DATE OF JUDGMENT:
8 September 2021
CORAM:
- Hon’ble Justice DY Chandrachud
- Hon’ble Justice Vikram Nath
- Hon’ble Justice Hima Kohli
PARTIES:
- Petitioner: Anjali Rathi and Others
- Respondent: Today Homes & Infrastructure Pvt Ltd. and Others
SUBJECT
This judgement talks about the ambit of Section 14 of the Insolvency and Bankruptcy Code, which deals with moratorium. It is a period whereby all several parallel proceedings which are filed against the company under insolvency procedure stand suspended. The Supreme Court has ruled that the moratorium order under the IBC is not applicable to the proceedings of directors or management of corporate debtors.
OVERVIEW
- The petitioners were home buyers in a housing project situated in Sector 76, Gurgaon. The first respondent sold the houses of the buyers to them. The agreement included a clause stating that the home buyers were supposed to get possession of the apartments within a period of 36 months.
- The petitioners claimed that the project was abandoned. They filed a case before the NCDRC (National Consumer Dispute Redressal Commission) seeking a refund of their investment with interest.
- The NCDRC allowed the claim of the home buyers on July 12, 2018, and directed the first respondent to pay the principal amount plus 12 percent interest from the deposit date, within four weeks. The proceedings against Today Homes were initiated under Section 9 of the IBC, and the CIRP (Corporate Insolvency Resolution Process) began under the Adjudicating Authority and a moratorium was declared under Section 14 of the Code.
- The NCDRC had asked the Managing Director to be present. The Delhi High Court directed that no coercive action can be taken against him. Petitioners challenged this order by approaching the Supreme Court.
RELEVANT PROVISIONS
- Section 14 of the Insolvency and Bankruptcy Code- On the date of insolvency, the Adjudicating Authority can order to prohibit the enforcement of pending suits or proceedings relating to corporate debtors under this section.
- Section 9 of the Insolvency and Bankruptcy Code- It provides for application for initiation of Corporate Insolvency Resolution Process by operational creditor. If the operational creditor does not receive payment from the corporate debtor or notice of the dispute after a period of 10 days of notice delivery/payment invoice, the operational creditor may file an application before the Adjudicating Authority for initiating a Corporate Insolvency Resolution Process.
ISSUE
- Does moratorium under Section 14 apply to promoters/ directors of a corporate debtor?
ANALYSIS
- The counsel for the petitioners submitted that the promoters of the corporate debtor should be held personally responsible for the settlements that were reached during the course of the execution proceedings passed by the NCDRC.
- Reliance was placed on the resolution plan which mentioned that the former management, promoters, directors, officers, employees, and workmen of the company who were in charge on or before the CIRP, shall continue to be liable for the debts, claims, obligations, and penalties arising out of any suit, proceedings, notices, orders, etc.
- From the respondent's side it was submitted that since the moratorium in respect of the Corporate Debtor has been declared, no new proceedings or pending ones can be initiated against the Corporate Debtor.
- The Court upheld the right of home buyers to initiate proceedings against the first respondent, observing that despite the moratorium being declared under Section 14, the moratorium was only in relation to corporate debtor and not in relation to the management and directors of the corporate debtor. Proceedings may continue against them.
CONCLUSION
Section 14 of the IBC does not apply to the promoters of the corporate debtor, as they would not be prevented from proceeding against them in connection with honouring the settlement agreements reached by the Court.
Click here to download the original copy of the judgement
Hope you enjoyed reading this judgement. Here are a few questions for you, let us know about your answers in the comments section-
- What do you understand by moratorium?
- Can promoters of the corporate debtor be held personally responsible for the settlements that were reached during the execution proceedings?
