What Creditors Can Still Do During a CIIRP Without a Moratorium

A creditor-initiated insolvency resolution process under Chapter IV-A of the Insolvency and Bankruptcy Code, 2016, inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2026, does not bring an automatic moratorium on commencement. Unlike section 14, which applies the moment the National Company Law Tribunal admits an ordinary insolvency application, section 58G requires the resolution professional to apply for a moratorium after obtaining committee of creditors approval, and the Tribunal may confirm or reject that application. Until it is filed, a counterparty may continue a pending suit, invoke arbitration, or enforce security. This article sets out what remains lawful in that interval and how a legal team should manage it.

Section 58G Puts the Moratorium in the Tribunal's Hands, Not the Statute's

Under the Insolvency and Bankruptcy Code, 2016 (the Code), the moratorium has always been an incident of admission. Section 14 operates by force of statute: on admitting an application the Adjudicating Authority declares the moratorium, and no party has to pray for it. The Insolvency and Bankruptcy Code (Amendment) Act, 2026 (the 2026 Amendment) breaks that link. Sections 58A to 58K, forming Chapter IV-A, establish a creditor-initiated insolvency resolution process (CIIRP) that commences on the resolution professional's public announcement, and nothing about that announcement stays a single proceeding.

The commencement position needs stating precisely. The 2026 Amendment received assent on 6 April 2026 and notification S.O. 2625(E) dated 22 May 2026 brought a large part of it into force from 26 May 2026, with the balance left to later appointed dates. No creditor-initiated process can begin yet in any event: section 58A confines it to categories of corporate debtors notified by the Central Government and section 58B to financial creditors within a notified class of financial institutions, neither notification has issued, and the regulations of the Insolvency and Bankruptcy Board of India for the process remain at the discussion paper stage.

When Does a CIIRP Actually Begin?

A financial creditor from a class of financial institutions to be notified by the Central Government, holding at least fifty-one per cent in value of the financial debt, tells the corporate debtor of its intention and gives it not less than thirty days to make a representation. If it presses on, it takes fresh approval at the same threshold, appoints an insolvency professional as resolution professional (the RP), and the RP makes a public announcement. Commencement dates from that announcement, and the tribunal is nowhere in the sequence.

Nor does any stay come with it. The board is not suspended and keeps managing the company, with the RP exercising oversight, attending board meetings and holding a veto over board resolutions. The process must complete within one hundred and fifty days, extendable once by up to forty-five, and a plan needs sixty-six per cent approval of the committee of creditors (the CoC).

What Approvals Does the Resolution Professional Need Before Applying for a Moratorium?

Section 58G is where the design shows. The resolution professional may apply to the Adjudicating Authority for a moratorium for the purposes of section 14(1) read with section 14(3), which applies mutatis mutandis, after obtaining the approval of the CoC; before the CoC is constituted, a proviso permits the application on the approval of notified financial creditors representing not less than fifty-one per cent in value of the debt due to them. The moratorium commences from the date of the application. The tribunal then either confirms it, if satisfied that it is required for the proper and efficient conduct of the process, or rejects the application, and the resolution professional must publicly announce both the filing and any rejection.

The exposed window is therefore not commencement to order. It runs from commencement to the date of filing, and it sits entirely in the hands of the resolution professional and the creditors whose approval he needs. A secured creditor midway through enforcement has little reason to vote quickly for a stay that halts it.

What a Counterparty May Lawfully Do Before the Application Is Filed

Section 14 has not been triggered, section 58G has not been invoked, and nothing else in the Code interdicts creditor action. Once section 14 does apply in a conventional corporate insolvency resolution process (CIRP), the position is strict. In Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan Pvt. Ltd. [(2018) 16 SCC 94] the Supreme Court held that an arbitration instituted after the moratorium takes effect is non est in law, section 14(1)(a) interdicting the institution and continuation of proceedings against the corporate debtor. In P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd. [(2021) 6 SCC 258] the Court brought proceedings under sections 138 and 141 of the Negotiable Instruments Act, 1881 within the same bar.

Neither holding reaches a CIIRP before the moratorium application is made. A supplier can file and press a summary suit. A counterparty can issue a notice of arbitration, constitute a tribunal and seek interim measures under section 9 or section 17 of the Arbitration and Conciliation Act, 1996. A payee can file a complaint on a dishonoured cheque. The date of the section 58G application becomes the cut-off.

Can a Secured Creditor Enforce Security During a CIIRP?

Enforcement is where the exposure bites. Section 14(1)(c) shuts down action to enforce a security interest, including measures under the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI). In the CIIRP window there is nothing to shut it down: a secured creditor may issue a demand notice under section 13(2), take possession under section 13(4) and proceed to sale.

