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Supreme Court Rules Does Not Protect Promoters From By Homebuyers
In a significant verdict for distressed homebuyers, the has ruled that an imposed on a company under the does not grant immunity to its promoters and directors against . The bench, comprising Justice Vikram Nath and Justice Sandeep Mehta, set aside an order by the that had stayed against the directors and promoters of a Bengaluru-based real estate developer.
Disputes Over Delayed Possession
The appellants, a group of homebuyers, had booked residential apartments in the ‘Mantri Manyata Energia’ project in , with a promised possession date of . Following persistent delays and failure to deliver the units, the homebuyers initiated a consumer complaint before the NCDRC. During these proceedings, the admitted an insolvency application against the developer, triggering a moratorium under . Consequently, the NCDRC , citing the protection afforded by the insolvency process.
The Legal Contest
The homebuyers challenged this move, arguing that the statutory moratorium applies strictly to the ''—the company itself—and not to the individuals managing its affairs. While the developers argued that the was tied exclusively to the corporate entity, the appellants maintained that the promoters and directors could face independent liability for their roles in the project's failure.
Interpreting the Protective Shield
The Supreme Court emphasized that the protective sweep of a moratorium must be confined to the statutory limits. The Court noted that was designed to preserve the company's assets during the , not to provide a blanket immunity to every stakeholder associated with the entity. Relying on its previous judgments, the Court clarified that neither the nor the judiciary can artificially expand the scope of the moratorium beyond what is explicitly stated in the legislation.
Key Observations
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"The protective sweep of a moratorium must remain within the four walls as carved out by the statute. It ought not be expanded in a manner that stultifies remedies envisaged under the , unless expressly provided."
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"A plain reading of the provision makes it clear that the moratorium operates against the alone. No other category, whether it be any subsidiary company, any managers/directors, etc. can be added to it unless specifically provided."
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"The object of the Code is to facilitate the resolution process and not to eclipse the statutory remedies."
Implications for Homebuyers
By clarifying that can continue against promoters and directors, the Supreme Court has removed a major procedural hurdle for homebuyers seeking accountability. The Court held that the NCDRC’s refusal to hear the case prematurely foreclosed the inquiry into whether secondary parties, such as promoters, could be held liable. The NCDRC has now been directed to resume the hearing of the consumer complaint against the remaining respondents while maintaining the stay only against the currently undergoing insolvency. This ruling ensures that insolvency law does not act as an unintended shield for management in cases of or .
