Supreme Court Clarifies Limits of Execution Proceedings Against Directors During IBC Moratorium

In Ansal Crown Heights Flat Buyers Assn. v. Ansal Crown Infrabuild Pvt. Ltd. and Others, the Hon’ble Supreme Court of India (Supreme Court) addressed the critical issue of whether persons who were directors/promoters of a judgment-debtor company could be brought within the net of execution on the premise of their corporate positions, despite not being parties to the final decree.

The appeal before the Hon’ble Supreme Court arose from the National Consumer Disputes Redressal Commission’s (NCDRC) order which dismissed execution applications against the directors of Ansal Crown Infrabuild Pvt. Ltd. (ACIPL). While the NCDRC had allowed consumer complaints regarding the project in 2022, it had specifically directed the proceedings to continue solely against ACIPL, dropping the directors from the memo of parties at the admission stage in 2018.

Owing to ACIPL not complying with the order of the NCDRC, the Appellant, an association of flat buyers which had entered into Flat Buyer Agreements with ACIPL for units in Ansal Crown Heights, initiated proceedings for execution. However, during this time, CIRP having been initiated under the Insolvency and Bankruptcy Code, 2016 (IBC) against ACPIL, a moratorium had come into force under Section 14 of the IBC. Upon revival of the company, the Appellant pressed the execution applications against the directors and promoters of the judgment-debtor company. NCDRC dismissed the execution applications, holding that the original order was executable only against ACIPL as the sole respondent.

The Hon’ble Supreme Court, while dismissing the appeal, held as follows:

1. Execution must strictly conform to the decree and cannot be employed to shift or enlarge liability to bind persons who were not parties to the decree.

2. The Consumer Protection Act envisages a complete adjudicatory process involving notice, pleadings, opportunity to contest, leading of evidence, and recorded findings of fact and law, which were never undertaken regarding the directors in this case.

3. A clear distinction must be maintained between a company and its shareholders/directors; liability remains confined to the corporate entity unless personal guarantees were furnished. In the current case, despite the CIRP, no material had been placed on record to attract the application of Section 14(3) of the IBC.

4. The doctrine of piercing the corporate veil is an exceptional measure requiring specific pleadings and findings of fraud, which the Appellant failed to establish.

The ruling has reaffirmed the protection of corporate directors and promoters from personal liability for company debts unless specific legal foundations are laid during the trial stage. Ultimately, the Hon’ble Supreme Court clarified that while directors are not shielded by a company’s moratorium, they are also not “judgment debtors” by default.