The Hon'ble Supreme Court in its recent decision in Anjali Rathi and Ors. v. Today Homes & Infrastructure Pvt. Ltd. and Ors.1 has held that a moratorium declared under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC) applies only to proceedings in respect of the corporate debtor and not its directors or management. In this article, we briefly discuss the facts and circumstances which led to the aforementioned judgment of the Hon'ble Supreme Court.
Homebuyer agreements (Agreements) were entered into between the eleven petitioners and the first respondent. The Agreements envisaged that the possession of the apartments would be delivered within a period of 36 (thirty-six) months. The petitioners in the instant matter were aggrieved as the developer abandoned the project. As a result, several rounds of litigation ensued amongst the parties, including insolvency proceedings initiated by an operation creditor against the respondent. The National Company Law Tribunal (NCLT) admitted the petition under Section 9 of the IBC, following which the Corporate Insolvency Resolution Process (CIRP) was initiated and a moratorium was declared under Section 14 of the IBC. Thereafter, the petitioners participated in the proceedings before the resolution professional (RP) and the Committee of Creditors (CoC). The CoC approved the resolution plan submitted by the consortium of homebuyers, and the proceedings were pending before the NCLT awaiting further approval under Section 31(1) of the IBC. The petitioners urged that the Hon'ble Supreme Court should direct that the personal properties of the promoters be attached given the provisions contained in the resolution plan. Hence, the present matter.
The Hon'ble Supreme Court, at the outset, held that the resolution plan is still to be approved by the NCLT under Section 31(1) of the IBC. Hence, at this stage, when the resolution plan awaited approval, it would not be appropriate to issue a direction allowing the personal properties of the promoters to be attached. Accordingly, the NCLT was directed to dispose of the approval of the application within six weeks from the receipt of a certified copy of the present order. Further, the Hon'ble Supreme Court held that since the moratorium under Section 14 of the IBC was declared in respect of the corporate debtor, no new proceedings could be undertaken or pending ones could be continued against the corporate debtor. However, the Apex Court clarified that the petitioners had the right to move against the promoters of the corporate debtor, even though a moratorium had been declared under Section 14 of IBC.
The Hon'ble Supreme Court referred to the judgment in P. Mohanraj v. Shah Bros. Ispat (Pvt.) Ltd.2 wherein it was held that the moratorium under Section 14 of the IBC was only in relation to the corporate debtor and not in respect of its directors and management, against whom proceedings could continue. However, as held earlier, the Apex Court could not issue such a direction relying on the resolution plan, given that it is still pending before the NCLT.
The petitioners were granted the liberty to take recourse to the remedies available in law after the decision of the NCLT on the approval of the application under Section 31(1), and subject to the consequences thereafter.
The object of a moratorium is to ensure that the financially ailing corporate debtor is brought back on its feet to continue as a going concern. The IBC, therefore, segregates the interests of the corporate debtor from the interests of the management. The Apex Court in P. Mohanraj dictum had earlier clarified that the liability of the corporate debtor's actions prior to the commencement of the CIRP must be affixed only upon the directors or management responsible for the deterioration of the financial health of the corporate debtor. The present judgment has rightly reiterated the law laid in P. Mohanraj and held that petitioners would not be barred from proceedings against the corporate debtor's promoters.
1 Anjali Rathi and Ors. v. Today Homes & Infrastructure Pvt. Ltd. and Ors., SLP (C) No. 12150 of 2019.
2 P. Mohanraj v. Shah Bros. Ispat (Pvt.) Ltd., 12 (2021) 6 SCC 258.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.