Moratorium, Interim Orders & the In Rem Character of IBC Proceedings: An Analysis of Axis Bank Ltd. v. ARCIL & Ors. – NCLAT (2025)

Moratorium, Interim Orders & the In Rem Character of IBC Proceedings: An Analysis of Axis Bank Ltd. v. ARCIL & Ors. – NCLAT (2025)

IBC

In a significant pronouncement, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, in Axis Bank Ltd. v. Asset Reconstruction Company (India) Ltd. & Ors. [(2025) ibclaw.in 564 NCLAT], has decisively ruled on the effect of a stay on the admission of a Section 7 IBC application, particularly its bearing on moratorium, management of the Corporate Debtor, and the nature of insolvency proceedings.

This judgment reaffirms that the character of insolvency proceedings post-admission is “in rem” and that such a character is not reversed merely by an interim stay. It also delineates the doctrine of restitution and the continuing effect of Section 14 moratorium, even in the interregnum created by appellate intervention.

Factual Background

The CIRP of Siti Networks Ltd. was admitted by the NCLT on 22.02.2023 on a Section 7 application filed by IndusInd Bank. Following this, Axis Bank (a financial creditor and escrow banker) withdrew over ₹143 crore from the Corporate Debtor’s account during the period 07.03.2023 to 05.06.2023, when the NCLAT had stayed the admission order.

Later, ARCIL moved an application seeking restoration of the amount, alleging violation of Section 14 moratorium. The NCLAT ultimately directed Axis Bank and others to refund the appropriated amount—holding that moratorium was never quashed, and the nature of the proceeding remained “in rem”, unaffected by the interim stay.

Key Legal Issues and Findings

1. Does a Stay of Admission Order Nullify the Moratorium?

The NCLAT held that a stay on the admission order does not obliterate the moratorium under Section 14. The interim order only kept the admission order in abeyance—it did not quash it. Therefore, the moratorium, which is a statutory consequence of admission, remained effective unless explicitly vacated or reversed.

This distinction was clarified using the principle from Shree Chamundi Mopeds Ltd. v. Church of South India Trust Association [(1992) 3 SCC 1]—a stay does not amount to setting aside.

2. Proceedings under IBC Post-Admission Are In Rem

A reaffirmation of GLAS Trust Company LLC v. Byju Raveendran [(2024) ibclaw.in 275 SC] and Indus Biotech v. Kotak India Venture [(2021) ibclaw.in 52 SC] was made to underscore that post-admission, IBC proceedings are no longer inter partes. Once insolvency is admitted, the process attains a universal character, binding the world at large.

3. Functioning of the IRP & Handover to Promoters

The IRP, post-stay, handed control back to promoters—an action held unjustified, as it lacked judicial sanction. The Tribunal criticized this, holding that even if IRP’s role is suspended, it does not authorize a reversal of control absent judicial directions.

4. Restitution & Return of Withdrawn Amounts

The NCLAT invoked the doctrine of restitution to hold that Axis Bank and other lenders must restore the fundswithdrawn during the pendency of stay. The Tribunal relied on the equitable maxim “actus curiae neminem gravabit”, stating that no party can unjustly enrich themselves based on an interim judicial order.

The lenders’ argument that no moratorium existed due to the stay was rejected. The benefit under the stay was conditional and subject to final outcome, which ultimately revived the admission order and its consequences retroactively.

5. No Res Judicata, Issue Estoppel or Merger

Axis Bank argued that ARCIL’s application was barred by res judicata and issue estoppel, since similar issues were raised earlier. The NCLAT clarified that there was no adjudication on merit in the earlier appeal, and hence, these doctrines were inapplicable.

Significance of the Judgment

This decision is a landmark in reaffirming the sanctity of the moratorium and ensuring that interim judicial indulgence is not misused to undermine the collective insolvency resolution process. It reinforces procedural discipline among stakeholders and underscores that CIRP is not merely a creditor-driven process, but a statutory, structured regime with built-in equitable safeguards.

Takeaways for Financial Creditors and IRPs

  • Financial Creditors must exercise caution before appropriating funds during pendency of appeals/stays, especially where a moratorium has been triggered.
  • IRPs/RPs are not at liberty to hand over management to suspended directors without specific directions from the Adjudicating Authority or Appellate Tribunal.
  • A stay on admission does not permit “business as usual”, and contractual enforcement actions during this time may be reversible.
  • This case reiterates the importance of procedural propriety and judicial deference in IBC proceedings.

Conclusion

The judgment in Axis Bank v. ARCIL sets a compelling precedent, guarding the integrity of the IBC process and asserting that the moment of admission under Section 7 is not a mere procedural formality but a substantive legal milestone. The moratorium under Section 14 is not a fragile injunction but a statutory embargo with universal applicability and retrospective resilience.

This ruling bridges equity with law and ensures that Section 14 is not reduced to a paper tiger, and that interim reliefs do not inadvertently empower opportunistic withdrawals at the cost of the resolution process.

Disclaimer

This blog is intended for general informational purposes only and does not constitute legal advice. Readers are advised to consult qualified professionals for advice tailored to their specific legal or factual circumstances.

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