High courts setting wrong precedents: granting stay on encashment of bank guarantees against companies undergoing insolvency resolution process.

Companies undergoing insolvency proceedings under the IBC 2016 are given statutory protection (moratorium) under section 14 of the Code against institution of suits or continuation of pending suits or proceedings including execution of any judgment, decree or order in any court of law, tribunal, arbitration panel or other authority.

As a recent trend, High Courts across the country are not shying away from granting stays on encashment of bank guarantees against the companies undergoing Corporate Insolvency Resolution Process. This trend which seems to be against interests of the corporate debtor protected under the Code and in direct violation of the legislative intent.

On 11th December 2017, Hon’ble Delhi High Court in one of its judgments diluted the moratorium provision and laid down that proceedings under section 14 of the code does not include all proceedings.

The court further laid down that proceedings such as appeals under section 34 of Arbitration Act, 1996, and other proceedings which are not against the interest of a corporate debtor cannot be said to be barred by the mandate of section 14 of the IBC.

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