Moratorium Ordered U/Sec.14 IBC Does Not Apply to Proceedings against Directors/Management of Corporate Debtor

The Supreme Court stated that the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code does not apply to the Corporate Debtor's Directors and management.

The court noted that because it only relates to the Corporate Debtor and its directors/management, proceedings could continue.

In the case of Anjali Rathi Vs Today Homes & Infrastructure Pvt. Ltd, SLP (C) 12150 of 2019 | 8 September 2021, the petitioners in this case, who were house buyers in a group housing project, had filed a complaint with the National Consumer Dispute Redress Commission against Today Homes & Infrastructure Pvt. Ltd., requesting a return of their money plus interest. Their claim was accepted by the NCDRC. The Managing Director has to be personally present throughout the execution processes, according to NCDRC. It took the matter to the Delhi High Court, which ordered that no coercive measures be employed against the Managing Director. The house buyers appealed the High Court's decision to the Supreme Court.

Following that, the NCDRC passed certain orders in the Execution Petition that were challenged in connected appeals before the Supreme Court. The Adjudicating Authority accepted the petition for a Corporate Insolvency Resolution procedure while the appeals were pending, and a moratorium was declared under Section 14 of the IBC. Simultaneously, the parties reached certain settlements in front of the Supreme Court. As a result, it was argued before the court that, because the moratorium declared in respect of the Corporate Debtor continues to function under Section 14 IBC, no new proceedings can be brought against the Corporate Debtor, nor can existing ones be continued. In this context, the bench observed:

“At this juncture, we must however clarify the right of the petitioners to move against the promoters of the first respondent Corporate Debtor, even though a moratorium has been declared under Section 14 of the IBC. In the judgment in P. Mohanraj v. Shah Bros. Ispat (P) Ltd., a three-judge Bench of this Court held that proceedings under Section 138 and 141 of the Negotiable Instruments Act 1881 against the Corporate Debtor would be covered by the moratorium provision under Section 14 of the IBC. However, it clarified that the moratorium was only in relation to the Corporate Debtor (as highlighted above) and not in respect of the directors/management of the Corporate Debtor, against whom proceedings could continue.”

The court thus emphasized that the petitioners would not be prevented by the moratorium under Section 14 of the IBC from initiating proceedings against the promoters of the Corporate Debtor in relation to honoring the settlements reached before it.

Author:

Tejaswini Lala
Hyderabad
BBA-LLB student of Symbiosis Law School Hyderabad.