IBC’s position on supply of essential goods and services

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Dear Editor,

Section 14(2) of the Insolvency and Bankruptcy Code, 2016 (IBC), states that the “supply of essential goods or services to a corporate debtor shall not be suspended during the moratorium period”. The purpose behind this is to enable the insolvent party to successfully restructure itself and ensure the continuance of it as a going concern.

The Supreme Court in Innoventive Industries Limited v ICICI Bank Limited observed, “A moratorium is provided, which gives the debtor a breathing spell in which he is to seek to reorganize his business.”

This implies that contracts for supply of such essential goods or services cannot be terminated if a moratorium has been granted in favour of the corporate debtor. However, the IBC remains silent on the scenario when the supply of such goods/services had already been terminated before a moratorium was granted in favour of the corporate debtor. Parties may do so by an enabling clause in the contract.

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