The Supreme Court has held that a moratorium under Section 14 of the IBC is confined to the corporate debtor alone and cannot be extended to shield other respondents who are not themselves protected by any statutory moratorium. Therefore, where a consumer complaint is pending against multiple parties, the mere commencement of CIRP against one corporate debtor does not justify freezing or indefinitely adjourning the proceedings against the remaining non-corporate-debtor respondents. Essentially, the Court has reaffirmed that the moratorium under Section 14 of the IBC is limited to the corporate debtor and cannot be automatically extended to directors, promoters, associated entities, or landowners.
The Court also laid down that an adjudicatory forum cannot refuse to proceed against non-protected parties by prematurely assuming that no liability can arise against them, especially when that very issue remains to be decided. The existence or absence of privity, maintainability, or independent obligation under the agreements are matters for adjudication on merits and cannot be used at the interlocutory stage to shut down the proceedings altogether against such respondents.
A Two-Judge Bench comprising Justice Vikram Nath and Justice Sandeep Mehta made it clear that the scope of the moratorium cannot be expanded beyond the statute. It observed that Section 14 applies only to the corporate debtor and does not automatically protect other persons or entities such as subsidiary companies, directors, managers, promoters, or personal guarantors unless the law specifically says so. Referring to earlier precedents, the Court reiterated that proceedings can continue against non-corporate-debtor parties even if the corporate debtor itself is protected by moratorium.
The Court found the NCDRC’s approach internally inconsistent. On the one hand, the Commission had said that liability for deficiency in service was yet to be determined. On the other hand, it had effectively concluded that the alleged deficiency was attributable only to Respondent No. 1 and therefore no proceedings could continue against Respondent Nos. 2 to 7. According to the Supreme Court, that meant the NCDRC had prematurely decided an issue that was still to be adjudicated on merits.
The Court further observed that, at the stage of deciding the interlocutory applications, the correct question was not whether Respondent Nos. 2 to 7 were ultimately liable, but only whether there was any legal bar to continuing the complaint against them. Since no moratorium operated in their favour, the NCDRC ought to have proceeded with the complaint against them and then decided, after considering rival pleadings and objections, whether any liability could be fastened on them.
Briefly, the appeals arose from an NCDRC order in Consumer Complaint case, where the appellants were homebuyers in the “Mantri Manyata Energia” project, developed by Respondent No. 1, and they had entered into construction and sale arrangements in 2016. Under those agreements, possession was to be delivered on or before Dec 31, 2018. According to the homebuyers, despite making substantial payments and receiving repeated assurances, possession was not handed over within time, leading them and other buyers to file a consumer complaint alleging deficiency in service and unfair trade practices against Respondent Nos. 1 to 7.
During the pendency of the consumer complaint, the NCLT, Bengaluru Bench, admitted a Section 9 IBC application against Respondent No. 1 on Aug 23, 2024 and commenced CIRP, which triggered a moratorium under Section 14 of the IBC against that corporate debtor. In response, the appellants moved interlocutory applications before the NCDRC requesting that, even if the complaint could not proceed against Respondent No. 1 because of the moratorium, it should still continue against Respondent Nos. 2 to 7, including the associated company, promoters/directors, and landowners.
The NCDRC rejected those applications and adjourned the consumer complaint sine die. It took the view that the liability of Respondent Nos. 2 to 7 could not be independently examined at that stage because the moratorium was operating against Respondent No. 1, and it further reasoned that the alleged deficiency related only to Respondent No. 1 since the agreements were executed with that entity.
