The Supreme Court has ruled that a moratorium imposed under the Insolvency and Bankruptcy Code (IBC) on a company undergoing insolvency proceedings does not automatically extend protection to its promoters, directors, or other associated individuals facing consumer complaints.
A Bench comprising Justices Vikram Nath and Sandeep Mehta held that while insolvency proceedings against the corporate debtor remain protected by the statutory moratorium, consumer proceedings can continue against other respondents who are not covered by that protection.
The ruling came while setting aside an order of the National Consumer Disputes Redressal Commission (NCDRC), which had refused to continue proceedings against the promoters, directors and other associated parties after insolvency proceedings were initiated against the developer company.
The Court observed that the developer company alone was the corporate debtor against whom the Corporate Insolvency Resolution Process (CIRP) had commenced. Since no independent moratorium existed in favour of the remaining respondents, there was no legal basis to halt proceedings against them.
According to the Bench, the central issue before the NCDRC was whether consumer complaints could continue against the non-corporate respondents despite the moratorium operating only for the company. The Court said the Commission should have examined that question on merits instead of prematurely ending the inquiry at an interlocutory stage.
The judges emphasized that liability of the promoters, directors or other associated entities could only be determined after considering their respective defences and the evidence on record. The NCDRC, they held, was not justified in assuming at the preliminary stage that any alleged deficiency in service could be attributed solely to the developer company.
Consequently, the Supreme Court allowed the appeal and directed the NCDRC to resume adjudication of the consumer complaint against the remaining respondents in accordance with law.
Homebuyers’ grievance
The dispute arose from a housing project known as Mantri Manyata Energia, where purchasers had booked residential apartments developed by Mantri Technology Constellations Pvt. Ltd. The buyers claimed they had paid substantial amounts for their flats but possession was not delivered within the promised deadline of December 31, 2018.
Alleging deficiency in service and unfair trade practices, the homebuyers approached the NCDRC not only against the developer company but also against its promoters, directors, associated entities and landowners.
During the pendency of those proceedings, the National Company Law Tribunal (NCLT), Bengaluru, admitted insolvency proceedings against the developer company and imposed a moratorium under Section 14 of the IBC.
Following the commencement of CIRP, the homebuyers requested that proceedings should continue against the remaining respondents since the moratorium applied only to the corporate debtor. The NCDRC, however, rejected that request and indefinitely deferred the consumer complaint.
The Supreme Court found this approach legally unsustainable. It clarified that while proceedings against the developer company would remain subject to the IBC moratorium, the complaint against Respondent Nos. 2 to 7 should proceed independently and be decided on its own merits.
In reaching its conclusion, the Court also referred to earlier decisions, including P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., Ansal Crown Heights Flat Buyers Association v. Ansal Crown Infrabuild Pvt. Ltd., and Saranga Anilkumar Aggarwal v. Bhavesh Dhirajlal Sheth.
