2021 (9) TMI 948 - SC - Insolvency and Bankruptcy

Supreme Court grants liberty to pursue remedies under IBC, emphasizes moratorium continuation

The Supreme Court disposed of the case, granting liberty to the petitioners to pursue remedies after the decision of the Adjudicating Authority on the ... Moratorium under Section 14 of the Insolvency and Bankruptcy Code - Liability of directors and promoters despite moratorium - Approval of resolution plan under Section 31(1) of the IBC - Effect of pending approval on enforcement against promoters - Obligation of the Adjudicating Authority to decide approval applications expeditiouslyMoratorium under Section 14 of the Insolvency and Bankruptcy Code - Liability of directors and promoters despite moratorium - Whether the moratorium under Section 14 of the IBC bars proceedings against the promoters/directors of the corporate debtor. - HELD THAT: - The Court held that the statutory moratorium declared under Section 14 operates in relation to the corporate debtor and interdicted continuation or initiation of proceedings only against the corporate debtor. Reliance on the three-judge decision in P. Mohanraj v. Shah Bros. Ispat (paras. 102 and surrounding reasoning) establishes that while Sections 138/141 NI Act proceedings cannot be continued against the corporate debtor during CIRP, natural persons such as directors and promoters are not covered by the moratorium and remain amenable to proceedings. Applying that principle, the petitioners are not prevented by the Section 14 moratorium from initiating or continuing proceedings against the promoters of the first respondent in relation to enforcement of settlements reached before this Court. [Paras 14, 15]The moratorium under Section 14 does not bar proceedings against the promoters/directors of the corporate debtor; they may be proceeded against notwithstanding the moratorium.Approval of resolution plan under Section 31(1) of the IBC - Effect of pending approval on enforcement against promoters - Whether this Court should direct attachment of the personal properties of the promoters or otherwise enforce the NCDRC execution order at the present stage when the Resolution Plan awaits approval under Section 31(1). - HELD THAT: - The Court declined to issue directions for attachment of the promoters' personal properties or to give effect to the NCDRC's execution direction relying on a Resolution Plan that has not yet been approved by the Adjudicating Authority. The judgment explains that consequences flowing from a Resolution Plan arise only after approval under Section 31(1) of the IBC; until such approval is granted, it would be inappropriate for the Court to order enforcement steps against the promoters premised on the unapproved plan. Petitioners retain remedies available in law after the Adjudicating Authority decides on approval, subject to statutory consequences thereafter. [Paras 11, 12, 13]No direction for attachment or enforcement against promoters was issued at this stage; such relief may be pursued after the Resolution Plan is approved by the Adjudicating Authority.Obligation of the Adjudicating Authority to decide approval applications expeditiously - Approval of resolution plan under Section 31(1) of the IBC - Whether the Adjudicating Authority should be directed to dispose of the application for approval of the Resolution Plan and, if so, within what time frame. - HELD THAT: - In view of the pendency of the approval application under Section 31(1), and the practical consequences for the home buyers and other stakeholders, the Court directed the National Company Law Tribunal (Adjudicating Authority) to dispose of the application for approval of the Resolution Plan expeditiously. The Court specified a preferred timeline, directing the NCLT to decide the application preferably within six weeks from receipt of a certified copy of the order, so that statutory consequences flowing from approval or rejection can follow without undue delay. [Paras 12]The Adjudicating Authority was directed to dispose of the application for approval of the Resolution Plan expeditiously, preferably within six weeks from receipt of a certified copy of this order.Final Conclusion: The petitions and appeals are disposed of: the moratorium under Section 14 IBC does not bar proceedings against promoters/directors, but this Court will not order attachment or enforcement against promoters while the Resolution Plan remains unapproved; the NCLT is directed to decide the approval application under Section 31(1) expeditiously (preferably within six weeks), and petitioners have liberty to pursue available remedies after the Adjudicating Authority's decision. Issues Involved:1. Delay in possession of apartments and abandonment of