Guarantees sit outside the moratorium in any event, a performance bank guarantee being excluded from the definition of security interest in section 3(31) while section 14(3)(b) preserves action against a surety. Execution against company assets, and recovery of property occupied by the company under section 14(1)(d), are barred once section 14 applies and open before it does.

Action by a counterparty	During CIRP once section 14 applies	During CIIRP before the section 58G application
Filing or continuing a civil suit	Barred by section 14(1)(a)	Not barred
Invoking or continuing arbitration	Barred; an arbitration begun after the moratorium is a nullity	Not barred
Complaint under section 138 of the Negotiable Instruments Act, 1881	Barred against the company	Not barred
Possession and sale under SARFAESI	Barred by section 14(1)(c)	Not barred
Invoking a performance bank guarantee	Permitted	Permitted
Execution of a decree or award against company assets	Barred by section 14(1)(b) and (c)	Not barred
Recovery of property occupied by the company	Barred by section 14(1)(d)	Not barred

The table states the default. Once the section 58G application is filed the position reverses, and contravention ceases to be merely ineffective: section 67B, in force since 26 May 2026, makes a creditor who violates a moratorium liable to a penalty of up to two crore rupees.

The Race a Missing Moratorium Invites

Chapter IV-A provides that no application for a corporate insolvency resolution process or a pre-packaged process shall be filed or admitted during a CIIRP. That bar is only as good as the tribunal's knowledge of the CIIRP, and admission has become much faster: section 7 now carries an explanation that once debt and default are established no other intervening or attendant circumstance may be considered, displacing the discretion recognised in Vidarbha Industries Power Ltd. v. Axis Bank Ltd. [(2022) 8 SCC 352].

A financial creditor outside the notified class cannot start a CIIRP but can still file under section 7. If that petition is admitted the company loses what the CIIRP was worth to it: the board is suspended, section 14 applies at once, and the process being negotiated is displaced by the one it was meant to avoid.

Why the Company May Want the Order More Than Its Creditors Do

This inverts the usual instinct. In a CIRP the moratorium is the creditors' collective instrument and the company's consolation. In a CIIRP the board keeps control, so the moratorium preserves a process in which management stays in the chair. Counsel who treat the section 58G application as the resolution professional's problem have misread the incentive.

Managing the Interval: A Working Protocol

That schedule is the first task: every live and threatened proceeding, including suits, arbitrations, complaints under section 138, applications before the Debts Recovery Tribunal, SARFAESI notices at each stage and execution petitions. Each entry should record the forum, the next date, the stage, the relief claimed and the asset exposed. Build it to be filed.

The second task is to separate the reversible from the irreversible. An adjournment lost can be recovered. A secured asset sold and a sale certificate issued, a guarantee encashed, or a receiver appointed over a business unit cannot. Those steps deserve a defence budget and, where a counterparty is on the verge of one, a standalone application.

Correspondence discipline is the third. Every request to the resolution professional and every reply should be in writing, because the same file will answer a later allegation that the company failed to cooperate.

What the Board Needs to Be Told

Directors should be told plainly that the company is exposed and that the exposure ends on a date the company can influence. They should also be told about the contract book. Many financing documents and long-term supply contracts define an insolvency event by reference to the admission of an application by a tribunal. A CIIRP produces no such order at commencement, and whether a cross-default or termination right is triggered by a privately made public announcement is a question of construction that belongs on the board's table early.

Whether a Later Moratorium Reaches Backwards, and Where Guarantors Now Stand

Because the moratorium runs from the date of the application, the question is narrower than it first appears. Everything done between the public announcement and that filing stands, and nothing in Chapter IV-A reaches back to undo it. The harder case is rejection: a creditor who ignores the moratorium is at risk while it runs, yet the tribunal may refuse to confirm it weeks later, and whether acts done in that period are validated by the refusal is untested. What remains reachable lies elsewhere. A payment made during the process can be examined as an avoidance transaction, now defined in section 5(2A), and section 58H(3)(c) stretches the lookback for sections 43, 46 and 50 back to the creditor-initiated insolvency commencement date if the process converts.

The Interim Moratorium Under Section 96 After the 2026 Change

The contrast with Part III is sharp, and it has just moved. Section 96 gave a personal guarantor an interim moratorium arising automatically on the filing of an application under section 94 or section 95, without any order at all. The 2026 Amendment disapplies it where an application is filed to initiate an insolvency resolution process in respect of a personal guarantor to a corporate debtor. That change is in force from 26 May 2026, and the period for the resolution professional's report under section 99 has moved from ten days to twenty-one.

The Bombay High Court has applied it already. In Tata Capital Financial Services Ltd. v. Neel Motors LLP (Commercial Arbitration Petition No. 620 of 2021, decided on 24 July 2026), Somasekhar Sundaresan J. held that the words "where an application is filed" in section 96(4) cover applications pending when the amendment took effect, permitted the lender to commence arbitration against the guarantors, and granted disclosure of assets on affidavit with a restraint on alienation.

