Moratorium under IBC applies only to corporate debtor, not promoters: SC

PTI New Delhi | Updated on September 17, 2021

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 and does not protect the promoters of the stressed company.

The top court’s observation came in an order related to builder-home buyers’ dispute arising out of non-completion of the housing project. A Bench of Justices DY 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.

Published on September 17, 2021

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