Insolvency moratorium shields company from limitation even when it could sue

A company that went through insolvency waited 16 months after the moratorium ended to file an arbitration case. The other side said: too late.

New Delhi Municipal Council (NDMC) had placed a purchase order worth Rs.16.20 crores with Minosha India Limited in 2015. The contract went sour. NDMC terminated it, alleging the company was non-responsive. Minosha tried to invoke arbitration in June 2016, suggesting names of arbitrators. NDMC disagreed and proposed arbitration through the Delhi International Arbitration Centre instead. The dispute sat in limbo — the purchase order document, with its terms and conditions, lay gathering dust in a file.

Then, in May 2018, Minosha went through insolvency proceedings. The National Company Law Tribunal (NCLT), Mumbai admitted an application under Section 10 of the Insolvency and Bankruptcy Code, 2016 — the provision that allows a corporate debtor to initiate its own insolvency — and declared a moratorium under Section 14, a legal freeze on all lawsuits, claims, and enforcement actions against the company. The NCLT order sheet, bearing the date of admission, marked the beginning of a period of stillness. A resolution plan was approved on November 28, 2019, and the company emerged from insolvency.

On November 25, 2020 — 16 months after the moratorium ended — Minosha filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996 (a provision that allows a party to ask the High Court to appoint an arbitrator when the other side refuses to cooperate). The arbitration application file, thin and newly stamped, was presented before the Delhi High Court. NDMC cried foul. The limitation period for such an application, NDMC argued, had expired on July 20, 2019 — three years from NDMC's reply dated July 20, 2016. Minosha had filed 16 months too late.

When the moratorium became the battleground

Minosha had a simple answer: the entire period of the insolvency moratorium must be excluded from the limitation calculation. Section 60(6) of the IBC says exactly that — in computing the period of limitation for any suit or application by or against a corporate debtor for which a moratorium has been ordered, the entire period of the moratorium shall be excluded.

NDMC's counter-argument was clever. The moratorium under Section 14 only bars lawsuits against the corporate debtor. It does not stop the corporate debtor itself from filing cases. Since Minosha could have filed its arbitration application during the moratorium, NDMC argued, the exclusion under Section 60(6) should not apply. The provision, NDMC said, was meant to protect debtors from being sued during insolvency — not to give them extra time to sue others.

What the words actually said

The Delhi High Court appointed an arbitrator by consent, but NDMC appealed to the Supreme Court. The core question was deceptively simple: does Section 60(6) mandate exclusion of the moratorium period for proceedings by the corporate debtor, even though the moratorium itself did not bar those proceedings?

The Supreme Court looked at the language of Section 60(6). The provision does not say "for any suit or application that is barred by the moratorium." It says "for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part." The court held: "The words 'for which an order of moratorium has been made' serve as the point of reference and sine qua non for applying the exclusion." They identify the corporate debtor and the period to be excluded. They do not limit the exclusion only to proceedings that the moratorium itself prohibits.

The court held that the phrase "for which an order of moratorium has been made" is the point of reference — the sine qua non (the essential condition) for applying the exclusion. It also specifies the period to be excluded. It does not ask whether the particular proceeding was barred by the moratorium. It asks only whether a moratorium was in place for that corporate debtor.

Why the distinction mattered

If NDMC's argument had succeeded, the result would have been absurd. A corporate debtor emerging from insolvency would find that the clock had been running against it the entire time it was under the moratorium's protection. The resolution professional (the person managing the company during insolvency) would have to file every potential lawsuit during the moratorium — precisely when the company was supposed to be focused on revival, not litigation.

The court also noted that Section 25(2)(b) of the IBC (which lists the duties of the resolution professional, including taking custody and control of all assets) does not explicitly require filing lawsuits. The scheme of the IBC prioritises resolution over litigation. Excluding the moratorium period from limitation aligns with that scheme.

The precedents that guided the court

The Supreme Court relied on its earlier decision in Noharlal Verma v. District Cooperative Central Bank Limited, Jagdalpur — (2008) 14 SCC 445 — which had interpreted a similar exclusion provision in the Madhya Pradesh Cooperative Societies Act. The court also cited Bharat Broadband Network Ltd. v. United Telecoms Ltd. — (2019) 5 SCC 755 — and Perkins Eastman Architects DPC v. IISCC (India) Limited — AIR 2020 SC 59 — both of which dealt with limitation periods in arbitration cases.

The court applied the principle of literal interpretation: when the words of a statute are plain and unambiguous, they must be given effect. Section 60(6) says the entire moratorium period shall be excluded. It does not carve out an exception for proceedings that the moratorium does not bar. The court refused to read one in. Other precedents cited included Reserve Bank of India v. Peerless General Finance & Investment Co. Ltd. — (1987) 1 SCC 424 — on the interpretation of statutory provisions, and Suthendran v. Immigration Appeal Tribunal — (1976) 3 All England Law Reports 611 — on the plain meaning rule. The court also referred to Harbhajan Singh v. Press Council of India — (2002) 3 SCC 722 — and New India Assurance Co. Ltd. v. Nusli Neville Wadia — (2008) 3 SCC 279 — on the limits of judicial interpretation, as well as Tirath Singh v. Bachittar Singh — AIR 1955 SC 830 — on the principle that courts must not add words to a statute.

