Moratorium Ordered U/Sec.14 IBC Does Not Apply To Proceedings In Respect Of Directors/Management Of Corporate Debtor: Supreme Court

The Supreme Court observed that the moratorium ordered under Section 14 of the Insolvency and Bankruptcy Code does not apply in respect of the directors/management of the Corporate Debtor.

It applies only in relation to the Corporate Debtor and against its directors/management, proceedings could continue, the bench of Justices DY Chandrachud, Vikram Nath and Hima Kohli observed.

In this case, the petitioners, who were home buyers in a group housing project, had approached the National Consumer Dispute Redressal Commission against Today Homes & Infrastructure Pvt. Ltd. seeking refund of their moneys with interest. The NCDRC allowed their claim. In the execution proceedings, NCDRC required the personal presence of the Managing Director. Against this , it approached the Delhi High Court which directed no coercive steps shall be taken against the Managing Director. Challenging this order of the High Court, the home buyers approached the Apex Court. Thereafter, the NCDRC passed certain orders in the Execution Petition, which were assailed before the Apex Court in connected appeals.

During the pendency of the appeals, the Adjudicating Authority admitted the petition seeking Corporate Insolvency Resolution process and a moratorium was declared under Section 14 of the IBC. At the same time, the parties reached at some settlements before the Supreme Court.

Thus it was submitted before the court that since the moratorium declared in respect of the Corporate Debtor continues to operate under Section 14 of the IBC, no new proceedings can be undertaken or pending ones continued against the Corporate Debtor. In this context, the bench observed:

"At this juncture, we must however clarify the right of the petitioners to move against the promoters of the first respondent Corporate Debtor, even though a moratorium has been declared under Section 14 of the IBC. In the judgment in P. Mohanraj v. Shah Bros. Ispat (P) Ltd., a three judge Bench of this Court held that proceedings under Section 138 and 141 of the Negotiable Instruments Act 1881 against the Corporate Debtor would be covered by the moratorium provision under Section 14 of the IBC. However, it clarified that the moratorium was only in relation to the Corporate Debtor (as highlighted above) and not in respect of the directors/management of the Corporate Debtor, against whom proceedings could continue." [Para 15]

The court referred to following observations made in P. Mohanraj v. Shah Bros. Ispat (P) Ltd. [ LL 2021 SC 120 ; (2021) 6 SCC 258 ]

"102. Thus, for the period of moratorium, since no Sections 138/141 proceeding can continue or be initiated against the corporate debtor because of a statutory bar, such proceedings can be initiated or continued against the persons mentioned in Sections 141(1) and (2) of the Negotiable Instruments Act. This being the case, it is clear that the moratorium provision contained in Section 14 IBC would apply only to the corporate debtor, the natural persons mentioned in Section 141 continuing to be statutorily liable under Chapter XVII of the Negotiable Instruments Act."

The court thus clarified that the petitioners would not be prevented by the moratorium under Section 14 of the IBC from initiating proceedings against the promoters of the Corporate Debtor in relation to honoring the settlements reached before it.

Click here to Read/Download Judgment