Moratorium under IBC applies only to corporate debtor not its promoters: SC
The Supreme Court has held that moratorium under provisions of Insolvency and Bankruptcy Code (IBC) which restrains initiation of any fresh proceedings or discontinuance of existing ones applies only to the Corporate Debtor but does not protect the promoters of the stressed company.
The top court observation came in an order related to builder-home buyers’ dispute arising out of non-completion of the housing project.
A Bench of Justices D Y Chandrachud, Vikram Nath and Hima Kohli allowed the home buyers to move against the promoters of the first respondent Corporate Debtor (Today Homes and Infrastructure Pvt Ltd), even though a moratorium has been declared under Section 14 of the IBC.
The Bench while referring to a verdict given earlier this year said that this court had held that proceedings under Negotiable Instruments Act against the Corporate Debtor would be covered by the moratorium provision under Section 14 of the IBC.
“However, it (earlier verdict) clarified that the moratorium was only in relation to the Corporate Debtor and not in respect of the directors/ management of the Corporate Debtor, against whom proceedings could continue”, it said in its order passed recently.
The Bench said, “We thus clarify that the petitioners (home buyers) would not be prevented by the moratorium under Section 14 of the IBC from initiating proceedings against the promoters of the first respondent Corporate Debtor in relation to honouring the settlements reached before this Court”.
It added that since the moratorium declared in respect of the Corporate Debtor continues to operate under Section 14 of the IBC, no new proceedings can be undertaken or pending ones continued against the Corporate Debtor.
The Bench noted that home buyers have urged it to direct that the personal properties of the promoters be attached in view of the provisions contained in the Resolution Plan.
It said, “The Resolution Plan is still to be approved by the Adjudicating Authority (National Company Law Tribunal) under the provisions of Section 31(1) of the IBC. Hence, at this stage, when the Resolution Plan awaits approval, it would not be appropriate for this Court to issue a direction of that nature”.
The Bench said that after the Resolution Plan is approved under the provisions of Section 31(1), consequences emanating from the statutory provision would ensue to the benefit of the home buyers.
“Hence, we have already directed that the NCLT shall dispose of the approval application filed on August 21, 2021, within a period of six weeks from the date of receipt of a certified copy of this order,” it said.