Section 85: Effect of Admission of Application under the Insolvency and Bankruptcy Code, 2016

Section 85 forms part of Part III, Chapter II of the Insolvency and Bankruptcy Code, 2016, which deals with the fresh start process for individuals and partnership firms. It sets out the legal consequences that follow when an application for a fresh start is admitted by the Adjudicating Authority under Section 84.

Key effect: Admission of the application starts a moratorium in respect of the debts covered by Section 85. The provision also imposes specified restrictions on the debtor during the moratorium period.

Text and Meaning of Section 85

(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.

What Is the Moratorium under Section 85?

A moratorium is a statutory suspension of specified enforcement and legal action for the period prescribed by law. Under Section 85, it begins on the date on which the fresh start application is admitted. Pending legal action or proceedings in respect of a debt are treated as stayed, and creditors are restricted from commencing legal action or proceedings in respect of a debt, subject to Section 86.

Restrictions on the Debtor

Section 85 does more than stay debt-related proceedings. During the moratorium, the debtor is subject to statutory restrictions intended to preserve the integrity of the fresh start process. These include restrictions on company management, disposal or alienation of assets and foreign travel, together with disclosure obligations concerning business dealings and specified financial or commercial transactions.

Duration of the Moratorium

Under Section 85(4), the moratorium ordinarily ceases at the end of 180 days from the date of admission. The provision expressly recognises that the admission order may be revoked under Section 91(2), in which event the consequences prescribed by Section 91 apply.

Related Provisions

Important Terms

Adjudicating Authority: For Part III of the Code, the expression refers to the authority designated under the applicable provisions of the Insolvency and Bankruptcy Code, 2016.

Resolution professional: Section 79 defines a resolution professional for Part III as an insolvency professional appointed under that Part for conducting the fresh start process or insolvency resolution process.

Qualifying debt: Section 79 defines the expression for the purposes of Part III and specifies debts that are excluded from the definition.

This page is a statutory information resource. The application of the Insolvency and Bankruptcy Code depends on the facts of each matter and the provisions in force on the relevant date.