IBC | Moratorium Under S 14 No Bar To Execute Decree Against Directors/Officers Of Corporate Debtor: Supreme Court

The Supreme Court has held that the imposition of moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) has no effect on the execution of a decree against the Directors or Officers of the Company (Corporate Debtor), which is undergoing Corporate Insolvency Resolution Process (“CIRP”) under IBC.

When the Company was admitted into CIRP, the National Consumer Disputes Redressal Commission (“NCDRC”) declined to permit execution of a decree against the Company and also its Directors/Officers. The Bench held that the protection of moratorium under Section 14 of IBC is only available to the Company and not to its Directors or Officers, thus the execution of decree can be done against them even during moratorium.

The Bench comprising Justice Abhay S. Oka and Justice Ujjal Bhuyan, has held, “Therefore, we are of the view that only because there is a moratorium under Section 14 of the IBC against the company, it cannot be said that no proceedings can be initiated against the opposite party Nos. 2 to 9(the respondent Nos. 2 to 9) for execution, provided that they are otherwise liable to abide by and comply with the order, which is passed against the company. The protection of the moratorium will not be available to the directors/officers of the company.”

BACKGROUND FACTS

The Homebuyers' Association (“Appellant Association”) of a project developed by M/s Ansal Crown Infrabuild Pvt. Ltd. (“Developer Company”) filed a complaint before the National Consumer Disputes Redressal Commission (“NCDRC”).

The NCDRC passed an order directing the Developer Company to complete the Project and handover the possession of allotted flats to the members of Appellant Association within specified time. The Homebuyers were also given an option to seek refund of deposited amount alongwith interest, instead of taking possession of the flat.

The Appellant Association was obligated to file execution application before NCDRC for getting the said order executed.

Thereafter, a petition under Section 9 of IBC was filed before the National Company Law Tribunal (“NCLT”), seeking initiation of CIRP against the Developer Company. The NCLT initiated CIRP against the Developer Company and imposed moratorium under Section 14 of IBC.

The Appellant Association filed execution application before NCDRC, seeking execution of the order against the Developer Company and certain individuals (Respondents No. 2 to 9) including the Directors and Officers of the Developer Company. However, the NCDRC declined to execute its order while holding that the decree cannot be executed due to the operation of moratorium under Section 14 of IBC.

The Appellant Association filed an appeal against the NCDRC order before the Supreme Court, contending that under IBC there is no prohibition on proceeding against the directors/officers of the company which is undergoing moratorium.

SUPREME COURT VERDICT

The Bench placed reliance on the Supreme Court judgment in P. Mohanraj vs. Shah Bros. Ispat (P) Ltd., (2021) 6 SCC 258, wherein it was held that moratorium under Section 14 of IBC would apply only to the Corporate Debtor. Thereafter, in Anjali Rathi and others vs. Today Homes and Infrastructure Pvt. Ltd. and Ors, (2021) SCC OnLine SC 729, the Supreme Court held the liability of directors/officers of the Company (Corporate Debtor) undergoing CIRP would continue irrespective of operation of moratorium under IBC.

The Bench opined that the protection of moratorium is not available to the directors/officers of the Company (Corporate Debtor).

“Therefore, we are of the view that only because there is a moratorium under Section 14 of the IBC against the company, it cannot be said that no proceedings can be initiated against the opposite party Nos. 2 to 9(the respondent Nos. 2 to 9) for execution, provided that they are otherwise liable to abide by and comply with the order, which is passed against the company. The protection of the moratorium will not be available to the directors/officers of the company.”

The Order of the NCDRC whereby execution of its order was denied has been set aside by the Bench. The execution application has been remitted to the NCDRC with a direction to continue that execution against the remaining parties except for the Developer Company in the execution application.

The appeal has been allowed.

Case Title: Ansal Crown Heights Flat Buyers Association (Regd.) V M/S. Ansal Crown Infrabuild Pvt. Ltd. & Ors.

Citation: 2024 LiveLaw (SC) 63

Click Here To Read/Download Judgment