the project by the developer.2. Refund of money with interest as directed by the NCDRC.3. Execution proceedings under the Consumer Protection Act.4. Proceedings before the Delhi High Court and NCDRC.5. Initiation of corporate insolvency resolution process (CIRP) under the Insolvency and Bankruptcy Code (IBC).6. Approval of the Resolution Plan by the Committee of Creditors (CoC) and National Company Law Tribunal (NCLT).7. Applicability of the moratorium under Section 14 of the IBC.8. Personal liability of the promoters of the Corporate Debtor.Detailed Analysis:1. Delay in Possession and Abandonment:The petitioners, home buyers in a group housing project named Canary Greens in Sector 73, Gurgaon, entered into agreements with the first respondent, which stipulated that possession of the apartments would be delivered within thirty-six months, i.e., by 2014. However, the project was abandoned by the developer, leading to the grievance of the petitioners.2. Refund of Money with Interest:The petitioners sought a refund of their money with interest and approached the National Consumer Dispute Redressal Commission (NCDRC). On 12 July 2018, the NCDRC directed the first respondent to refund the principal amount paid by the petitioners along with 12 percent interest from the date of deposit and costs within four weeks. The order provided for an enhanced interest rate of 14 percent if the amount was not paid within the stipulated period. This order attained finality.3. Execution Proceedings:The petitioners initiated execution proceedings under Sections 25 and 27 of the Consumer Protection Act, 1986. The NCDRC issued notice on 7 September 2018. However, the execution proceedings were adjourned multiple times, and certain settlement terms offered by the judgment debtor were not acceptable to the decree holders. Eventually, the Managing Director of the first respondent was directed to appear personally, which led to the first respondent challenging the order before the Delhi High Court. The Delhi High Court issued a direction that no coercive steps shall be taken against the Managing Director.4. Proceedings Before Delhi High Court and NCDRC:On 1 April 2019, the NCDRC directed the judgment debtor to refund the entire amount along with interest and costs within two weeks, failing which the Director would be taken into custody, and properties would be attached. This order was contingent upon the Delhi High Court's decision. The petitioners appealed to the Supreme Court against this final direction of the NCDRC.5. Initiation of CIRP under IBC:On 31 October 2019, proceedings were initiated against the first respondent before the National Company Law Tribunal (NCLT) under Section 9 of the Insolvency and Bankruptcy Code (IBC) by an operational creditor. The NCLT admitted the petition, initiating the Corporate Insolvency Resolution Process (CIRP) and declaring a moratorium under Section 14 of the IBC. This led to a Special Leave Petition by certain homebuyers, alleging that the insolvency application was filed merely to stall the refund.6. Approval of Resolution Plan:The petitioners lodged their claims before the Resolution Professional (RP), and two Resolution Applicants came forth. The Committee of Creditors (CoC), consisting of home buyers, approved the Resolution Plan submitted by a consortium of home buyers by a vote of 96.93 percent. The RP filed an application for approval of the Resolution Plan before the Adjudicating Authority, which is pending decision.7. Applicability of Moratorium under Section 14 of IBC:The moratorium declared under Section 14 of the IBC prohibits the institution or continuation of suits or proceedings against the corporate debtor, among other restrictions. The Supreme Court clarified that while the moratorium applies to the corporate debtor, it does not prevent proceedings against the promoters of the corporate debtor.8. Personal Liability of Promoters:The petitioners argued that the promoters of the Corporate Debtor should be held personally liable to honor the settlements. However, the Supreme Court noted that since the Resolution Plan is still pending approval, it would not be appropriate to issue such a direction at this stage. The Court directed the NCLT to dispose of the approval application expeditiously.Conclusion:The Supreme Court disposed of the Special Leave Petitions and the civil appeal, granting liberty to the petitioners to pursue remedies available in law after the decision of the Adjudicating Authority on the approval application. Pending applications were also disposed of. The Court emphasized the continuation of the moratorium under Section 14 of the IBC and clarified the right of the petitioners to initiate proceedings against the promoters of the Corporate Debtor.