Director Liable for Non-Compliance with Consumer Court Order Even After Resignation & During IBC Moratorium: NCDRC - 2025-07-27

Director's Liability for Non-Compliance Persists Post-Resignation and During Moratorium, Rules NCDRC

New Delhi – The National Consumer Disputes Redressal Commission (NCDRC) has delivered a significant ruling, clarifying that directors of a company cannot escape penal action for non-compliance with consumer court orders even if they have resigned or if the company is under a corporate insolvency moratorium. The Commission held that the offence of non-compliance is a continuing one, and liability attaches to those who were directors when the default occurred and continued.

The decision was rendered by a bench comprising Dr. Inder Jit Singh (Presiding Member) and Dr. Justice Sudhir Kumar Jain (Member) in an appeal filed by Sudheschandra, a former director of M/s Ramnath Developers Private Limited.

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Background of the Case

The case stemmed from execution proceedings filed by a homebuyer, Madat Ali Noor Mohammad Gilani, to enforce a consumer court order dated June 18, 2018, against M/s Ramnath Developers. The appellant, Sudheschandra, who was a director at the time the order was passed and remained so until January 23, 2020, filed an application before the Maharashtra State Consumer Commission to have his name removed from the enforcement proceedings.

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Key Arguments

Appellant's Position (Sudheschandra): - He argued that he should be discharged from the proceedings as he had resigned from his directorship in January 2020. - He contended that the company had been placed under a moratorium by the National Company Law Tribunal (NCLT) under Section 14 of the Insolvency and Bankruptcy Code, 2016 (IBC), which stays all legal proceedings against the corporate debtor. - He claimed that an Interim Resolution Professional (IRP) was now managing the company, and he could neither represent the company nor be held personally liable.

Respondent's Position (The Homebuyer): - The homebuyer countered that the proceedings under Section 27 of the Consumer Protection Act, 1986, are penal in nature, not civil recovery suits. - It was argued that the IBC moratorium does not shield directors from penal liability for the company's failure to comply with court orders. - The respondent asserted that the appellant was a director when the company defaulted on the consumer court's order and was therefore directly responsible.

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Commission's Legal Analysis and Precedents

The NCDRC undertook a comprehensive review of legal precedents to arrive at its decision. The Commission affirmed the State Commission's finding, which had relied on the Supreme Court's judgment in Anjali Rathi Vs. Today Homes , establishing that a moratorium does not prevent proceedings against a company's promoters.

The NCDRC extensively quoted its own larger bench ruling in Rajnish Kumar Rohatgi & Anr. v. M/s. Unitech Limited & Anr. , which laid down the principles for director liability under Section 27 of the Consumer Protection Act. The key takeaways from the Rohatgi case were: - The offence of non-compliance is committed on the date the order is passed and continues until it is fully complied with. - Directors and other officers responsible for the company's business at the time of the offence are liable for punishment.

The Commission also cited several recent Supreme Court judgments, including Ansal Crown Heights Flat Buyers Association (2024) , which clarified:

"Therefore, we are of the view that only because there is a moratorium under Section 14 of the IBC against the company, it cannot be said that no proceedings can be initiated against the opposite party Nos. 2 to 9 (the respondent Nos. 2 to 9) for execution, provided that they are otherwise liable to abide by and comply with the order, which is passed against the company. The protection of the moratorium will not be available to the directors/officers of the company."

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Pivotal Excerpts from the Judgment

Summarizing the legal position, the NCDRC stated:

"If a person was the Director of JD Company at any time on or after the date of decree, he would continue to be liable for penal action under Section 27 of Consumer Protection Act, 1986/ Section 72 of Consumer Protection Act, 2019 notwithstanding that he may have now ceased to be such Director."

The Commission further clarified the nature of the liability:

"It is made clear that the Appellant herein is not liable in his personal capacity and his personal assets cannot be attached for satisfaction of the decree against the JD Company. His liability for penal action...is in his capacity as Director of the Company during the relevant period when the offence was committed and continued to be committed."

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Final Decision and Implications

The NCDRC dismissed the appeal, upholding the State Commission's order. The bench concluded that since the appellant was a director for nearly one and a half years after the consumer court's decree was passed, he remains liable for the penal consequences of non-compliance under the Consumer Protection Act.

This judgment serves as a strong reminder to corporate directors that their duty to ensure compliance with judicial orders is a continuing obligation. Resignation or the initiation of insolvency proceedings against the company will not automatically absolve them from accountability for defaults that occurred under their watch.