Case Note & Summary
The dispute arose from execution applications filed by homebuyers (appellants) to enforce an order of the National Consumer Disputes Redressal Commission against a developer company and its directors. The National Commission had directed the developer to complete a project and hand over possession or refund deposits with interest. The developer company was under moratorium due to proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016, admitted by the National Company Law Tribunal. The National Commission held that execution could not proceed against the company due to the moratorium under Section 14 of the IBC and declined to proceed against the directors (opposite party Nos. 2 to 9) on grounds that they were not parties to the main complaint and it would be inappropriate. The appellants appealed, arguing that the IBC does not prohibit proceedings against directors during moratorium. They relied on the second proviso to Section 32A(1) of the IBC and precedents like P. Mohanraj vs. Shah Bros. Ispat (P) Ltd. and Anjali Rathi vs. Today Homes and Infrastructure Pvt. Ltd. The respondents contended that no liability was fastened on the directors in the original order and that Anjali Rathi was distinguishable due to a settlement. The Supreme Court analyzed the issue, noting that the National Commission had not adjudicated on the directors' liability and that moratorium under Section 14 IBC applies only to the corporate debtor, not to natural persons like directors. Citing P. Mohanraj and Anjali Rathi, the court emphasized that directors remain statutorily liable under laws such as the Negotiable Instruments Act, 1881, and proceedings against them can continue despite moratorium. The court held that the National Commission erred in not allowing execution against the directors solely due to moratorium. It set aside the impugned orders and remitted the execution applications to the National Commission for continuation against the directors, while permitting them to raise objections regarding their liability. The appeals were partly allowed, with directions for the National Commission to decide the liability issue in accordance with law.
Headnote
A) Insolvency Law - Moratorium Under IBC - Section 14 Insolvency and Bankruptcy Code, 2016 - Moratorium applies only to corporate debtor, not to directors/officers - The court held that the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 applies solely to the corporate debtor and does not extend to its directors or officers, allowing proceedings against them to continue if they are otherwise liable (Paras 7-11). B) Consumer Law - Execution of Orders - National Consumer Disputes Redressal Commission Orders - Execution against directors despite moratorium - The court set aside the National Commission's orders and remitted the execution applications, permitting execution to proceed against directors (opposite party Nos. 2 to 9) while allowing them to raise objections on liability (Paras 12-14). C) Precedent Application - Liability of Directors - P. Mohanraj vs. Shah Bros. Ispat (P) Ltd. and Anjali Rathi vs. Today Homes and Infrastructure Pvt. Ltd. - Directors remain liable notwithstanding moratorium - The court relied on precedents to clarify that directors' liability continues under statutes like the Negotiable Instruments Act, 1881, and execution can proceed against them even during moratorium (Paras 5-10).
Issue of Consideration
Whether execution proceedings can be initiated against directors/officers of a company under moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 for orders passed against the company by the National Consumer Disputes Redressal Commission
Final Decision
The Supreme Court set aside the impugned orders of the National Commission and remitted the execution applications to the National Commission. Execution will continue against opposite party Nos. 2 to 9 (directors), who are entitled to raise objections on liability. The appeals were partly allowed.
Law Points
- Moratorium under Section 14 of the Insolvency and Bankruptcy Code
- 2016 applies only to the corporate debtor
- not to its directors or officers
- who remain statutorily liable under other laws
- Execution proceedings can continue against directors if they are otherwise liable to comply with orders against the company
- The National Consumer Disputes Redressal Commission must adjudicate on the liability of directors in execution applications
