Introduction

The declaration of moratorium during insolvency proceedings often creates confusion among litigants and lawyers alike. A common misconception is that all cases against a corporate debtor come to a complete halt once moratorium is imposed.

This is not legally correct.

While moratorium stays debt and recovery-related proceedings, it does not bar personal, independent, or non-debt proceedings, such as suits for injunction, declaration, or protection of property rights, provided they do not seek recovery of money or enforcement of a debt.

This blog explains the scope of moratorium and clarifies which types of cases are not affected by it.

What Is the Purpose of Moratorium?

Moratorium is imposed to:

• Prevent depletion of assets of the corporate debtor

• Stop individual creditors from enforcing recovery

• Allow a calm period for insolvency resolution

• Ensure equal treatment of creditors

The focus of moratorium is debt enforcement, not the complete suspension of all legal rights or disputes.

What Moratorium Clearly Stays

Moratorium applies to:

• Recovery suits

• Execution of money decrees

• Arbitration or proceedings for payment of dues

• Enforcement of security interests

• Attachment of assets for debt recovery

In short, any proceeding whose primary object is recovery of money or enforcement of a financial liability is stayed.

Personal and Non-Debt Cases Are Not Automatically Stayed

Moratorium does not bar proceedings that do not involve debt recovery, such as:

• Suits for permanent or temporary injunction

• Suits for declaration of rights or title

• Proceedings to restrain illegal acts

• Protection of possession

• Matters involving statutory or civil rights not linked to recovery

If a case does not seek payment, execution, or recovery, it generally falls outside the scope of moratorium.

Injunction Suits Can Continue During Moratorium

An injunction suit typically seeks:

• Restraint against illegal construction

• Protection from dispossession

• Prevention of third-party rights creation

Such suits do not result in recovery of money. They aim to preserve rights or status quo.

Therefore:

• An injunction suit against a corporate debtor can continue

• Interim reliefs can be considered

• Courts are not barred from adjudicating such disputes

Moratorium does not give a corporate debtor a licence to violate rights under the shield of insolvency.

Why Non-Debt Cases Are Outside Moratorium

Moratorium is not intended to:

• Freeze all civil rights

• Bar access to courts for unrelated disputes

• Protect wrongful acts unrelated to debt

If moratorium were applied blindly to all proceedings, it would:

• Encourage misuse of insolvency process

• Allow continuing violations without remedy

• Harm third parties who are not creditors

Courts have consistently interpreted moratorium narrowly, restricting it to debt enforcement only.

Test to Determine Whether a Case Is Stayed

To determine whether a proceeding is hit by moratorium, courts usually examine:

• Does the case seek recovery of money?

• Does it enforce a financial or operational debt?

• Does it result in attachment or sale of assets?

If the answer is no, moratorium does not apply.

Examples of Proceedings That Can Continue

• Suit restraining illegal alienation of property

• Injunction against breach of contract not involving money claim

• Declaratory suits on ownership or rights

• Proceedings for protection of possession

• Environmental or regulatory actions

Each case is examined on its substance, not merely its title.

Moratorium Is Not a Blanket Immunity

A corporate debtor under moratorium:

• Is protected from recovery actions

• Is not immune from lawful restraint

• Cannot violate rights under the cover of insolvency

Moratorium balances interests; it does not eliminate accountability.

Practical Guidance for Litigants

If you are facing a corporate debtor under moratorium:

• Examine whether your case is debt-related

• Frame reliefs carefully

• Avoid claims that resemble recovery

• Seek declaratory or injunctive relief where appropriate

Courts look beyond form and examine the real nature of the relief sought.

Conclusion

Moratorium is a powerful tool, but its scope is limited. It stays only debt and recovery-related proceedings against a corporate debtor. Personal, independent, and non-debt cases—such as injunction suits—are not automatically barred and can proceed if they do not seek recovery of money.

Understanding this distinction prevents unnecessary delays and ensures that insolvency law is not misused as a shield against all legal accountability.