtor are stayed upon CIRP admission. New arbitrations cannot be commenced against the corporate debtor during the moratorium period. The moratorium applies to both domestic arbitrations under the Arbitration and Conciliation Act, 1996 and international commercial arbitrations seated in India.

Enforcement of Arbitral Awards Is Also Stayed

The moratorium under Section 14(1)(a) explicitly prohibits the institution or continuation of proceedings for enforcement of any judgment, decree, or order in any court or tribunal. The enforcement of an arbitral award, which requires filing under Section 36 of the Arbitration Act to make it executable as a decree, is therefore stayed by the moratorium. An award creditor who already holds an award against the corporate debtor cannot proceed to execute it during the CIRP.

Proceedings Not Against the Corporate Debtor

The moratorium applies to proceedings against the corporate debtor, not to proceedings by the corporate debtor. The Supreme Court has clarified that the corporate debtor, through its resolution professional, may continue or initiate arbitration proceedings against third parties during the moratorium. These proceedings are not stayed because the restriction in Section 14 runs only against proceedings targeting the corporate debtor.

Similarly, the moratorium does not apply to proceedings against the directors or management of the corporate debtor in their personal capacity. Guarantors, directors facing personal liability claims, and other individuals associated with the corporate debtor are not protected by Section 14 unless they are themselves subject to separate insolvency proceedings.

Claims in Arbitration and the CIRP Process

How Does a Claimant File a Claim With the Resolution Professional?

When an arbitration is stayed by the moratorium, the claimant cannot abandon its claim. It must file a proof of claim with the resolution professional within the time prescribed by the IBBI regulations. If the underlying dispute is the basis for the claim, the claimant must quantify its claim as best it can and submit it to the resolution professional, who will admit or reject it.

A rejected claim can be challenged before the NCLT under Section 60(5) of the IBC. The NCLT has jurisdiction to adjudicate any question of law or fact arising out of or in relation to the insolvency resolution process. This gives the NCLT a supervisory role over disputed claims even where those claims were originally the subject of arbitration.

Arbitration Clauses and the Clean Slate Principle

Once a resolution plan is approved by the NCLT under Section 31 of the IBC, it binds all creditors, including those with pending arbitration claims. Claims not incorporated in the approved plan are extinguished. This is the clean slate principle confirmed by the Supreme Court. A creditor who has a pending arbitration claim at the time the plan is approved cannot revive that arbitration after the plan comes into force to recover amounts not provided for in the plan.

This has significant implications for arbitration claimants. The window between CIRP admission and plan approval is the only period in which a claim can be properly submitted and considered in the resolution process. A claimant who sits on its hands during the CIRP and relies on reviving the arbitration after approval will find itself barred.

Does the Section 14 Moratorium Apply to Arbitrations Seated Outside India?

The Section 14 moratorium, being a statutory provision of Indian law, applies to arbitrations seated in India. Its application to arbitrations seated outside India is more complex. A foreign arbitration tribunal is not bound by the Indian moratorium as a matter of the law of its seat. Parties in international arbitrations where India-seated companies are respondents in CIRP should take legal advice on whether the foreign tribunal will apply the Indian moratorium, and whether continuing to participate in a foreign arbitration might create complications in the CIRP.

The better approach for creditors with foreign-seated arbitrations is to file claims in the CIRP in parallel, preserving the right to participate in the resolution process regardless of what happens in the foreign arbitration.

The Moratorium Ends on Plan Approval or Liquidation

The Section 14 moratorium ends on the date the NCLT approves a resolution plan under Section 31, or on the date a liquidation order is passed under Section 33. Once the moratorium ends, arbitration proceedings can in principle resume, but only in respect of claims that survived the resolution process and were not extinguished by the approved plan or the liquidation.

Frequently Asked Questions

Can an arbitration that was commenced before CIRP continues during the moratorium?

No. Section 14(1)(a) stays continuation of pending proceedings against the corporate debtor. An arbitration commenced before CIRP admission is stayed on the date the moratorium takes effect. The arbitral tribunal cannot continue with the proceedings against the corporate debtor during this period.

Can the corporate debtor itself commence an arbitration during the moratorium?

Yes. The moratorium restricts proceedings against the corporate debtor, not proceedings initiated by it. The resolution professional, who manages the corporate debtor during CIRP, can initiate or continue arbitrations against third parties on behalf of the corporate debtor.

What should a party do if its arbitration is stayed by the IBC moratorium?

The party should immediately file a proof of claim with the resolution professional in the CIRP, quantifying its claim including any amounts that would have been the subject of the arbitration. This preserves the right to participate in the distribution under the resolution plan.

Does the moratorium apply to arbitrations seated outside India?

The Indian moratorium is a provision of Indian law and does not directly bind foreign-seated arbitral tribunals. However, the practical effect of a foreign award against a corporate debtor in CIRP is limited: enforcement in India will be stayed, and the award may not be recognised as a claim unless properly filed in the CIRP.

