Protection of moratorium not available to Directors/Officers of Company; Proceedings can be initiated against them: Top Court
Justices Abhay S. Oka & Ujjal Bhuyan [17-01-2024]

Read Order: ANSAL CROWN HEIGHTS FLAT BUYERS ASSOCIATION (REGD.) v. M/S. ANSAL CROWN INFRABUILD PVT. LTD. & ORS [SC- CIVIL APPEAL NO(S). 4480-4481 OF 2023]

Tulip Kanth

New Delhi, January 30, 2024: The Supreme Court has clarified that liability of the Directors/Officers of the Company will continue and the appellants can proceed against the promoters even though there is a moratorium under Section 14 of the IBC affecting the Company.

In a complaint filed by the homebuyers before the National Consumer Disputes Redressal Commission (National Commission), an order was made by the National Commission directing the Developer to complete the project in all respects and handover the possession of the allotted flats/apartments to the members of the Association of the homebuyers within the time specified.

In the said order, a direction was issued stating that if the Members of the Complainant Association are not interested to wait any more for taking possession of the allotted Apartment and they want refund of their deposited amount, the Opposite Party Developer shall refund the entire deposited amount along with interest @9% p.a. from the respective date of deposit till payment, within a period of six weeks failing which the amount would carry interest @ 12% p.a. for the said period. The Allottees would also be entitled for a sum of Rs 25,000 as costs.

This direction was sought to be executed by the appellants by filing execution applications. The developer is a company against whom the National Commission issued the aforesaid direction. The said company is the subject-matter of the proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016 (for short the IBC). The National Company Law Tribunal (NCLT) had admitted the petition filed under Section 9 of the IBC against the said company. The appellants sought to execute the directions of the National Commission not only against the company but also against the several individuals.

By the impugned orders, the National Commission held that the decree couldn’t be executed against the company due to the operation of the moratorium under Section 14 of the IBC. It was also observed that in view of moratorium against the company, it would not be appropriate to proceed in the same execution against the opposite party Nos. 2 to 9. Another observation was made that other opposite parties (opposite party Nos. 2 to 9 to the execution application) were not parties in the main complaint. The appellant is the applicant/decree holder in the execution applications.

Placing reliance upon P. Mohanraj vs. Shah Bros. Ispat (P) Ltd. [LQ/SC/2021/146], the appellants submitted that under the provisions of the IBC, there is no prohibition on proceeding against the directors/officers of the company, which is the subject-matter of moratorium under Section 14 of the IBC.

It was the case of the respondents that under the order which is sought to be executed, there is no liability fastened on them. Their submission was that in the case of Anjali Rathi and others vs. Today Homes and Infrastructure Pvt. Ltd. And Others, this Court made a departure by permitting the appellants to proceed against the promoters of the company, which was subject to moratorium only because there was a settlement arrived at between them before this Court.

The Division Bench of Justice Abhay S. Oka and Justice Ujjal Bhuyan took note of the fact that the National Commission had not made any adjudication on the question whether the opposite party Nos. 2 to 9(the respondent Nos. 2 to 9) in the execution application were under an obligation to abide by the directions issued against the company. This issue had not been considered at all by the National Commission.

There was no finding recorded by the National Commission that in view of any particular provision of the IBC, moratorium will apply to the directors/officers of the company.

Referring to Anjali Rathi case (supra), the Bench observed that the Top Court had approved the view taken in the case of P. Mohanraj(supra) that notwithstanding moratorium, the liability, if any, of the directors/officers will continue. The Court had permitted the appellants to expressly proceed against the promoters of the company though there was a moratorium under Section 14 of the IBC affecting the company.

“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 Bench said.

Thus, setting aside the impugned judgments, the Bench remitted the execution application to the National Commission and also held that the execution will continue against the opposite party Nos. 2 to 9(the respondent Nos. 2 to 9) in the execution application.