IBC moratorium protects only corporate debtor, not promoters or directors: Supreme Court

The Supreme Court has held that a moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC) protects only the corporate debtor and cannot automatically be extended to its promoters, directors, subsidiary companies or personal guarantors [Tejas J Shah v. Mantri Technology Constellations].

Therefore, a Bench of Justices Vikram Nath and Sandeep Mehta directed the National Consumer Disputes Redressal Commission (NCDRC) to continue hearing a homebuyers’ complaint against the promoters, directors, an associated company and landowners of a real estate project.

“The scope of the moratorium is statutory. It is not open either to the adjudicating authority or the Court to enlarge its ambit beyond what the statute contemplates. A plain reading of the provision makes it clear that the moratorium operates against the corporate debtor alone. No other category, whether it be any subsidiary company, any managers/ directors, personal guarantors etc. can be added to it unless specifically provided,” the Court said.

The judgment was passed on appeals filed by homebuyers who had booked apartments in the ‘Mantri Manyata Energia’ project developed by Mantri Technology Constellations Private Limited, now known as Buoyant Technology Constellations Private Limited.

Construction and sale agreements were executed in 2016 and possession was to be handed over by December 31, 2018. The homebuyers alleged that possession was not delivered despite substantial payment of the sale consideration and repeated assurances about completion.

They subsequently approached the NCDRC alleging deficiency in service and unfair trade practices against the company, Mantri Developers Private Limited, the alleged promoters and directors of the companies, and the project’s landowners.

During the proceedings, the Bengaluru Bench of the National Company Law Tribunal admitted an insolvency application against Mantri Technology Constellations on August 23, 2024. This resulted in the commencement of the corporate insolvency resolution process and the imposition of a moratorium under Section 14 of the IBC.

The NCDRC declined the homebuyers’ request to continue the complaint against the remaining respondents. It held that the alleged deficiency concerned the corporate debtor since the construction and sale agreements had been entered into with that company. It consequently adjourned the complaint indefinitely.

The Supreme Court found this approach erroneous. It said that no independent moratorium or statutory protection operated in favour of the other respondents.

The Court also observed that the NCDRC had effectively decided the liability of promoters and directors at an interlocutory stage, even though it had acknowledged that the question of liability was yet to be adjudicated

“It was not open to the Commission to foreclose that inquiry at the interlocutory stage,” the judgment said.

However, the Court declined the homebuyers’ request to allow the consumer complaint. It noted that the respondents had raised objections regarding the absence of contractual privity, maintainability and the lack of independent obligations under the agreements. These questions were left for the NCDRC to decide.

The appeals were partly allowed and the NCDRC was directed to proceed with the complaint against the other respondents. Proceedings against the corporate debtor will continue to remain subject to the IBC moratorium.

The appellants were represented by advocates Chandrachur Bhattacharyya, Sahil Tagotra and Shreya Kasera.

The respondents were represented by Senior Advocates D Seshadri Naidu, Shekhar G Devasa and Sajan Poovayya along with advocates Ashutosh Dubey, Abhishek Chauhan, Amit P Shahi, Anirban Tripathi, Rekha Chaudhary, Anjan Datta, Rahul Sethi, Abhishek Puri, Govind Kashyap, Manish Tiwari, Thashmitha Muthanna, Rakesh Kini, Shashi Bhushan Nagar, Pratibhanu Singh Kharola, Chandrashekhar A Chakalabbi, Sriharikiran Gottipati and Palash Maheshwari.

[Read Judgment]