Can an arbitral award be enforced after the resolution plan is approved?

An arbitral award for pre-CIRP amounts is extinguished to the extent not provided for in the approved resolution plan. If the plan does not provide for the award, it cannot be enforced after plan approval. If the award relates to amounts arising after the CIRP commenced, the position depends on whether those amounts are treated as CIRP costs or claims of the resolved entity.

What if an arbitral award is made during the moratorium in breach of the stay?

An arbitral award made during the moratorium in breach of the Section 14 stay is in violation of an order of the NCLT. The NCLT has jurisdiction to address such breaches under the IBC. The award would be unenforceable against the corporate debtor during the CIRP and may be challenged in set-aside proceedings on grounds of the statutory bar.

What is the deadline for filing a claim with the resolution professional once an arbitration is stayed?

The public announcement made under Section 15 of the IBC states the last date for submission of claims, ordinarily fourteen days from the appointment of the interim resolution professional, and the CIRP Regulations permit claims to be filed up to the ninetieth day of the process in appropriate cases. A claimant whose arbitration has been stayed by the Section 14 moratorium should file promptly rather than wait for the arbitration to resume, since a late or missed claim risks exclusion from the resolution plan altogether.

Are guarantors of the corporate debtor protected by the Section 14 moratorium?

No. The moratorium under Section 14 protects only the corporate debtor against which CIRP has been admitted. Guarantors, directors facing personal liability, and other individuals connected with the corporate debtor remain exposed to arbitration and enforcement proceedings in their personal capacity, unless they are themselves subject to a separate insolvency process. A creditor holding an arbitral award against both the corporate debtor and a guarantor can generally still pursue the guarantor while the moratorium bars action against the company.

Can a party seek interim relief in a stayed arbitration once CIRP is admitted?

No relief affecting the corporate debtor can be sought while the Section 14 moratorium is in force, since interim measures in aid of arbitration are themselves a proceeding covered by the stay. A party seeking urgent protection of its position should instead raise the issue with the resolution professional or, where appropriate, before the National Company Law Tribunal under Section 60(5) of the IBC, which has jurisdiction over questions arising out of the insolvency resolution process.

What happens to an arbitration claim if the CIRP is withdrawn under Section 12A of the IBC?

Withdrawal of the CIRP under Section 12A restores the corporate debtor to its pre-insolvency position, and the Section 14 moratorium ceases to apply. An arbitration that was stayed can resume from the stage at which it was interrupted, and a claim already filed with the resolution professional loses its relevance once the CIRP itself is withdrawn and no resolution plan is approved.

Which forum decides whether a specific dispute is covered by the Section 14 moratorium?

The National Company Law Tribunal that admitted the insolvency application has jurisdiction to decide whether a particular proceeding, including an arbitration, falls within the scope of the Section 14 moratorium. A party uncertain whether its claim is stayed can apply to the NCLT for clarification or direction under Section 60(5) of the IBC rather than assuming either that the stay applies or that it does not.

Does the moratorium stay conciliation or mediation, or only formal arbitration?

The moratorium under Section 14 is not confined to arbitration; it extends to any suit or proceeding against the corporate debtor in a court or tribunal, a category broad enough to capture conciliation and other adjudicatory or quasi-adjudicatory processes aimed at resolving a dispute involving the corporate debtor. Purely voluntary negotiation between parties, which creates no binding proceeding, is not itself affected, but any process intended to produce an enforceable outcome against the corporate debtor should be treated with caution during the moratorium period.

Can a resolution professional settle an arbitration claim during the moratorium instead of contesting it?

Yes. The resolution professional manages the affairs of the corporate debtor during CIRP and can negotiate or settle a disputed claim, including one that arises from a stayed arbitration, where doing so is in the interest of the insolvency resolution process. Any settlement affecting the treatment of a claim in the resolution plan should be documented and reflected in the list of claims maintained by the resolution professional.

Does the moratorium prevent a secured creditor from enforcing security through arbitration?

Yes, to the extent the enforcement proceeding is directed against the corporate debtor. Section 14(1)(c) additionally bars action to foreclose, recover, or enforce any security interest created by the corporate debtor during the moratorium, and this applies whether the enforcement route chosen is arbitration, a civil suit, or another proceeding. A secured creditor must instead participate in the CIRP as a financial creditor and assert its security interest through the resolution or liquidation process.

Vikrant D. Shetty | Vikrant D. Shetty leads the Insolvency and Arbitration Practice at Vikrant D. Shetty & Associates, Advocates & Solicitors. The firm advises financial creditors, operational creditors, and corporate debtors in proceedings before the National Company Law Tribunal (NCLT), Mumbai Bench, and represents parties in domestic and international commercial arbitrations seated in India and abroad, including enforcement and challenge proceedings before the Bombay High Court.

This article is for general informational purposes only and does not constitute legal advice. For advice specific to your situation, please seek direct consultation with an advocate.