2024 (2) TMI 23 - SC - Insolvency and Bankruptcy

Directors remain liable for execution of orders despite company's Section 14 IBC moratorium protection

SC held that moratorium under Section 14 of IBC against a company does not extend protection to its directors/officers. In a case where home buyers sought ... Moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Liability of directors and officers during corporate insolvency - Executability of orders against promoters despite moratorium - Second proviso to sub Section (1) of Section 32A of the IBC - Application of P. Mohanraj and Anjali RathiMoratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016 - Liability of directors and officers during corporate insolvency - Executability of orders against promoters despite moratorium - Whether the moratorium under Section 14 of the IBC bars initiation or continuation of execution proceedings against directors/officers/promoters of a corporate debtor. - HELD THAT: - The Court held that the moratorium under Section 14 IBC operates in respect of the corporate debtor and does not automatically extend protection to directors, officers or promoters so as to preclude proceedings against them where they are otherwise liable to comply with an order passed against the company. The Court applied and approved the reasoning in P. Mohanraj and Anjali Rathi that, notwithstanding the moratorium, proceedings may be continued or instituted against natural persons who are statutorily or otherwise liable. Consequently, the existence of moratorium against the company does not, by itself, preclude execution against the opposite party individuals named in the execution application, if they are liable to abide by the decree. [Paras 8, 9, 10, 11]Moratorium under Section 14 does not bar execution proceedings against directors/officers/promoters who are otherwise liable; execution may proceed against them.Executability of orders against promoters despite moratorium - Second proviso to sub Section (1) of Section 32A of the IBC - Whether the execution application could be continued against the individual opposite parties in the present proceedings and what further steps are permitted. - HELD THAT: - The Court set aside the National Commission's orders declining to proceed against the individual opposite parties and remitted the execution application for fresh consideration. The Court observed that the National Commission had not adjudicated whether those individuals were under an obligation to implement the directions made against the company and therefore directed that execution proceed against them. It also permitted those individuals to raise contentions and file additional objections with supporting documents on the question of executability and liability as against them. The determination of whether the opposite party individuals are bound to implement the order is to be decided by the National Commission in accordance with law. [Paras 12, 13, 14]Impugned orders set aside; execution remitted to the National Commission to continue against the individual opposite parties, who may file objections and have their liability determined afresh.Final Conclusion: Appeals partly allowed; the National Commission's orders declining to proceed against the individual opposite parties are set aside and the execution applications are remitted for continuation against those individuals, who may raise objections and have their liability determined in accordance with law. Issues involved: Interpretation of the provisions of the Insolvency and Bankruptcy Code, 2016 regarding the liability of directors/officers of a company under moratorium.Summary:1. The National Consumer Disputes Redressal Commission directed a developer to complete a project and hand over possession to homebuyers, with an option for refund. Appellants sought execution of this order against the company and individuals. 2. The National Commission held that the decree could not be executed against the company due to the moratorium under Section 14 of the IBC. It declined to proceed against the individuals as they were not parties in the main complaint.3. Appellants argued that there is no prohibition in the IBC against proceeding against directors/officers of a company under moratorium.4. Citing the IBC provisions and relevant case laws, appellants contended that the National Commission's view was erroneous.5. Respondents argued that the individuals were not liable as per the order sought to be executed and referenced a previous case allowing action against promoters due to a settlement.6. The National Commission did not address whether the individuals were obligated to comply with the directions against the company.7. Referring to previous judgments, the Supreme Court held that the moratorium under Section 14 of the IBC does not prevent proceedings against directors/officers if they are liable to comply with the order against the company.8. The impugned judgments were set aside, and the execution application was remitted to the National Commission to proceed against the individuals.9. The individuals could raise objections and present evidence on their liability, which would be decided by the National Commission.10. The appeals were partly allowed, and pending applications were disposed of.