SC: Moratorium Ordered U/S 14 IBC Does Not Apply To Proceedings In Respect Of Management Of Corporate Debtor

Name of the Case

Anjali Rathi v. Today Homes & Infrastructure Pvt. Ltd.

Key Takeaways

• The petitioners had approached the Court seeking refund of the money with interest given to the respondents.
• The Court analysed a previous judgment of the Apex Court and held that even though proceedings cannot be initiated against the management, it can be done against the Corporate Debtor when moratorium is issued.
• The petitioners where given the freedom to proceed against the promoter of the Corporate Debtor.

Background

• The petitioners were home buyers in a group housing project who approached the National Consumer Dispute Redressal Commission against the respondents seeking refund of the money with interest which was allowed.
• The proceedings of NCDRC required the presence of the Managing Director which was challenged before the Delhi HC.

Grounds of Challenge

• The HC issued directions that no coercive steps should be taken against the MD which was challenged before the Supreme Court.
• The NCDRC had passed certain orders in the Executive Petition after the appeal.
• While the appeals were pending, the Adjudicating Authority admitted Corporate Insolvency Resolution Process (CIRP) after which the moratorium was declared pursuant to Section 14 of IBC.
• Meanwhile parties were able to reach a settlement before the Supreme Court of India. Therefore, it was contended that new as well as old proceedings must be stayed.

Court’s Observation

• When moratorium is ordered under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), it would apply only to the Corporate Debtor and not in respect of the Corporate Debtor’s management.
• The Court clarified that the petitioner has a right to file a case against the promoter even when the moratorium is in force.
• The Court cited the case of P. Mohanraj v. Shah Bros. Ispat (P) Ltd., in which the court said that cases under Section 138 and 141 of Negotiable Instruments Act, 1881, are covered under moratorium but the moratorium is only applicable in respect of the Corporate Debtor.
• The petitioners can initiate proceedings against the promoters of the Corporate Debtor to honor the settlements reached.

Do you think the management should be made liable too? If yes, under what principle? Tell us in the comments section below!