IBC Moratorium Applies Only To Corporate Debtor, Not Subsidiaries, Managers Or Directors: Supreme Court

The Supreme Court has held that the moratorium imposed under Section 14 of the Insolvency and Bankruptcy Code (IBC) during the Corporate Insolvency Resolution Process (CIRP) operates only against the corporate debtor and cannot extend to its subsidiary companies, managers, directors, personal guarantors or other respondents.

A Bench of Justices Vikram Nath and Sandeep Mehta set aside the National Consumer Disputes Redressal Commission’s (NCDRC) January 20, 2025 order, which had rejected an application filed by Tejas S Shah, Amisha T Shah and others seeking continuation of consumer proceedings against the remaining respondents, including Mantri Developers Pvt. Ltd.

The consumer complaint was filed in connection with residential apartments booked by the appellants in the ‘Mantri Manyata Energia’ project. They said possession of the apartments was to be handed over on or before December 31, 2018. However, despite substantial payment of the sale consideration and repeated assurances regarding completion of the project, possession was not delivered within the stipulated time.

During the pendency of the consumer complaint, the National Company Law Tribunal (NCLT), Bengaluru Bench, in 2024 admitted an application under Section 9 of the IBC against Respondent No.1, Mantri Technology Constellations Private Limited, now known as Buoyant Technology Constellations Private Limited. The NCLT consequently initiated CIRP against the company and imposed a moratorium under Section 14 of the IBC.

Section 14 of the IBC provides that once the insolvency process has begun and a moratorium is declared, the continuation of pending suits and proceedings against the corporate debtor, including execution proceedings, comes to an automatic halt. The object of the moratorium is to preserve the assets of the corporate debtor during the insolvency resolution process and facilitate an orderly resolution.

"The scope of the moratorium is statutory. It is not open either to the adjudicating authority or the Court to enlarge its ambit beyond what the statute contemplates. A plain reading of the provision makes it clear that the moratorium operates against the corporate debtor alone. No other category, whether it be any subsidiary company, any managers/ directors, personal guarantors etc. can be added to it unless specifically provided," the Bench said.

Why did the NCDRC stop the consumer proceedings?

The NCDRC had rejected the appellants’ applications, holding, among other things, that the liability of Respondent Nos. 2 to 7 could not be independently examined while the moratorium was operating against Respondent No.1. It consequently adjourned the consumer complaint sine die.

The NCDRC had also held that the alleged deficiency in service pertained only to Respondent No.1, as all agreements for construction and sale had been entered into between the appellants and Respondent No.1. It therefore concluded that the proceedings could not be split up to continue against the remaining respondents.

The Supreme Court, however, held that this approach was erroneous.

"In our view, this approach is erroneous. In the present case, Respondent No.1 alone is the corporate debtor against whom the CIRP has been initiated. No independent moratorium or independent protection operates in favour of Respondent Nos. 2 to 7. In the absence of any legal bar against continuation of proceedings qua the said respondents, the NCDRC was not justified in rejecting appellants’ prayer to proceed with the complaint against the rest of the respondents," the Bench said.

Court noted that the NCDRC had itself observed that the liability arising from the alleged deficiency in service was yet to be determined. It therefore could not have simultaneously concluded that the alleged deficiency was attributable only to Respondent No.1 and that the complaint could not proceed against the remaining respondents.

"The question was whether, in the absence of any moratorium operating in their favour, the consumer complaint could proceed against them," the Bench said.

Court held that, in the absence of any statutory bar, the NCDRC was required to adjudicate the complaint against the remaining respondents and determine, after considering their respective pleadings and objections, whether any liability could ultimately be fastened upon them.

"It was not open to the Commission to foreclose that inquiry at the interlocutory stage. The impugned order cannot be sustained as it declines to undertake the said exercise," the Bench said.

Liability of other respondents

The appellants’ counsel urged the Supreme Court to allow the consumer complaint and grant the reliefs claimed.

The Bench, however, declined to do so, noting that the respondents had raised several objections, including absence of privity of contract, maintainability of the complaint and absence of any independent obligation under the agreements.

Since those objections were yet to be decided by the NCDRC, the Supreme Court said it would not be appropriate for it to undertake that exercise for the first time in the appeal.

"Thus, we refrain from expressing any opinion on the merits of the rival contentions," the Bench said.

The Supreme Court accordingly partly allowed the appeal and directed the NCDRC to proceed with the consumer complaint against Respondent Nos. 2 to 7 in accordance with law.

Case Title: Tejas S Shah and Amisha T Shah and others Vs Mantri Technology Constellations Private Limited

Bench: Justices Vikram Nath and Sandeep Mehta

Date of Judgment: July 27, 2026