The Supreme Court has clarified that the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC) protects only the corporate debtor and does not automatically extend to promoters, directors, associated companies, or landowners. The consumer proceedings can continue against such parties even when insolvency proceedings are pending against the developer company.
The Bench of Justice Vikram Nath and Justice Sandeep Mehta partly allowed the appeals filed by homebuyers and directed the National Consumer Disputes Redressal Commission (NCDRC) to resume hearing the consumer complaint against respondents other than the corporate debtor.
The appellants were among several homebuyers who had booked residential apartments in the “Mantri Manyata Energia” housing project. Agreements for sale and construction were executed in 2016, under which possession of the apartments was contractually promised on or before December 31, 2018. Despite paying substantial portions of the sale consideration, the homebuyers alleged that the developer failed to complete the project or hand over possession within the stipulated timeline.
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Consequently, the homebuyers approached the NCDRC in 2023 alleging deficiency in service and unfair trade practices against the developer company, its associated company, promoters, directors, and landowners.
During the pendency of the consumer complaint, the National Company Law Tribunal (NCLT), Bengaluru, admitted insolvency proceedings against the developer company under Section 9 of the IBC and initiated the Corporate Insolvency Resolution Process (CIRP). This automatically triggered the moratorium under Section 14 of the IBC.
Following the commencement of CIRP, the homebuyers requested the NCDRC to continue the proceedings against the remaining respondents—including promoters, directors, the associated company and landowners—even if the complaint against the corporate debtor remained stayed because of the statutory moratorium.
However, the NCDRC rejected the applications, holding that the alleged liability could not be independently examined against the other respondents while the proceedings against the developer company stood suspended. The Commission adjourned the complaint indefinitely.
The principal issue before the Supreme Court was whether the NCDRC was justified in refusing to proceed against respondents who were not themselves corporate debtors merely because insolvency proceedings had commenced against the developer company.
The Court emphasized that the statutory language of Section 14 is clear and limited. The moratorium applies only to the corporate debtor undergoing insolvency resolution and cannot be expanded by judicial interpretation to cover other persons unless the statute expressly provides so.
The Bench observed that extending the protection beyond the corporate debtor would amount to enlarging the scope of the moratorium contrary to legislative intent.
The Court relied upon its earlier decisions, including P. Mohanraj v. Shah Brothers Ispat Pvt. Ltd., where it had held that the IBC moratorium applies only to the corporate debtor and does not shield natural persons from legal proceedings.
It also referred to Ansal Crown Heights Flat Buyers Association v. Ansal Crown Infrabuild Pvt. Ltd., where the Supreme Court had ruled that promoters and directors do not receive the benefit of the corporate debtor’s moratorium and consumer proceedings can continue against them.
Further relying on Saranga Anilkumar Aggarwal, the Court reiterated that the protective sweep of a moratorium must remain confined within the statutory framework and cannot be widened in a manner that defeats remedies available under consumer protection laws.
The Supreme Court found fault with the reasoning adopted by the NCDRC. It noted that while the Commission itself had observed that liability had not yet been determined, it simultaneously concluded that the alleged deficiency in service pertained only to the corporate debtor.
According to the Court, this amounted to deciding the merits of the dispute at the interlocutory stage without conducting a full adjudication. The only question before the NCDRC was whether proceedings could legally continue against respondents who were not protected by the moratorium—not whether they were ultimately liable.
The Bench observed that in the absence of any statutory prohibition protecting respondents other than the corporate debtor, the Commission was duty-bound to adjudicate the complaint against them on merits instead of foreclosing the inquiry at the threshold.
Allowing the appeals in part, the Supreme Court set aside the NCDRC’s order rejecting the interlocutory applications. It directed the Commission to resume hearing Consumer Complaint No. 13 of 2023 against respondents other than the corporate debtor and determine their liability in accordance with law.
At the same time, the Court clarified that proceedings against the developer company itself would continue to remain suspended in view of the moratorium under Section 14 of the IBC until permitted by the insolvency framework.
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