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CS Professional · Insolvency and Bankruptcy - Law and Practice · Fresh Start Process

During the moratorium after admission of Sunita's fresh start application, a money recovery suit filed earlier by her creditor, Mohan Traders, is pending before a civil court in respect of one of her debts. What is the legal position?

The pending suit is deemed stayed during the moratorium, and creditors cannot start new legal action in respect of any debt, subject to section 86. The proceeding is suspended, not dismissed, and the stay is not limited to secured or unsecured debts.

  1. AThe suit continues, as only new proceedings are barred
  2. BThe suit is deemed to be stayed, and creditors cannot initiate fresh legal action in respect of any debt, subject to section 86Correct
  3. CThe suit stands permanently dismissed on admission
  4. DThe suit continues only if the debt is secured

Explanation

During the moratorium, any pending legal action or proceeding in respect of any debt is deemed stayed, and creditors cannot initiate new action, subject to section 86. It is stayed, not dismissed. Option A wrongly limits the bar to new proceedings.

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