IBC Moratorium Covers Only Corporate Debtor, Not Promoters Or Directors: Supreme Court

New Delhi, Jul 30 (KNN) The Supreme Court has clarified that the moratorium under the Insolvency and Bankruptcy Code (IBC), 2016 applies only to the corporate debtor and does not extend to promoters, directors, or other associated parties in consumer disputes.

The ruling came while hearing appeals against an order of the National Consumer Disputes Redressal Commission (NCDRC), which had adjourned a consumer complaint indefinitely due to insolvency proceedings against a developer company.

Background of the Case

The case involved homebuyers in the ‘Mantri Manyata Energia’ housing project, who had filed a complaint alleging delay in possession, deficiency in service, and unfair trade practices. The complaint named the developer company, its associated entities, promoters, directors, and landowners.

During the proceedings, the National Company Law Tribunal (NCLT) admitted insolvency proceedings against the developer and imposed a moratorium under Section 14 of the IBC. Following this, the NCDRC halted proceedings against all parties.

Court’s Observations

A bench comprising Justice Vikram Nath and Justice Sandeep Mehta held that such an approach was incorrect.

The Court observed that the moratorium is intended to protect the assets of the corporate debtor during insolvency proceedings and does not automatically extend to other individuals or entities unless specifically provided by law.

It further noted that there was no legal bar preventing the continuation of proceedings against promoters, directors, or landowners.

NCDRC Order Set Aside

The Court found that the NCDRC had prematurely halted the case without examining the potential liability of other respondents. It held that consumer forums are required to assess claims against non-corporate parties independently based on available evidence.

Accordingly, the Supreme Court set aside the NCDRC’s order and directed it to proceed with the complaint against the remaining respondents, while maintaining the stay on proceedings against the corporate debtor.

Implications of the Ruling

The judgment reinforces that insolvency protections under the IBC are limited in scope and cannot be used to shield associated individuals or entities from legal scrutiny in consumer matters.

It also emphasises the responsibility of consumer forums to continue adjudication against such parties, even when insolvency proceedings are underway against the principal company.

(KNN Bureau)