Directors/Officers of a company are Still liable even if the company is under a moratorium: Supreme Court
Case title: Ansal crown heights flat buyers association vs m/s. Ansal crown infrabuild Pvt. Ltd. & Ors.
Case no.: Civil Appeal No. 4481 of 2023
Decided on: 17.01.2024
Quorum: Hon’ble Justice Abhay S. Oka, Hon’ble Justice Ujjal Bhuyan.
FACTS OF THE CASE:
The National Consumer Disputes Redressal Commission (NCDRC) issued an order that is the basis for this appeal. It directs the Developer to finish the project in its entirety and give Association of Homebuyers members possession of the assigned flats or apartments within the time frame that the home buyers were given.
The appellants sought to execute this direction by filing execution applications. The developer is the company against which the National Commission issued the aforementioned directive. The aforementioned company is the subject of the proceedings under Section 9 of the Insolvency and Bankruptcy Code, 2016. The National Company Law Tribunal has admitted the petition filed against the company under Section 9 of the IBC. The appellants sought to carry out the National Commission’s directions against both the company and other respondents.
The National Commission decided that because of the moratorium under Section 14 of the IBC, the decree could not be implemented against the company and said it would be improper to carry out the same execution against the opposing parties Nos. 2 to 9 in light of the company’s moratorium. It was also noted that Nos. 2 to 9, the other parties opposing the execution application, were not involved in the primary complaint.
LEGAL PROVISIONS:
Section 9 of the Insolvency and Bankruptcy Code, 2016 deals with “Application for initiation of corporate insolvency resolution process by operational creditor.”
The section 32A(1) second provision states that “Provided further that every person who was a designated partner as defined in clause (j) of section 2 of the Limited Liability Partnership Act, 2008, or an officer who is in default, as defined in clause (60) of section 2 of the Companies Act, 2013, or was in any manner in charge of, or responsible to the corporate debtor for the conduct of its business or associated with the corporate debtor in any manner and who was directly or indirectly involved in the commission of such offence as per the report submitted or complaint filed by the investigating authority, shall continue to be liable to be prosecuted and punished for such an offence committed by the corporate debtor notwithstanding that the corporate debtor’s liability has ceased under this sub-section.”
ISSUES:
Whether the directors/officers of the company are liable while the company is under moratorium?
APPELLANTS CONTENTION:
The appellant argued that Section 14 of the IBC, which places a moratorium on actions against the company’s directors and officers, does not forbid such actions. Section 32A(1) of the IBC was also cited by the appellant. The court also decided that the directors’ and officers’ liability, if any, would continue despite the moratorium, based on its rulings in the P. Mohanraj v. Shah Bros. Ispat (P) Ltd. case. The court determined that the moratorium under Section 14 of the IBC would not prohibit the petitioners from initiating proceedings against the promoters of the first respondent Corporate Debtor in order to enforce the settlements reached before this Court in the case of Anjali Rathi and others vs. Today Homes and Infrastructure Pvt. Ltd. and Others.
RESPONDENTS CONTENTION:
The respondents contended that the order sought to be executed imposes no liability on respondent Nos. 2 to 9. According to the submission, the National Commission determined that respondent Nos. 2 to 9 were not parties to the main complaint.
Their main contention was that in the case of Anjali Rathi, this Court made a departure by allowing the appellants to proceed against the company’s promoters, who were only subject to a moratorium because they reached an agreement before this Court.
COURT ANALYSIS AND CONCLUSION:
The Court accepted the decision in P. Mohanraj’s case and allowed the appellants to proceed expressly against the company’s promoters despite the fact that the company was subject to a moratorium under Section 14 of the IBC.
The court ruled that just because the company is subject to a moratorium under Section 14 of the IBC, it cannot be said that no proceedings against respondent Nos. 2 to 9 for execution can be initiated, provided that they are otherwise obligated to abide by and comply with the order issued against it. The moratorium will not protect the company’s directors and officers.
The court remanded the execution application to the National Commission and overturned the contested rulings and orders. The execution of respondents from 2 to 9 to the execution application will go on.
“PRIME LEGAL is a full-service law firm that has won a National Award and has more than 20 years of experience in an array of sectors and practice areas. Prime legal fall into a category of best law firm, best lawyer, best family lawyer, best divorce lawyer, best divorce law firm, best criminal lawyer, best criminal law firm, best consumer lawyer, best civil lawyer.”
Written by – Surya Venkata Sujith