What this means for practitioners

The judgment settles a recurring question in insolvency-arbitration intersections. Every corporate debtor that goes through a Corporate Insolvency Resolution Process (CIRP) gets the full moratorium period excluded from limitation — for all suits and applications, whether filed by or against the company. The exclusion does not depend on whether the moratorium itself barred the proceeding.

For practitioners, the ruling means that when advising a corporate debtor emerging from insolvency, the limitation clock restarts only from the date the resolution plan is approved — not from the date the moratorium began. The entire period from May 14, 2018 (when the NCLT admitted the insolvency application) to November 28, 2019 (when the resolution plan was approved) is excluded from the limitation calculation for any proceeding by or against the company. In Minosha's case, this meant that the application filed on November 25, 2020 was well within time — the three-year limitation period, which would have expired on July 20, 2019, was effectively extended by the moratorium period of approximately 18 months.

The practical impact is significant. Resolution professionals can now focus on reviving the company without the pressure of filing every potential lawsuit during the moratorium. The judgment also clarifies that the exclusion under Section 60(6) applies automatically — no court order is needed to invoke it. It is a statutory exclusion that operates by operation of law.

Expanded procedural journey

The case wound through multiple forums before reaching its final destination. The dispute began with a simple purchase order in 2015 — a document worth Rs.16.20 crores that would eventually travel through three different tribunals and courts. After NDMC terminated the contract, the Delhi High Court first directed NDMC to afford a hearing to Minosha. That direction, a brief order on a procedural matter, was the first judicial footprint in the case.

The insolvency proceedings added a separate track. On May 14, 2018, the NCLT, Mumbai admitted Minosha's application under Section 10 of the IBC. The admission order declared a moratorium under Section 14, freezing all legal proceedings against the company. The NCLT's file — with its distinctive blue cover and court seal — recorded the beginning of the Corporate Insolvency Resolution Process. The resolution professional took over management under Section 17 of the IBC, which vests the interim resolution professional with the management of the company's affairs. The moratorium remained in place until November 28, 2019, when the NCLT approved the resolution plan under Section 31 of the IBC, which makes the approved plan binding on all stakeholders.

After emerging from insolvency, Minosha filed its Section 11(6) application before the Delhi High Court on November 25, 2020. The High Court allowed the application on December 14, 2020, appointing an arbitrator by consent. The order was brief — the parties had agreed to the appointment, and the court recorded the consent. But NDMC was not satisfied. It filed a Special Leave Petition before the Supreme Court, arguing that the High Court had erred in not addressing the limitation issue.

The Supreme Court admitted the petition and heard arguments on the core question of law. The bench of Justice K.M. Joseph and Justice Hrishikesh Roy reserved judgment after hearing both sides. On April 27, 2022, the court delivered its verdict in Civil Appeal No. 3470 of 2022, dismissing NDMC's appeal. The judgment, now reported as 2022 LiveLaw (SC) 469, settled the law on the interaction between Section 60(6) of the IBC and limitation periods for proceedings by corporate debtors.

Practical considerations for litigators

For litigators handling insolvency matters, the judgment provides a clear roadmap. When a client emerges from insolvency and needs to file a lawsuit or arbitration, the first step is to calculate the limitation period from the date the cause of action arose, then subtract the entire period from the date the moratorium was declared to the date the resolution plan was approved. No separate application for exclusion is required — the exclusion is automatic under Section 60(6).

The judgment also resolves a potential trap for resolution professionals. Under Section 25(2)(b) of the IBC, the resolution professional must take custody and control of the corporate debtor's assets, but the provision does not impose a duty to file lawsuits. The court's interpretation of Section 60(6) ensures that resolution professionals are not penalised for prioritising resolution over litigation during the moratorium period.

For opposing parties like NDMC, the judgment closes a potential line of defence. Arguments that the corporate debtor could have filed proceedings during the moratorium — and therefore should not get the benefit of Section 60(6) — will no longer succeed. The statute's plain language leaves no room for such a distinction.

The Supreme Court bench of Justice K.M. Joseph and Justice Hrishikesh Roy, in their judgment dated April 27, 2022, dismissed the appeal with no order as to costs. The courtroom fell silent as the operative order was read: the appeal would stand dismissed. The file, now closed, would be archived.

THE PLAY: When calculating limitation for any proceeding by or against a corporate debtor, exclude the entire period from the date the moratorium was declared to the date the resolution plan was approved — regardless of whether the proceeding could have been filed during the moratorium.

The appeal was dismissed. No costs. The Supreme Court ended where the statute began: with plain words that meant what they said.