IBC Section 85: Effect of admission of application

Section 85 of Insolvency and Bankruptcy Code, 2016: Effect of admission of application

Official Bare Act Text

Override / Mandate Mens Rea (Intent) Actus Reus (Conduct) Punishment Limitation Monetary

(1) On the date of admission of the application, the moratorium period shall commence in respect of all the debts.

(2) During the moratorium period-

(a) any pending legal action or legal proceeding in respect of any debt shall be deemed to have been stayed; and

(b) subject to the provisions of section 86, the creditors shall not initiate any legal action or proceedings in respect of any debt.

(3) During the moratorium period, the debtor shall-

(a) not act as a director of any company, or directly or indirectly take part in or be concerned in the promotion, formation or management of a company;

(b) not dispose of or alienate any of his assets;

(c) inform his business partners that he is undergoing a fresh start process;

(d) be required to inform prior to entering into any financial or commercial transaction of such value as may be notified by the Central Government, either individually or jointly, that he is undergoing a fresh start process;

(e) disclose the name under which he enters into business transactions, if it is different from the name in the application admitted under section 84;

(f) not travel outside India except with the permission of the Adjudicating Authority.

(4) The moratorium ceases to have effect at the end of the period of one hundred and eighty days beginning with the date of admission unless the order admitting the application is revoked under sub-section (2) of section 91.

Legal Commentary & Landmark Judgments: Section 85

Section 85 establishes an automatic statutory interim-moratorium from the date of filing the fresh start application, staying all legal proceedings in respect of debts.

Automatic Interim-Moratorium Trigger: Commences automatically on the date of filing of the application under Section 81 and ceases on the date of admission or rejection under Section 86.
Stay on Legal Actions: All legal proceedings in respect of any debt shall be deemed to be stayed.
Creditor Enforcement Bar: Creditors shall not initiate any legal action or proceedings in respect of any debt of the debtor.
Debtor Restrictions (Section 85(3)): The debtor shall not transfer, alienate, encumber, or dispose of any of his assets during the interim-moratorium.

Key Landmark Precedents:

Dilip B. Jiwrajka v. Union of India (2024) 5 SCC 436: The Supreme Court examined the automatic interim-moratorium under Section 85/96, holding that the interim-moratorium is a protective shield designed to freeze creditor actions and preserve the debtor's status quo without being an adjudication of liability.
State Bank of India v. V. Ramakrishnan (2018) 17 SCC 394: Affirmed that the interim-moratorium provides immediate breathing space to prevent coercive recovery during the statutory inquiry.

Courtroom Practice & Strategic Litigation Guidance:

Immediately upon filing a Section 81 application, serve the filing acknowledgment on recovery agents, microfinance lenders, and civil courts hearing money suits. Under Section 85, all pending coercive recoveries and cheque bounce executions are stayed by operation of law.