Frequently Asked Questions

Does the start of a CIIRP stop a commercial suit already pending against the company?

No. Commencement of a creditor-initiated process does not by itself stay anything. The suit continues and the company must defend it on the merits until the resolution professional applies for a moratorium under section 58G.

Can a counterparty invoke arbitration after the CIIRP public announcement?

Yes, until the application is made. The bar applied in Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan Pvt. Ltd. depends on a section 14 moratorium being in force. Before that, a notice of arbitration is valid, a tribunal can be constituted, and interim relief can be sought under the Arbitration and Conciliation Act, 1996.

Is a lender free to continue SARFAESI measures during a CIIRP?

Until the moratorium application is filed, yes. Possession under section 13(4), an application to the District Magistrate and a sale can all proceed. This is the exposure most worth defending, because a completed sale is very difficult to reverse afterwards.

If the NCLT confirms a moratorium later, does it undo what happened before?

Only partly. The moratorium runs from the date the resolution professional applies, not from the order, so steps taken before that filing stand. Payments made during the process may still be examined as avoidance transactions if it converts into a full CIRP, and section 58H(3)(c) extends the lookback to the commencement date.

Can the company protect itself before a moratorium is in place?

Yes. It keeps its ordinary remedies, including interim applications in the suit or arbitration, and it may object to the initiation before the NCLT under section 58C within thirty days of the commencement date. It can also press the resolution professional in writing to apply under section 58G without delay.

Do personal guarantors still get an automatic interim moratorium?

Not where the guarantee is to a corporate debtor. Section 96 has been disapplied for applications to initiate an insolvency resolution process against such a guarantor with effect from 26 May 2026, and the Bombay High Court has held that the change applies to applications already pending on that date.

Is the creditor-initiated process available yet?

Not for practical purposes. Much of the 2026 Amendment commenced on 26 May 2026, but no creditor-initiated process can start until the Central Government notifies the categories of corporate debtors under section 58A and the class of financial institutions under section 58B, and the Board's regulations for the process are still in draft.

What is Chapter IV-A of the Insolvency and Bankruptcy Code?

Chapter IV-A, comprising sections 58A to 58K, was inserted by the Insolvency and Bankruptcy Code (Amendment) Act, 2026 to create a creditor-initiated insolvency resolution process, commencing on the resolution professional's public announcement rather than on an order of the National Company Law Tribunal. It is available only to financial creditors within a class of financial institutions notified by the Central Government, against corporate debtors within categories the Central Government separately notifies, and neither notification had issued as of the process becoming operative from 26 May 2026.

How much creditor approval is needed to start a CIIRP?

A notified financial creditor must hold at least fifty-one per cent in value of the financial debt to give the initial notice to the corporate debtor, and the same fifty-one per cent threshold applies again before the resolution professional makes the public announcement that commences the process. Before the committee of creditors is constituted, that same fifty-one per cent threshold governs the resolution professional's application for a moratorium under section 58G as well.

How long does a creditor-initiated insolvency resolution process take?

A CIIRP under Chapter IV-A of the Insolvency and Bankruptcy Code, 2016 must complete within one hundred and fifty days of commencement, extendable once by up to forty-five days. A resolution plan requires the approval of sixty-six per cent of the committee of creditors by value, the same threshold that applies to a plan under the ordinary corporate insolvency resolution process.

What happens to the company's board of directors during a CIIRP?

The board is not suspended during a CIIRP, unlike in an ordinary corporate insolvency resolution process once section 14 applies. The resolution professional exercises oversight rather than replacing management, attending board meetings and holding a veto over board resolutions, so the existing board continues to run the company subject to that oversight until a moratorium is confirmed or the process concludes.

What penalty applies for breaching a moratorium once it is confirmed?

Section 67B of the Insolvency and Bankruptcy Code, 2016, in force since 26 May 2026, makes a creditor who violates a confirmed moratorium liable to a penalty of up to two crore rupees. The penalty applies only once the moratorium under section 58G has been confirmed by the Adjudicating Authority; action taken before the resolution professional's application does not attract it, because no moratorium is yet in force.

Can another insolvency application be filed against the same company during a CIIRP?

Chapter IV-A bars filing or admission of an application for a corporate insolvency resolution process or a pre-packaged process during a CIIRP, but only if the tribunal knows the CIIRP is underway. A financial creditor outside the notified class can still file under section 7 of the Insolvency and Bankruptcy Code, 2016, and if that application is admitted, the company loses the protections a CIIRP was meant to preserve, since the board is then suspended and section 14 applies immediately.

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

Related reading: IBC versus SARFAESI, and which route delivers faster asset realisation.

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.