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Providing relief to homebuyers grappling with the aftermath of real estate companies entering insolvency proceedings, the Supreme Court has clarified that the protection under the Insolvency and Bankruptcy Code (IBC) is not extended to promoters and directors of insolvent firms. The decision, handed down by a bench comprising Justices Abhay S Oka and Ujjal Bhuyan, comes in response to a plea filed by homebuyers of Ansal Crown Heights in Faridabad.
The National Consumer Disputes Redressal Commission (NCDRC) had previously rejected the homebuyers' plea for a refund, citing the company's involvement in IBC proceedings. The Supreme Court, however, ruled that the moratorium under Section 14 of the IBC, which includes a prohibition on the institution of suits and execution of judgments, does not shield directors and officers from legal proceedings.
Senior Advocate Bishwajit Bhattacharyya and lawyer Chandrachur Bhattacharyya, representing the homebuyers, argued that there is no explicit prohibition on proceedings against the directors and officers of a company undergoing a moratorium. The court agreed on this argument and said that the moratorium protection would not be available to these individuals.
The case in question involved the NCDRC directing the company to either complete the construction of flats in a time-bound manner or refund money to homebuyers. Subsequently, the company entered IBC proceedings, prompting the homebuyers to seek the execution of the refund order, which was initially denied by the NCDRC.
The Supreme Court, overturning the NCDRC's decision, cited previous judgments and reiterated that directors and officers remain liable to make the payment despite the moratorium. The court also granted the directors the opportunity to raise objections and contend that they are not bound to implement the order seeking execution.
This ruling establishes a precedent that directors and officers of insolvent companies can be held accountable, providing a glimmer of hope for homebuyers seeking solutions amid the complexities of insolvency proceedings in the real estate sector.
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