The Question Nobody Asks Until It Is Too Late
When a company enters the Corporate Insolvency Resolution Process under the Insolvency and Bankruptcy Code, 2016, everyone focuses on the immediate questions: who filed the petition, can it be challenged, and what does the moratorium mean for recovery? The question about what happens to the company’s ongoing contracts gets asked later, usually by suppliers, customers, landlords, and lenders who have an active contractual relationship with the company and need to know where they stand.
The answer is not straightforward. It depends on the nature of the contract, what stage the CIRP is at, whether the contract has already been terminated or remains active, and what position the Resolution Professional takes on the contract’s value to the resolution process. Understanding the framework before you are in it is significantly more useful than trying to understand it under pressure.
The Moratorium Under Section 14
What the Moratorium Covers
From the moment the NCLT admits an insolvency petition and declares a moratorium under Section 14 of the IBC, a statutory standstill comes into effect. No suit or proceeding may be instituted or continued against the corporate debtor. No asset, legal right, or beneficial interest may be transferred, encumbered, or alienated. No security interest may be enforced. No essential services may be terminated.
The effect of Section 14(1)(a) is that even arbitration proceedings instituted after the moratorium are non est in law, as confirmed by the Supreme Court in Alchemist Asset Reconstruction Company Limited v. Hotel Gaudavan Private Limited, (2017) 5 SCC 384 . If you were mid-way through arbitration proceedings against a company and that company enters CIRP, those proceedings are frozen.
The moratorium is intended to serve as a breathing period, preserving the corporate debtor’s assets and enabling the Resolution Professional to take stock of the company’s affairs and seek a viable resolution. The Supreme Court in Swiss Ribbons Pvt. Ltd. v. Union of India (2019) 4 SCC 17 confirmed that the moratorium is in the interest of the corporate debtor itself, protecting the estate from piecemeal litigation and enforcement.
What the Moratorium Does Not Cover
Criminal proceedings under the Indian Penal Code or the Prevention of Money Laundering Act are exempt from the moratorium. The Supreme Court confirmed this position in P. Mohanraj v. Shah Brothers Ispat (2021) 6 SCC 258, which clarified that Section 138 NI Act proceedings against a corporate debtor are covered by Section 14, but criminal proceedings under the IPC or PMLA are not.
The moratorium also does not apply to personal guarantors. In State Bank of India v. V. Ramakrishnan AIR 2018 SUPREME COURT 3876, the Court ruled that the moratorium covers only the corporate debtor and not its personal guarantors. Lenders retain their rights against guarantors during CIRP.
Third-party assets are not covered. If the corporate debtor has rights over assets it does not own, the moratorium does not protect those assets from proceedings by their actual owners.
The Critical 2025 Supreme Court Ruling
Moratorium Does Not Revive Terminated Contracts
In November 2025, a two-judge bench of the Supreme Court in A.A. Estates Private Limited v. Kher Nagar Sukhsadan Co-operative Housing Society Ltd. (2025 INSC 1366) delivered a significant clarification on the relationship between the moratorium and pre-existing contract terminations.
The Court held: “It is well settled that the moratorium under Section 14 does not revive terminated contracts or protect rights that have ceased to exist prior to insolvency. The protection is intended to preserve the existing value of the corporate debtor’s estate, not to resurrect lapsed or extinguished interests. Extending moratorium to such non-existent rights would defeat commercial certainty and the sanctity of lawful termination under general law.”
This ruling has direct practical importance. A counterparty who validly terminated a contract with a company before that company entered CIRP cannot have the termination undone by the moratorium. The rights that had ceased to exist before insolvency remain extinguished. This protects counterparties who terminated contracts lawfully, even if the terminated company later enters CIRP.
What Happens to Active Contracts During CIRP
The Resolution Professional’s Role
When CIRP begins, the Resolution Professional takes control of the management of the corporate debtor and is responsible for managing its affairs and assets with a view to preserving value. Active contracts that have commercial value to the resolution process are typically continued by the RP.
The RP has the authority to continue, renegotiate, or disclaim contracts depending on their value to the resolution. Contracts that are unprofitable or create ongoing liabilities without corresponding value may be disclaimed. Contracts that are essential to the business continuing as a going concern, such as key supplier agreements, customer contracts, or technology licences, are more likely to be preserved.
For a counterparty with an active contract with a company in CIRP, the immediate practical step is to file your claim with the RP within the prescribed timeline. Operational creditors have 14 days from receipt of the RP’s public announcement to submit proof of claims. Missing this deadline creates significant complications for participation in the CIRP.
Termination for Insolvency Clauses
Many commercial contracts include clauses that allow one party to terminate the agreement if the other enters insolvency proceedings. The enforceability of these clauses under the IBC is contested. The general position is that a termination triggered purely by the filing or admission of an insolvency petition, without any actual default in contract performance, may be seen as frustrating the resolution process.
Where a genuine default in contract performance exists independently of the insolvency, termination is on stronger ground. Where the only trigger for termination is the insolvency itself, counterparties should take legal advice before exercising termination rights, as the RP may challenge the termination and seek to continue the contract through the CIRP.
The Position of Suppliers and Vendors
Suppliers and vendors to a company in CIRP occupy a difficult position. They are typically operational creditors with claims for unpaid dues. They have limited rights within the Committee of Creditors, which is composed of financial creditors. Their minimum entitlement under Section 30(2)(b) is limited to the liquidation value attributable to their debt.
The practical decision for a supplier is whether to continue supplying to the company in CIRP. The RP may request continued supply as essential to maintaining the business as a going concern. Any supply made after the CIRP commencement date is treated as CIRP costs and enjoys priority in payment over pre-CIRP debts. This distinction, between pre-CIRP dues as an operational creditor and post-commencement supply as a CIRP cost, is important for suppliers making decisions about continued engagement.
Anush Raajan advises corporate debtors, financial creditors, operational creditors, and counterparties to contracts across IBC proceedings before the NCLT and NCLAT in Delhi, including claims management, RP interactions, and challenge proceedings.
Frequently Asked Questions
1.Can I sue a company that is in CIRP for breach of contract?
No. The moratorium under Section 14 prohibits the institution or continuation of suits against the corporate debtor. You must file your claim with the Resolution Professional within the prescribed timeline and pursue your rights through the insolvency process.
2.If I terminated a contract with a company before it entered CIRP, can the RP revive it?
The Supreme Court in A.A. Estates v. Kher Nagar Housing Society (2025 INSC 1366) confirmed that the moratorium does not revive terminated contracts. Rights that ceased to exist before insolvency remain extinguished. A lawful pre-CIRP termination is protected.
3.What is the timeline for filing a claim as an operational creditor in CIRP?
Operational creditors have 14 days from receipt of the RP’s public announcement to submit proof of claims. It is critical to file within this timeline to participate effectively in the process.
4.Does the moratorium affect my right to pursue the personal guarantor of a company in CIRP?
No. The moratorium under Section 14 covers only the corporate debtor. Personal guarantors can be pursued separately under the personal insolvency framework or through direct recovery proceedings, as confirmed in State Bank of India v. V. Ramakrishnan (2018).
