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

Meena applies for a fresh start on 1 March. Before the Adjudicating Authority decides on admission, a creditor files a suit to recover Rs 12,000 owed by her. What is the legal position of this suit?

The suit is barred. An interim-moratorium commences on the date the fresh start application is filed and covers all debts. Pending proceedings are stayed and creditors cannot start new actions. It lasts until the application is admitted or rejected.

  1. AIt proceeds because the moratorium starts only on admission
  2. BIt can proceed only with the resolution professional's consent
  3. CIt is barred, since an interim-moratorium operates from the date of filing and stays or prevents legal action on her debtsCorrect
  4. DIt is barred only if the debt is secured

Explanation

On filing the application, an interim-moratorium begins in relation to all debts. It stays pending proceedings and stops creditors from initiating new ones. It ceases on admission or rejection. Hence waiting for admission, as option A suggests, is wrong.

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