Moratorium U/S 14 IBC Bars Proceedings Against Corporate Debtor, Not Counterclaims Pursued By It: Bombay High Court

The Court consequently declined to interfere with an arbitral order vacating an earlier status quo arrangement and permitting a housing society to appoint another developer.

The Court was hearing an appeal under Section 37(2)(b) of the Arbitration and Conciliation Act, 1996, challenging an arbitral tribunal’s interim order under Section 17. The corporate debtor contended that the tribunal lacked jurisdiction to entertain the society’s application during the Corporate Insolvency Resolution Process.

A Bench of Justice Somasekhar Sundaresan observed: “The suspension of limitation even for proceedings initiated by the corporate debtor is related to adjusting for displacement of the management and nothing else. If the intention of the legislature was to also bar proceedings that may be pursued by the corporate debtor as a counter claim to claims against the corporate debtor, the legislature could have used the same formulation of ‘by or against’ in Section 14(1)(a) of the IBC, in much the same manner it used it in Section 60(6) of the IBC”.

Justice Sundaresan added: “I am not inclined to read into Section 14(1)(a) a bar on prosecution of proceedings that may be pursued by the corporate debtor, in reliance on Section 60(6) of the IBC. Such an approach can have far-reaching and unintended repercussions, and if at all this element will need a legislative amendment and not a judicial expansion in interpretation.”

Advocate Shadab Jan appeared for the petitioner, while Advocate Naushad Engineer appeared for the respondent society.

Background

The parties entered into a development agreement in 2010. The society’s members vacated their flats, but the Court noted that, apart from excavation and piling, the developer carried out no redevelopment work between 2011 and 2016. The society terminated the agreement in 2017, citing persistent defaults.

After arbitration commenced, the society sought a declaration that the agreement stood terminated. The developer filed a counterclaim seeking to set aside the termination, obtain specific performance or, alternatively, recover its investment and damages. In 2018, the parties volunteered to maintain the status quo.

The developer entered CIRP for a second time in December 2022. In January 2024, the High Court extended the tribunal’s mandate after holding that the moratorium did not prevent the corporate debtor from pursuing its counterclaim. That order was not challenged.

The society subsequently applied to vacate the status quo arrangement and sought permission to appoint a new developer. The tribunal allowed the application in January 2025. The corporate debtor challenged that order, arguing that the society’s application amounted to continuation of proceedings against it during the moratorium.

The society contended that its application concerned the interlocutory protection granted in aid of the counterclaim, which the corporate debtor was entitled to pursue. It also submitted that the development agreement had been terminated before the CIRP and was not an asset protected by the moratorium.

Court’s Observations

Counterclaim By Corporate Debtor Is Not Barred

The Court distinguished Alchemist Asset Reconstruction Co. Ltd. v. Hotel Gaudavan (P) Ltd. (2018), which concerned proceedings instituted against a corporate debtor after the moratorium commenced. In the present case, arbitration began before the CIRP, and the continuing proceeding was the counterclaim pursued by the corporate debtor.

The Court held: “I am not inclined to take a view that Section 14(1)(a) of the IBC must be read to mean that a claim by the corporate debtor should be barred if it were a counter to a claim against the corporate debtor. Neither side has indicated any authority differentiating between claims made by the corporate debtor in this manner. It would be unreasonable to make this distinction in the absence of a legislative stipulation.”

Referring to P. Mohanraj v. Shah Brothers Ispat (P) Ltd. (2021), the Court observed that Section 14 protects the corporate debtor from pecuniary attacks and prevents depletion of its estate. A successful counterclaim would add to the estate rather than deplete it, the Court added.

Section 60(6) Cannot Expand Section 14(1)(a)

The corporate debtor argued that Section 60(6) excludes the moratorium period while calculating limitation for proceedings “by or against” a corporate debtor, indicating that proceedings initiated by the debtor were also suspended.

The Court rejected this construction and held that the broader phrase used in Section 60(6) could not be imported into Section 14(1)(a), which refers only to proceedings “against” the corporate debtor.

The Court observed: “While this is attractive at first blush, I am not persuaded to take a view that the expression ‘by or against a corporate debtor’ positively used in Section 60(6) of the IBC can be used to judicially insert the words ‘by or’ into the expression ‘suits or proceedings against the corporate debtor’ used in Section 14(1)(a) of the IBC.”

Referring to New Delhi Municipal Council v. Minosha India Ltd. (2022), the Court stated that the suspension of limitation accounts for the displacement of the corporate debtor’s management and the possibility that the resolution professional may not pursue proceedings promptly. It does not establish a prohibition against proceedings initiated by the corporate debtor.

Tribunal Could Revisit Status Quo Arrangement

The Court noted that the order extending the tribunal’s mandate had attained finality and expressly permitted the corporate debtor’s counterclaim to proceed. The tribunal therefore possessed jurisdiction to determine the interlocutory measures necessary while adjudicating that counterclaim.

The Court acknowledged that the tribunal had erroneously described the mandate-extension order as permitting both the society’s claim and the corporate debtor’s counterclaim. However, it held that the error was not fatal because the society’s interim application was referable to the counterclaim.

The Court stated: “The pursuit of the Counter Claim not being barred, as explained above, and the Learned Arbitral Tribunal being within jurisdiction to decide what the appropriate interim relief would be, it cannot be held that the Learned Arbitral Tribunal was without jurisdiction or that it fell foul of Section 14(1)(a) of the IBC.”

The Court added that the status quo order was a provisional arrangement volunteered by the parties rather than a reasoned determination on interim relief. The tribunal was therefore entitled to reconsider the arrangement when only the counterclaim could proceed.

Terminated Agreement Was Not Protected As An Asset

Applying A.A. Estates v. Kher Nagar Sukhsadan Co-operative Housing Society Ltd. (2025), the Court held that a development agreement terminated before the CIRP was not an asset protected under Section 14(1)(d).

The Court noted that possession was contractually to pass only after the building plans were sanctioned. The record did not indicate that the plans had been sanctioned or that a commencement certificate had been obtained.

The Court further held that Section 60(5)(c) conferred limited residuary jurisdiction upon the insolvency adjudicating authority. Referring to Tata Consultancy Services Ltd. v. Vishal Ghisulal Jain (2022), it observed that this jurisdiction was not attracted because the alleged contractual defaults and termination preceded and were unrelated to the CIRP.

Conclusion

The Bombay High Court disposed of the appeal without interfering with the arbitral tribunal’s interim order. It vacated the stay imposed on the arbitration proceedings.

The Court directed the parties to appear before the arbitral tribunal within two weeks of the judgment being uploaded. The tribunal was directed to schedule the next procedural steps for a date falling after six weeks from the upload.

Cause Title: A A Estates Private Limited Through Its Resolution Professional v. Govind Niwas Co-operative Housing Society Limited (Neutral Citation: 2026:BHC-OS:23161)

Appearances

Petitioner: Advocates Shadab Jan and Kartik Irabatti, instructed by Chinmay Bhojane

Respondent: Advocates Naushad Engineer, Rashmin Khandekar, Y. Limathwalla, Amit T. and Fleur D’souza, instructed by Asahi Legal

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